The likelihood of a “dash to decom” in the North Sea remains limited because of several speed bumps that are slowing the widespread shut down of offshore assets, Wood Mackenzie reports.
While the UK government’s Energy Profits Levy has accelerated decommissioning for several assets, the latest analysis from the company indicates that a myriad of technical, logistical, legal, regulatory, commercial, and financial complexities will likely lead to continued delayed decommissioning on the UK Continental Shelf.
There is growing evidence in the decommissioning sector of supply chain constraints and rising costs in an industry, which Wood Mackenzie estimates will be worth $58 billion through to the early 2060s.
Today, there are 242 producing offshore fields in the UK North Sea and 255 that have ceased production, 76 of which have been decommissioned. Wood Mackenzie estimates gross decommissioning costs are expected to eclipse development capital expenditures by 2032 and peak at over $3.5 billion per year in the mid-2030s.
Despite the sector’s maturity and the shift in fiscal terms, evidence of a wholesale early cessation of production (COP) trend is lacking. Instead, lingering supply chain constraints, rising costs, and the regulator’s stance suggest a cautious and measured approach.
“Since the energy profits levy was introduced in 2022, several UK operators have announced their intention to accelerate COP on their assets, declaring that further investment is no longer viable,” said James Reid, a senior research analyst at Wood Mackenzie.
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.
“The growth of small players has been key to rejuvenating old assets, but decommissioning, and the potential acceleration of it, presents increasing risks to JV partners and the UK government, which presents companies with more reason to keep kicking the decommissioning can down the road,” Reid said.