Another Int’l group warns: Without proper laws, Govts. can be left to foot massive clean-up bills for oil projects

Sep 07, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – Asset Integrity Engineering (AIE), a company based in the United Arab Emirates (UAE) in a recent publication unveiled the challenges of decommissioning in the oil and gas industry.

For those unfamiliar, the process of restoring the ocean’s floor when an oil and gas project has come to an end is called ‘Decommissioning’. Kaieteur News had reported that decommissioning is a complex and costly process at the end of the economic life of an individual oil and gas project. It involves the safe plugging and abandoning of oil wells, removal of structures and restoration of the surrounding areas.

AIE is a leading provider of asset integrity services which improve operational reliability, safety and asset protection whilst at the same time helping to maximise plant performance and mitigate the constant challenges and hazards facing heavy industries such as Oil and Gas, Power Generation and Mining.

The company stated that it is estimated that more than 70% of the world’s oil and gas production comes from mature fields and flows through infrastructure that is ageing. It was explained that as global oil and gas basins become more mature, there is an increasing focus from Government Regulators, Tax Authorities as well as National and International Oil Companies on decommissioning of oil and gas facilities along with their associated midstream and downstream industries.

AIE underscored that decommissioning is set to be a key issue for the oil and gas industry soon.“Decommissioning is the final stage of an asset’s lifecycle, whereby reservoirs are isolated, and their associated infrastructure is removed and disposed of, leaving the production area in an environmentally acceptable condition with minimal safety risks associated with it. It is a long, often costly process, requiring cooperation by the key stakeholders to manage the various associated technical, operational, social, economic, and environmental issues,” the company said.

Moreover, it was highlighted that with the increasing global momentum towards decarbonisation, governments are also exposed to greater decommissioning risks as the outlook towards oil and gas assets has changed considerably.

To this end, AIE said that the increasing pressure on carbon-intensive assets to reduce emissions, coupled with lower anticipated returns and higher capital costs for companies could mean that assets can reach their economic limits significantly earlier than expected.

“This leads to higher chances of accelerated decommissioning of assets, mothballed assets and bankruptcies; there is a potential risk that governments would be saddled with decommissioning liabilities as a result,” it was added.

AIE listed some examples of the consequences it has seen involving decommissioning. The first consequence stated was that inadequate decommissioning liability provision can lead to a 500% default or bankruptcy of involved parties leaving decommissioning liabilities on Governments or other joint-venture partners. It was also stated that poorly managed assets incurring unnecessary decommissioning costs, or even entering into decommissioning unexpectedly and asset sales values, are being eroded by presenting unrealistic decommissioning liabilities in the vendor data room.

The company stated that its engineering services and software focus on aged infrastructure and have successfully delivered a range of decommissioning projects from advisory support through to full project management delivery for onshore and offshore projects. AIE said it have a unique understanding of the regional and international decommissioning landscape. It was also disclosed that the company was recently awarded several strategic decommissioning contracts and noted that a world-class team was developed to support a range of related initiatives.

Importantly, AIE based its research for the publication on the Commonwealth Secretariat guide titled “Oil and Gas Decommissioning Toolkit,” where the Secretariat highlighted key issues of decommissioning and made suggestions for Governments. The guide was published earlier this year and warned its member countries, including Guyana, who is a part of the oil and gas industry of the uncertainty of decommissioning costs, which can result in the price tag to restore the ocean floor, easily moving from US-millions to US-billions.

Kaieteur News had reported, that Commonwealth Secretariat Economic Adviser, Naadira Ogeer, cautioned developing countries like that the price tag attached to decommissioning could easily wipe out any benefits the country sees from oil project.

Ogeer, who led the development of the toolkit, explained that, decommissioning is another dimension to the just energy transition. It goes without saying that companies who have benefitted from these fossil fuels should pay for all clean up and restoration activities. Ogeer stated too, “It would be unreasonable for developing countries with low capacitated regulators and weak legal requirements to shoulder the significant financial, environmental and social costs. This would easily wipe away any benefits seen from a project.” As such, she added that the international community must be extremely vigilant and united to ensure that the ‘polluter pays’ principle is adhered to.”

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• Asset Integrity Engineering (AIE), challenges, decommissioning, publication, United Arab Emirates (UAE)

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