The North Sea is unlikely to see rapid growth in decommissioning due to several “speed bumps” slowing the shut down of assets, according to analyst firm Wood Mackenzie.
Wood Mac said while the UK government’s windfall tax has accelerated decommissioning for several assets, its latest analysis shows a myriad of hurdles will likely lead to continued delays on the UK continental shelf (UKCS).
These include technical, logistical, legal, regulatory, commercial and financial challenges, Wood Mac said.
The report also found growing evidence of supply chain constraints and rising costs in the sector, which will be worth an estimated £41 billion through to the early 2060s.
North Sea decommissioning
Currently, there are 242 producing offshore fields in the UK North Sea, and 255 that have ceased production. Of those, operators have already decommissioned 76 fields.
Wood Mac estimates gross decom costs will eclipse capital development expenditure by 2032 and peak at over $3.5bn (£2.75bn) in the mid 2030s.
© Supplied by Wood MackenzieDespite the maturity of the North Sea basin and the fiscal changes, Wood Mac said “evidence of a wholesale early COP (cessation of production) trend is lacking”.
“Instead, lingering supply chain constraints, rising costs, and the regulator’s stance suggest a cautious and measured approach,” Wood Mac added.
Wood Mackenzie senior research analyst James Reid said since the introduction of the Energy Profits Levy in 2022, several UK operators have announced their intention to accelerate COP on their assets.
The report adds that accelerated decommissioning can strain the ability of smaller companies to meet their obligations for shutting down assets, increasing the risk of defaults.
In a worst-case scenario, where a company defaults and there are no other parties to pick up the bill, liability would fall to the UK taxpayer
Reid adds: “The growth of small players has been key to rejuvenating old assets, but decommissioning, and the potential acceleration of it, presents increasing risks to [joint venture] partners and the UK government which presents companies with more reason to keep kicking the decommissioning can down the road.”
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