£20 bln decom spend in the offing for UK’s oil & gas wells over next decade

UK’s representative body for the offshore energy industry, Offshore Energies UK (OEUK), has predicted in its new report that about £20 billion will be spent on decommissioning North Sea oil and gas installations in the next decade.

Offshore Energies UK – former Oil & Gas UK (OGUK) –  says in its latest Decommissioning Insight report that around 2,100 North Sea wells involved in oil and gas extraction are to be decommissioned at a cost of around £20 billion over the next decade. These wells have played “a crucial role” in providing the UK with the energy to “keep homes warm, run businesses and power vehicles.”

OEUK explains that decommissioning is the process of withdrawing offshore energy infrastructure from use once it is no longer needed or when it is at the end of its lifecycle. This report finds UK decommissioning is expanding fast and predicts a surge in activity over the next three to four years. Based on the report, the sector will continue growing as other emerging offshore energy technologies, like offshore wind farms, also require the service.  

Furthermore, Offshore Energies UK estimates around 2,100 North Sea wells will be decommissioned over the next decade, which is around 200 per year, at an average cost of £7.8 million per well.    

While a tenth of UKCS oil and gas expenditure went into decommissioning in 2021, this proportion has risen to 14 per cent in 2022 and is set to rise to 19 per cent by 2031. In lieu of this, expenditure on decommissioning is predicted to total £19.7 billion over the next ten years, with well decommissioning comprising nearly half of this spend. 

Moreover, OEUK forecasts that over 75 per cent of total decommissioning spend will be within the central North Sea – stretching from Yorkshire to the northern tip of Scotland – and the northern North Sea, which covers an area north of Scotland and east of Shetland and Orkney.

While the surge in work could particularly benefit industrial communities on adjacent coastlines, especially around Teesside, Humber, Aberdeen and Inverness, decommissioning in the Irish Sea will generate more economic benefits in places like Merseyside. 

According to this report, the growth in other renewable energies, such as offshore wind, could cause bottlenecks in demand for decommissioning services. Therefore, the offshore wind, carbon capture and storage, and oil and gas sectors will need to work together and be transparent about planned projects to make sure the opportunity is properly managed. 

Ricky Thomson, OEUK Decommissioning Manager, remarked: “The UK’s decommissioning sector is snowballing and will continue growing for years to come. But this poses a challenge as well as an opportunity. The growth of renewables and demand for decommissioning services and expertise will create increasing pressure for resources. 

“This is a great problem to have and it’s vital this opportunity is properly managed across the sector so that UK firms can capture the lion’s share of this £20 bln opportunity. With the right support from government and action from the industry, the UK could make major gains from decommissioning, as well as retain thousands of jobs for this growing sector.”

When it comes to Offshore Energies UK’s other recent activities, it is worth noting that OEUK underscored earlier this month that the recent tax changes on oil and gas production will “hit hard” the UK’s offshore energy industry.

This rise in windfall tax threatens to drive out investors and drive up imports, leaving consumers increasingly exposed to global shortages. In addition, it could hinder the UK’s energy security along with its transition plans for a low-carbon future.