The Offshore Decommissioning Study Report also anticipates that spending on decommissioning projects will increase from around $2.4 billion in 2015, to $13 billion per year by 2040.
In addition, it provides an analysis and assessment of the legal, regulatory, and financial requirements for decommissioning in the UK, Norway, the US Gulf of Mexico, Indonesia, and Australia.
Between 2021 and 2040 a further 2,000 offshore facilities are set to be decommissioned, the authors claim, with Europe accounting for roughly 50% of the global decommissioning spending over the next five years as the industry removes major offshore structures from the North Sea.
Each year, the industry currently decommissions an average of 120 projects worldwide, the report adds.
Bjorn Hem, senior manager of IHS Markit upstream costs and technology service, said: “We see increasingly stringent decommissioning regulations coming into force at the same time that the inventory of structures nearing end-of-life status is getting larger and more complex.”
However, “the providers of decommissioning services are very fragmented,” he pointed out. “There are no dominant players, so this makes it even more difficult for offshore E&P companies and offshore service companies to accurately predict decommissioning costs and risks.
“This is why we embarked on a comprehensive analysis of the associated costs and supply side of this market.”
As E&P activity has shifted to deeper waters, harsher environments and increasingly complex projects, some comprising hundreds of wells and many miles of risers tied back to a few ultra-large platforms, operators face big challenges when planning the removal of these assets.
Some of these exercises can cost billions of dollars and take years to successfully dispose of. At the same time, decommissioning carries significant environmental and regulatory liabilities.
“The effective decommissioning of offshore platforms, subsea wells, and related assets is one of the most important business challenges facing the oil and gas industry today and in the future,” said Bill Redman, senior director of upstream costs and technology commercial strategy at IHS Markit.
Key environmental issues include dealing with any potential direct effects on the marine ecosystem, ensuring appropriate use and containment of hazardous substances, and addressing waste management, including seabed debris accumulated during the life of the platform.
Navigating the labyrinth of environmental and waste management regulatory requirements that individual countries impose on decommissioning is another challenge for operators and offshore vendors, the report claimed, and the situation is becoming more complex as decommissioning activity shifts from individual assets to entire fields, and to larger, more complex structures.
Historically, the Gulf of Mexico and the North Sea regions, which entered production first, have dominated decommissioning. Older offshore installations in other regions such as the Middle East – because of their longer field life – will likely remain in operation for many years to come.
The report found that the Gulf of Mexico has been the largest region in terms of the number of platforms decommissioned (around 4,000), and with more than 5,000 oil and gas structures in place, the GoM also has the largest number of platforms still to be decommissioned.
“While North America is the largest market for decommissioning, the European region has the largest amount of offshore decommissioning spending, based on the size and volume of the structures being decommissioned in the North Sea, including concrete gravity-based structures,” said Grigorij Serscikov, senior manager, Upstream Oil and Gas at IHS Markit.
Statoil, Total, Chevron, ExxonMobil, and ConocoPhillips are the top five operators globally in terms of spending on the sector, the report found.
Elsewhere, Angola and Nigeria will drive future decommissioning spending in Africa, while shallow-water Australia will drive demand in the Asia/Pacific region, and Mexico and Brazil will be the focus of decommissioning demand in Central and South America.
In general, historical decommissioning costs for rigs in the Gulf of Mexico have been in the $0.5-million to $4-million range for shallow-water structures. Platforms in this category can vary from single-pile, one-well facilities in several feet of water, to larger, four-pile structures in water depths up to 120 m (393 ft).
A four-pile structure in 15 m (49 ft) water depth typically costs just under $2 million to decommission and remove, whereas a structure in 100 m (328 ft) of water can cost nearly double that to dismantle.
In the North Sea structures are larger and costs typically higher. For example, the report found, one gravity-based system with a 22,500-ton topsides and an 180,000-ton substructure have an estimated decommissioning cost of $2 billion.