Liability regulation concerning offshore infrastructure can make the process seem like a financial burden
Following another year of progress towards a green energy transition, greater activity in renewables and the news of GB Energy coming to Aberdeen, there are reasons to feel cautiously optimistic about the next chapter for the North Sea.
Financial pressures remain, but the Chancellor’s Autumn Budget at least provided some clarity about the extension of the Energy Profits Levy (EPL) until 2030 – depending on oil prices – among other measures.
As we begin a new year, it is a great time to press reset on the general feeling of uncertainty that has clouded over the sector for the last couple of years.
Continuing that theme, there are huge opportunities be grasped in terms of the energy transition.
Decommissioning, in particular, is only going to be a growing focus for the sector. The scale of the task is enormous, with more than 250 of the North Sea’s 880 fixed and subsea installations earmarked for decommissioning – and more likely to follow.
Around 4,000km of subsea pipeline also needs to be removed from the seabed and a target has been set to take out 1,500km by 2030. Estimates from the North Sea Transition Authority predict a spend of £21bn over the next decade alone.
For many companies already operating in the north east, the energy transition is mostly being seen as a natural evolution and a new challenge to get stuck into. We have a workforce with decades of experience in setting up the oil and gas infrastructure that will become an invaluable pool of knowledge when it comes to removing it as part of that transition.
The best people to complete the job are already here, which puts us at a huge advantage.
However, we can’t shy away from the fact that decommissioning is often perceived as a financial burden, which may prevent traditional energy companies and supply chain businesses from remaining in the market. The complexity of the decommissioning challenge should mean many attractive and lucrative contracts up for grabs in the years to come, but, for the moment, there are still a range of considerations causing some to take a more glass-half-empty view.
Decommissioning liability rules covered in Section 29 of the UK Petroleum Act (1998) could, in some cases be a limiting factor for further investment into the market. The legislation means that past and present licensees of a particular asset can be held accountable for decommissioning work and returning the seabed to its original clean state. In practice, while the guidelines are clear in certain scenarios, there are some elements that only create further uncertainty.
For example, ‘liability in perpetuity’ has been a hot topic of discussion for well over a decade now and a strategic solution has not yet been found for any infrastructure left in situ.
What happens if a company that holds the liability for part of the decommissioning process, such as the requirement for routine environmental surveys and any subsequent remediation, ceases trading or moves all of its operations overseas?
In theory, there should always be a parent company, or another partner that the liability is transferred to, but in a worst-case scenario, the responsibility could fall to the taxpayer.
In an ideal world, some kind of sector-wide cooperative or insurance fund might exist – similar to the Offshore Pollution Liability Association – giving everyone a degree of reassurance and an emergency safety net for the future. Contributions could be structured to reflect each operator’s decommissioning exposure, allowing a mechanism to deal with unforeseen liabilities.
We may not have all the answers at hand to solve these challenges, but by working together with all the parties involved in the operation of an offshore oil and gas asset, we can create contracts and frameworks that cover all eventualities.
A robust, one-size-fits-all process for decommissioning may emerge as the market matures, but in the meantime, the sector needs to collaborate and find new ways of working that can encourage, rather than prevent, future investment across all areas of the market.