North Sea represents £20 billion business opportunity for decom industry, says UK trade body

Britain’s trade body for the offshore energy industry, Offshore Energies UK (OEUK), has outlined in its new report that shutting down obsolete North Sea energy installations is a business opportunity worth more than £20 billion over the next decade for the decommissioning industry.

Building on the previous report from 2022, which highlighted that around 2,100 North Sea wells involved in oil and gas extraction would be decommissioned at a cost of around £20 billion over the next decade, OEUK’s Decommissioning Insight 2023 report launched on Tuesday, November 21, 2023, offers an overview of the challenges and market opportunities in the sector, encompassing some of the biggest and most complex engineering projects ever faced in the North Sea.

This report gives a detailed overview of requirements for decommissioning and recycling hundreds of oil and gas platforms in UK, Norwegian, Danish, and Dutch waters. According to calculations by Offshore Energies UK, North Sea oil and gas production is declining by 7% a year even with the latest round of new licenses issued last month. Currently, there are currently 283 active oil and gas fields in the North Sea, but 180 will have ceased production by 2030.

Furthermore, OEUK explains that closing these wells without ongoing management of decline through new licensed production will mean “a loss of homegrown energy which provides security and adds value to the economy.” While decommissioning accounted for 12% of total oil and gas expenditure on the UK Continental Shelf in 2022, the report is adamant that this could increase to 25% in 2032 in the right fiscal environment and overtake capital expenditure by 2040.

Ricky Thomson, OEUK Decommissioning Manager and author of the report, commented: “This is a £20 billion business opportunity for our world-class decommissioning industry, and it is vital it is handled properly so we do not lose the work to overseas competitors. There are dramatic opportunities for growth, but we need proper planning, and not just of hugely complex individual projects, but also of the specialized equipment and the efficient deployment of our highly skilled workforce.

“For the UK supply chain to work with maximum efficiency, it needs to be able to accurately forecast demand for its services, in both oil and gas and across low carbon technologies, such as offshore wind and carbon capture. Government support will be needed to maintain the UK’s involvement in the sector. Thousands of jobs and contracts for billions of pounds worth of highly skilled work are at stake.”

Based on OEUK’s data, specialist UK organizations are well positioned to provide a global center of expertise in this sector as demand for decommissioning services grows around the world, but innovation and resilience will be “vital.”

The report also points out that more than 1,000 North Sea wells will be sealed between now and 2027, with 100,000 tons of surface and seabed structures removed in 2026 alone. At the same time, around 200 new large-scale wind turbines are scheduled to be installed, representing “a considerable infrastructure and workforce challenge,” highlighted OEUK.

Moreover, the report notes – what is said to be – the knock-on damaging impact of the Energy Profits Levy and other economic factors. OEUK underlines that this tax hike, which has led to North Sea oil and gas operators paying a 75% headline tax rate, affected decommissioning progress as the cost of shutting down old installations is not treated as an allowable expense.

Bearing this in mind, OEUK is engaged in continuing discussions with the UK Treasury to highlight the impact of the windfall tax on North Sea investment, the uncertainty it has created about final production dates for various oil and gas fields and the funding of the decommissioning process.