Brian Nixon, Chief Executive, Decom North Sea, UK
Brian Nixon, Chief Executive of Decom North Sea discusses the rationale behind the establishment of the association, the status of the upcoming decommissioning market in the North Sea, and its role in gaining more experience for the industry.
Decom North Sea, the industry forum for North Sea decommissioning, was formally established in April 2009. What was the rationale behind establishing Decom North Sea at that point in time and what has been achieved since its establishment?
The demand for an independent, dedicated North Sea decommissioning forum to enhance knowledge transfer and facilitate collaborative activities was confirmed by a major industry consultation exercise undertaken by the Scottish Enterprise Energy Team during 2008 and early 2009.
Naturally, the industry has been aware of decommissioning for generations but with continued innovation it has been able to defer the main program until now. The recognition in 2008/2009 was that a substantial program of decommissioning was about to start. During the consultation, many service companies, contractors and operators confirmed the demand for a dedicated decommissioning forum to unify the disparate clusters of bodies and initiatives in the North Sea decommissioning market, improve efficiency, contain costs, and increase business opportunities for its members.
Moreover, it was considered by the consulter’s that the UK would not likely have the complete capability or capacity to handle this program of work by itself. For that reason, Decom North Sea aims to really make this a venture that involves the European North Sea situated countries, with a view to not only increase the overall capacity by joint venturing and collaboration, but also to encourage complimentary skills, enhance innovation, and help the industry as a whole to grow. If we are really going to be successful at this then we have to realise that the work will not just be in the UK market—there is likely to be similar amounts of projects on the Norwegian, Danish and Dutch sectors as well, for example. Hence we are Decom North Sea and not Decom UK.
It is likely that future decommissioning projects could be grouped into logical geographical programm, which will of course give a more holistic approach to overall capacity as well as provide considerable benefits in terms of operational and cost efficiency.
Decom North Sea was funded initially with support from the UK Government’s Department of Energy and Climate Change, Highlands and Islands Enterprise and Scottish Enterprise. Having secured this initial funding to cover our initial establishment costs, the not-for-profit organisation is now privately funded purely from member’s subscriptions. The transition from public sector support to being self-sustainable was completed in merely 15 to 18 months.
Could Aberdeen be a centre of excellence for the decommissioning sector?
Aberdeen and the north east of Scotland plays a significant role in the UK oil and gas industry and the decommissioning sector will not differ significantly. Companies currently supporting oil and gas production operations in the northern and southern sectors of the North Sea are likely to be based in similar geographies as companies active in decommissioning.
Some companies are now bringing across experience from other industries in order to develop and strengthen their decommissioning operations. Is this a trend in the industry?
When we started we recognized that decommissioning is still at an early stage—there were only a few companies who have had success in the past. Therefore, we took an early decision that we would try to learn from other sectors and markets.
During the four years Decom North Sea has been in operation we have established a regular dialogue with the nuclear decommissioning sector. As an example we have been looking at technologies and approaches that could benefit oil and gas and vice versa. We have a similar working relationship with the salvage sector. Whereas for the oil and gas industry, decommissioning is an emerging challenge, for the global salvage industry, removing large, frequently damaged steel structures is part of its everyday portfolio.
We are also looking to learn from the onshore sector. Companies in countries around the North Sea are expert in the way they go about decommissioning and dismantling refineries, gas plants and power stations. This experience, knowledge and approach could potentially be used on offshore process facilities, particularly if the single lift option becomes popular.
Lastly, we conduct research in other decommissioning markets such as the Gulf of Mexico. It is a very different type of decommissioning but nevertheless it is a mature market, seeing the removal of hundreds of platforms each year.
It is important to understand that upcoming decommissioning is currently being conducted using the same business processes, planning procedures and approval processes as the oil and gas industry uses for the design and build of new production facilities. This leads to a growing question of why we are going into such detailed lengths when at the end of the day we are decommissioning something—the industry believes there must be a more cost-effective approach. For that reason, there is an appetite, particularly among the operators and major contractors, to look at approaches and techniques used in other sectors, but in no way reducing the focus and effort on safe and environmentally responsible execution of these complex projects.
The challenge faced in the development of this market is the price of oil. With oil topping USD 100 per barrel it makes sense for the E&P companies to keep producing whilst they still can rather than shut wells down. As a result decisions over decommissioning projects are unpredictable. How are companies able to manage risk in such an environment?
Decommissioning is still less predictable than many companies would like. Our objective is certainly not to advocate or accelerate decommissioning. It is clear to our member companies that sustained economic development from the oil and gas industry is extremely important to the countries around the North Sea. However, we are at a stage where the life cycle of certain assets cannot be extended economically any further and there is therefore a job to be done in making sure these projects are conducted safely and cost efficiently.
The sustained high-oil price is a contributing factor but operators will always do everything possible to extend the life of their producing asset and at Decom North Sea we support this ambition.
However, the latest industry survey, published at our conference in October 2013, showed that 27 operators in the UK sector forecast that they will spend an estimated total of £10.4 billion on decommissioning in the next ten years—an average of £1 billion a year. Putting that figure into a wider perspective, total investment in the oil and gas industry is expected to reach an all-time record of £13.5 billion this year.
How much are operators willing to pay for decommissioning?
Frankly, they have to pay what they need to pay. Naturally, operators aim to do it as cost effectively as they can but the focus will always be to decommission safely, be environmentally responsible whilst safeguarding their reputation.
It is not just the operators; it is the public sector contribution driving efficiency and cooperation. The government has recently confirmed that tax relief amounting to between 50 and 75 percent of decommissioning costs will be made available to operators once the decommissioning process begins.
The most thorough analysis of the North Sea oil and gas skills landscape ever undertaken will commence in November 2013. The study is being led and managed by OPITO and in partnership with Decom North Sea among many other organizations. What are your expectations for the decommissioning sector?
We are in the process of finalizing a report that aims to make an assessment of the forecast industry demand and the corresponding industry capacity. We have looked at the forecast activity in decommissioning in terms of people, vessels, heavy lift crane vessels and onshore disposal yards. The aim was to make an assessment as to whether or not the industry currently has the capacity required or whether there are areas that may require additional capacity. This report has not been published yet and, in truth, it has proven to be challenging. However, it does make an assessment of the likely requirements for human resources, suggesting that in the next four to five years we will be looking at an additional five to six thousand people.
It is hoped that the findings of this study can be presented to universities, colleges, the nuclear and defence sectors, to present a collective forecast of the skills that are required. Our contribution to this study is what is anticipated for decommissioning but this will be added to other layers of activity in the North Sea in order to present a comprehensive view of the market.
We are looking at 30 to 50 years of offshore oil and gas, which offers well-paid and exciting job opportunities. It is a fantastic industry for career opportunities and through this report we hope to get that message across.
Now that the North Sea is a mature production area and much of the infrastructure is already approaching the end of its life cycle, to what extent will the decommissioning segment contribute to the growth of Aberdeen’s economy?
In fact, it is believed that the projected cost of decommissioning UK Continental Shelf oil and gas facilities will reach above £30 billion before 2040. It is important that we collectively capture the economic benefit from that. If governments are offering tax relief to the operators it is important that this tax relief is fed back into the economy.
Our current role is to facilitate close co-operation and encourage collaboration and innovation between North Sea operators and the supply chain. Once we have gained more experience in the North Sea in regards to large and heavy deep-water platforms, we will research emerging international market opportunities. Already there are indications that geographies such as Alaska, West Africa, Asia Pacific, Gulf of Thailand and Australia are looking to the North Sea for knowledge and experience in decommissioning, in the same way as they do for its subsea expertise.