UK’s offshore oil & gas decom bill to hit £24.6 billion by 2033

While the oil and gas industry’s decommissioning activities accounted for 12% of total expenditure on the UK Continental Shelf (UKCS) last year, Britain’s trade body for the offshore energy industry, Offshore Energies UK (OEUK), has outlined the possibility of an uptick to 33% by 2030 in its new report. As a result, decommissioning work could account for 22% of the cumulative oil and gas spend over the next ten years.

The United Kingdom’s government decided to work on an overhaul of its environmental guidance for offshore oil and gas projects, following the landmark Supreme Court ruling, which embedded consideration of greenhouse gas (GHG) emissions from the combustion of oil and gas into environmental impact assessments for hydrocarbon extraction projects.

In addition, the government also made up its mind to increase and prolong the energy profits levy (EPL) on oil and gas production to a headline rate of 78%, even though many energy analysts issued warnings about such a move, as it is anticipated to curtail energy investments, derailing energy security and the transition to a more sustainable future, given the net zero shift’s price tag of over £1 trillion or more than $1.29 trillion.

Considering the erosion of energy producers’ investment confidence in the UK, OEUK highlighted the knock-on damaging impact of the windfall tax hike and other economic factors. While decommissioning activities were carried out on around 120 wells annually over the last five years, the tax hike is said to have affected decommissioning progress.

With a fiscal system that would encourage investment and restore trust within the industry, the country could extract up to £10 billion of North Sea oil and gas pre-tax value from existing assets, according to Wood Mackenzie’s recent analysis.

Stuart Payne, Chief Executive of North Sea Transition Authority (NSTA), underscored in September 2024 the oil and gas industry’s ability to rise to the challenges posed by the energy transition and make the North Sea’s next chapter its best one by maintaining a sharp focus on the basics: safety, emissions cuts, timely well decommissioning, and greater diversity.

At the time, NSTA’s Chief Executive spotlighted the potential for decommissioning to become ”a vital bridge between oil and gas work today and carbon storage work in the future.” Payne also warned that the rig exodus from the North Sea basin due to no “clear sight of upcoming work” was bound to push the decommissioning costs up, making the transition aspirations both harder to achieve and a more expensive endeavor.

Building on the previous reports from 2022 and 2023, which pinpointed around 2,100 North Sea wells that needed to be decommissioned at a cost of about £20 billion over the decade, OEUK’s Offshore Decommissioning Report 2024, launched on Tuesday, November 19, 2024, sheds light on decommissioning activities across the UK’s offshore energy sector, providing an outlook for the next decade.

The report emphasizes significant growth in decommissioning activities, covering the removal of over 2,000 wells, 914,000 tons of topsides, and 508,000 tons of substructures, which is expected to come with a forecasted expenditure of £24.6 billion by 2033. Among key highlights from last year, the report includes the removal of over 6,000 tons of subsea infrastructure. OEUK also emphasizes a forecasted 50% rise in well decommissioning activities for 2024.

Mark Wilson, HSE & Operations Director at Offshore Energies UK, outlined: “The UK has spent more money doing less work in 2023. The macroeconomic factors at play cannot be ignored: cost inflation, political risk and competition for resources have all made it harder to do business. […] The energy transition has decommissioning at its heart and cross-sectoral sharing is imperative for a just transition.”

Furthermore, the report notes the oil and gas sector’s critical role in advancing the energy transition, showcasing innovative reuse and dismantling strategies alongside collaboration with offshore wind projects. While offering in-depth regional insights, cost analysis, and case studies, OEUK discusses the challenges and opportunities shaping the future of decommissioning in the UK.

Following the release of the report, Julie Copland, Head of Decommissioning and Low Carbon at Elemental Energies, stated: “The OEUK Decommissioning Insight Report 2024 outlines the immense scale of work ahead, with over 2,000 wells and nearly 800 km of pipelines set to be decommissioned by 2033. We are proud to have contributed to this year’s report, sharing our expertise from a major subsea decommissioning campaign in the North Sea.

“The future of decommissioning demands a proactive approach. By streamlining processes, fostering collaboration, and pushing the boundaries of what’s possible in efficiency and cost management, the sector can set new benchmarks in responsible asset management and unlock long-term value. We remain committed to shaping the future of decommissioning and supporting the UK’s global leadership in this critical area.”

Elemental Energies was picked to perform preliminary engineering for a big subsea decommissioning campaign in the North Sea. The company was in charge of gleaning insight into each well’s geology, history, and integrity to optimize the plug and abandonment (P&A) campaign and minimize the overall decommissioning cost.

Since moving to net zero is estimated to require more than £1 trillion of investment across the UK economy, OEUK recently underlined the offshore energy sector was ready to spend £450 billion on projects over 15 years under the right investment conditions.

Moreover, the trade body’s latest report makes it clear that 154,000 jobs are directly or indirectly related to offshore energy with 120,000 of these being in the oil and gas sector and a further 80,000 jobs induced in communities. This means the UK’s oil and gas industry supports over 200,000 jobs and £25 billion (almost $31.7 billion) in economic gross value added (GVA).

While about 60% of the North Sea basin’s topsides and subsea decommissioning is forecast to happen during the 2026-2032 period, 2026 is projected to see over 100,000 tons of topsides and substructures removed and 200 large-scale wind turbines installed. With this at the forefront, OEUK concludes that the central North Sea could account for more than two-thirds of the estimated figure by 2031, given the 6% increase in annual spending.

Michael Tholen, Sustainability & Policy Manager at Offshore Energies UK, said: “The increased tax burden through the Energy Profit Levy appears to be having an impact on the decommissioning market as companies see extra calls on their cash flow meaning they have to manage costly activity in a more cautious manner.

“There have also been fears that the decommissioning market could overheat and again this could lead companies to take some pressure off activity to see if that leads to prices dropping.”

Regarding the wider North Sea region, the report lists Norway’s decommissioning plan up to 2033, which entails 283 wells to be decommissioned, including 220 platform wells and 63 subsea wells. On the other hand, the Netherlands’ plan encompasses 384 wells out of which 301 are platform wells, 16 subsea wells, and 67 suspended E&A wells.

Wilson concluded: “The right support from government is needed if the UK is to become an exemplar of decommissioning and for its sector of the North Sea to thrive. A transparent and pragmatic regulatory regime would oil the machinery and stimulate interest in finding long-term and innovative solutions.

“There should be thousands of skilled employees working on a long pipeline of UK projects worth billions of pounds. The sector needs the UK government to provide the stability for the benefit of the UK.”