UKCS Decommissioning Spend to Overtake Development Spend in 2019, Wood Mackenzie
Despite the increase of production over the last months after 14 years of stark decrease, the UK oil and gas industry might have to face even higher hurdles due to a downward trend in global gas demand, and a simultaneous jump in decommissioning spending.
On Wednesday, Wood Mackenzie published a report indicating that 140 fields might cease over the next five years.
‘The report, prepared for Offshore Europe 2015, forecasts that while a small number of decommissioning projects have been completed to date, decommissioning activity and spend are forecast to ramp up over the next five years as mature fields are no longer economically viable in a low oil price environment’ reads the note released on Wednesday.
According to Wood Mackenzie, around 140 UKCS fields will cease over the next five years even if oil prices return to US$85 a barrel ($/bbl).
"In 2015 operators have reacted to the low oil price environment by deferring spend and delaying sanction of new developments. We have analysed the impact of the low oil price on decommissioning activity looking at the timing of cessation, retained decommissioning liabilities from previous deals and batch decommissioning” Fiona Legate, UK upstream research analyst for Wood Mackenzie, commented.
But the picture might be even gloomier. Wood Mackenzie said that we may see around 50 fields ceasing even earlier than expected if the oil price returns to a level around US$70/bbl. This is compared with 38 new fields that are expected to be brought onstream in the same period.
“17 fields are expected to be sanctioned over the next 5 years. In the current price environment there is a risk projects may be cancelled or delayed. We could start to see a shift away from work in new developments to decommissioning projects” Legate said in report prepared for the Offshore Europe 2015 conference.
As a result, decommissioning spend is expected to increase by over 50% by 2019 and 'will overtake development spend in the same year.'
On Wednesday, Oil & Gas UK’s asked the UK Government to further cut taxes on oil and gas activities.
Meanwhile, also global trends are less rosy than expected.
‘Cedigaz revised and final statistics confirm that 2014 was a second year of moderate natural gas activity worldwide. Marketed natural gas production increased by only 1.3% to 3445 bcm in 2014, on a par with the year 2013, which saw a quite similar trend (+ 1.2%). These results are in contrast with sustained average growth in the order of 2.8% per year recorded in the 2000s’ reads a note released by Cedigaz on Thursday.