Operators likely to increase spending in decommissioning work
BAKU, Azerbaijan, May 22
By Leman Zeynalova - Trend:
Energy companies have been slashing exploration and production budgets since the Covid-19 pandemic took hold and sent oil prices tumbling, but, with few profitable investment alternatives, operators are now likely to increase spending in decommissioning work, Trend reports citing Rystad Energy.
The company estimates the total value of the global pool of decommissioning projects that will accumulate through 2024 could reach $42 billion.
With an average asset age of 25 years, the Northwest European decommissioning market could grow 20 percent in annual commitments through 2022 if the current low oil prices don’t show signs of substantial recovery soon.
In addition to a rapidly maturing asset base and low oil prices that erode commercial viability and potential life extensions, the North Sea decommissioning market will also be helped by favorable service contract prices.
Only about 15 percent of North Sea assets have been decommissioned to date, but in the coming five years we expect an average of 23 assets to cease production annually. The UK is poised to lead the way with nearly 80 percent of total estimated expenditure on Northwest European decommissioning in the next five years, followed by Norway with 14 percent and Denmark with 4 percent. The pool of removal projects in the region for that period is estimated at about $17 billion. By comparison, decommissioning costs in the US for the same period are estimated at $5.7 billion.
“A protracted low price environment can potentially motivate operators to leverage low contract prices and commit to their asset retirement obligations, thus spurring decommissioning activity in the Northwest Europe region. This will also provide welcome opportunities for contractors in an otherwise gloomy oilfield services market,” says Sumit Yadev, energy service analyst at Rystad Energy.