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Rethinking hydrocarbon infrastructure decommissioning

Out-Law Analysis | 04 May 2021 | 2:39 pm | 2 min. read

The UK government's sixth carbon budget has set ambitious targets for achieving net zero.

The pledge came as prime minister Boris Johnson told the Leaders Summit on Climate that governments and scientists need to work together to produce technology that will help the shift towards a net zero future.

Energy transition is one of the strategies now adopted by many of the world’s major hydrocarbon producers who have pledged to move towards a low or zero carbon future. While much of the focus is on harnessing green energy and devising alternative production methods, the sector is also experiencing a dramatic shift in thinking around the decommissioning of certain oil and gas platforms, pipeline networks, and other assets which are reaching end-of-life.

Only 15% of UK Continental Shelf (UKCS) infrastructure has been decommissioned and it is forecast UK expenditure on decommissioning over the next decade will be around £1.5 billion a year. The regulator, the Oil and Gas Authority (OGA), estimates the overall cost of infrastructure removal would top £50bn.

However, there is a growing realisation that not all infrastructure may need to be decommissioned in the near future, but instead some could be repurposed and used to generate, store or transport a range of green energy sources, including wind, hydrogen and carbon capture and storage (CCS).

Repurposing existing assets would reduce the need to install new infrastructure and systems, therefore reducing carbon emissions during the manufacturing, transportation and construction of new infrastructure, and could potentially reduce the pressure on corporate balance sheets.

This is all to be commended and should be encouraged but before it can happen there needs to be a concerted effort to examine the legal framework around decommissioning and to identify the enablers and blockers of asset repurposing.

The current legislation says that asset owners are responsible for removing any infrastructure they put on the seabed, subject to a couple of exemptions. Over the life of an oil and gas asset ownership will often change hands, but the responsibility generally remains with the current stakeholders.

But if a third-party renewable energy specialist wanted to take over all or part of an ageing asset, this would raise questions about liability for the maintenance and eventual decommissioning of that asset.

These questions include who would be responsible for the upkeep and ongoing maintenance of that asset until it can be repurposed, and how the financial burden should be shared. It is unclear whether the former asset owner would be held partly responsible for decommissioning some 20 or 30 years down the line, or whether they would be relieved of all responsibility.

There are also unanswered questions on what happens to the decommissioning security provided by the current owners to cover the cost of decommissioning.

It has been suggested that there could be a case for establishing a completely new regulatory regime, which will lean on best practice and lessons learned over the last half century in the highly regulated oil and gas sector, while incorporating a framework better suited to the fast-moving and constantly changing renewables sector. European energy ministers recently called for a stable regulatory framework for hydrogen across the EU in order to create a predictable and competitive market and to attract investors, and the same type of regime is needed in the UK.

The good news is that the energy industry regulators – the OGA and the Offshore Petroleum Regulator for Environment and Decommissioning – are in 'listening mode' and are seeking opinion from industry stakeholders during this transformative period in the history of energy production.

There has never been a more dynamic period in the oil and gas space and the pace of change in energy transition is remarkable, and the opportunity is there for stakeholders to work collaboratively to formulate legislation and regulations which will enable repurposing.