Analytical Instrumentation

How Much Will It Cost to Dismantle North Sea Oil?

May 17 2018 Read 52 Times

From oil spills and climate change targets to the inevitable switch to green energy, there's no shortage of support when it comes to dismantling North Sea oil and gas rigs. Though according to the latest reports, shutting down operations could cost more than double the current government target.

Currently, the British Oil and Gas Authority predicts that dismantling North Sea pipelines and wells will come at a cost of around £39 billion. In contrast, the Intergenerational Foundation (IF) warns this could be a significant underestimate. A new report suggests that if oil and gas companies are allowed to evade financial obligations the figure could climb over the £80 billion mark. This would see future generations hit with tax bills of roughly £3000 each to fund the closure of existing fossil fuel infrastructure, which includes roughly 5000 wells, 250 fixed installations and 3000 pipelines.

“We think the target the government have set themselves for the cost of decommissioning flies in the face of what it knows itself to be the case, and what its own experts have told us,” comments Andrew Simms, co-author of the report.

Government accused of "rigging" North Sea decommissions

Titled “Rigged: How the UK oil and gas industry is undermining future generations”, the report explores the financial impact fossil fuels will have on British children. It stresses that projects of such a large scale inevitably run into problems that send initial estimates soaring.

“It’s far more common to see an overspend on initial estimates of costs for megaprojects in this sector of 35 per cent rather than a saving,” asserts Simms. “So we think there has been a massaging down of the figures to make it seem more acceptable when in fact the likelihood is of a significant overspend.”

Furthermore, the report accuses the government of allowing companies to sidestep financial obligations. This is despite Department for Business, Energy and Industrial Strategy regulations that require offshore oil and gas operators to self-fund their own decommission projects.

A "great mishandling”

The IF has slammed the budget estimate as a “great mishandling” and accused the government of failing to set aside oil and gas profits for future decommissioning projects.  As a result, they warn that the burden will fall largely on future taxpayers.

Experts agree, with Dr Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit stating, “By not having a dedicated pot of money, the idea that it’s falling on a younger generation does hold up."

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