Have North Sea decommissioning costs been seriously underestimated?

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According to an analysis of the government’s figures, the shutting down of gas and oil operations in the North Sea will be double the cost of the government’s current targets.

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A report by the Intergenerational Foundation found the cost of dismantling the North Sea’s operations would cost £80 billion, more than double the £39 billion current aim of the government.

Taxpayers’ burden

This higher price will cost each child in the UK up to £3,000 if the report turns out to be true, according to http://www.if.org.uk/2018/05/08/rigged-oil-gas-industry-undermining-future-generations/.

In 2017, industry regulator The Oil and Gas Authority reported the cost of decommissioning 250 fixed installations, 5,000 wells and 3,000 pipelines to be around £60 billion. This is in addition to the gas tank decommissioning that may have to take place onshore by companies such as http://www.ashremediation.co.uk/tank-decommissioning/ The cost was reduced by 35 per cent to £39 billion when decommissioning obligations attributed to companies drilling in the North Sea was taken into account.

Government figures off

In the report, Andrew Simms, the director of the think tank The New Weather Institute, said the government’s target was way off. He stated that according to the government’s own statistics, the costs of megaprojects such as these were more likely to see an overspend of 35 per cent.

Auditors KPMG have also said that massive projects such as decommissioning oil rigs at sea end up running into problems costing a lot more than originally planned. Mr. Simms said that the government’s figures looked like a massaging down and that a significant overspend was far more likely.

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According to Simms, the burden of decommissioning should be taken up by the oil companies rather than the taxpayer. He also accused the government of allowing oil companies to bypass the Energy Act 2004, which obliges oil companies to pay for the costs of decommissioning, by dumping the costs onto smaller contractors.

A spokesperson from the Department of Business, Energy and Industrial Strategy stated in response to these claims that the law was clear that oil and gas operators had to bear the cost of decommissioning. They said the government was working with the oil and gas industry to keep decommissioning costs to a minimum and had set a target for industry to reduce costs by 35 per cent.

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