Study assesses Asia-Pacific offshore decommissioning costs

March 15, 2010
A recent study has updated decommissioning costs for offshore installations in the Asia-Pacific region.

A recent study has updated decommissioning costs for offshore installations in the Asia-Pacific region.

Costs, technology, and regulations have changed since the last publicly available decommissioning estimates for offshore installations in the Asia-Pacific region produced by the United Nations in 1994.1

Since the UN report, the region has had about 800 new offshore facilities installed. This article reviews the number and location of the offshore facilities based on available information and provides an estimate of the decommission costs.

Offshore installations

The Asia-Pacific region, as defined in this article, includes 16 countries and one Joint Development Zone that have had offshore oil and gas facilities.

Countries in the region include Australia, Bangladesh, Brunei, China, India, Indonesia, Japan, Malaysia, Myanmar, New Zealand, Papua New Guinea, Philippines, South Korea, Taiwan, Thailand, Malaysia-Thailand-Vietnam JDA, and Vietnam.

The facilities in the East Timor-Australia JDA are included in the count for Australia.

The data are from several detailed decommissioning studies carried out in the region during the last 20 years,2 proprietary decommissioning databases,3 commercial databases,4 UN ESCAP reports,5 6 and extensive internet searches.

During the course of the work, it became apparent that there is conflicting and incomplete information. Hence this article summarizes the best interpretation of the available information.

In 2000, the region had an estimated 950 offshore installations in Asia and 17 in Australia.7 Today, we estimate that the region has about 1,732 offshore installations (Fig. 1).

During the last 10 years, companies have installed an average of 86 new offshore structures in the region each year, which has led to almost doubling the number of offshore installations in the region. This trend is continuing at a slightly slower pace, with some 200 new offshore installations being engineered or under construction for installation in the next few years.

Installation characteristics

The region has a great diversity in the types of offshore structures installed. To date, it has about 10 types of installations, including fixed jackets, gravity-base structures, production jack ups, semisubmersible production units, innovative stacked-leg structures, spars, monotowers, mobile offshore barges, tension-leg platforms, and floating production, storage, and offloading (FPSO) vessels.

Table 1 shows 1,645 of the offshore structures are fixed jackets (95%), 50 are FPSOs (2.89%), 33 TLPs (1.9%), and the remaining 38 consist of different types of structures.

Because Indonesia and Malaysia have many offshore facilities, these countries provide an example of the types of facilities in the region.

Indonesia has about 485 offshore installations, but some sources suggest the number is closer to 530.8 About 315 Indonesian platforms are in the Java Sea north of Jakarta. These are small platforms, tripod structures, or single wellhead platforms. The remainder are in East Kalimantan (~138); in Java off Surabaya, Gresik, and Pasuruan (~15); and in Sumatra off the Straits of Malacca (~25).

Malaysia has 249 offshore installations in four regions: Peninsular Malaysia, Sarawak, Sabah, and the Malaysia-Thailand Joint Authority (MTJA).

Off Peninsular Malaysia, the 83 offshore installations include 3 FPSOs.

The Sarawak region has 109 platforms in about 26 different oil and gas fields. Sabah has 36 platforms in about 11 different oil and gas fields. The Malaysia-Thailand Joint Authority (MTJA) has 14 offshore platforms and 1 FPSO.

The MTJA was formed based on an agreement for managing exploration for hydrocarbons in disputed and adjacent territorial waters in the Gulf of Thailand among Malaysia, Thailand, and Vietnam.

The age profile of the offshore installations (Table 2) indicates that about 48.1% are more than 20 years old and 11.8% are more than 30 years old.

Indonesia has 276 platforms older than 20 years old, which is more than 50% of its offshore facilities.8

In Malaysia, 48% of the platforms have exceeded their 25-year design life. About 28% of these platforms are off Sarawak, 12% off Sabah region, and the remaining 8% off Peninsular Malaysia.9

Table 3 shows the water depths of the installations, but information is missing on more than 171 offshore installations. It should be noted that 85% of the offshore installations are in relatively shallow water (<75 m), but there are 239 offshore installations in more than a 75-m water depth.

Table 4 summarizes the weight of the offshore installations. About 78.7% weigh less than 4,000 tonnes.

The heaviest offshore installation in the region is the Malampaya platform in the Philippines that weighs 102,500 tonnes. The Malampaya platform consists of a deck supported by a concrete gravity substructure (CGS) and is in 43 m of water.

Australia also has two large gravity-base structures: the Tuna West GBS weighing 102,000 tonnes and the Wandoo B weighing 88,000 tonnes. The Tuna West GBS is in 61 m of water and has a topsides weighing 7,000 tonnes.

In the region, 53.8% of the offshore installations weigh 2,000 tonnes or less and are in shallower waters.

Decommissioning10

The main drivers for removal are current international treaties and conventions, to which the Asian-Pacific countries are signatories, and local national laws and regulations. The three main international conventions or treaties that affect decommissioning are:

1. UNCLOS. The United Nations Convention on the Law of the Seas, 1982, Article 60 (3) that permits partial removal of structures provided that the International Maritime Organization (IMO) criteria are met. This came into force in 1994.

2. London (Dumping) Convention. The 1972 London Convention (and the subsequent 1996 protocol) gave a generic guidance for any wastes that can be dumped at sea and specified different classes of waste, including platforms and other man-made waste. The convention partially covers the conversion of platforms to reefs. The new guidelines were adopted in 2000.

3. IMO. The International Maritime Organization sets standards and guidelines for removal of offshore installations worldwide. The 1989 IMO guidelines require the complete removal of all structures in water depths shallower than 100 m and jacket weight lighter than 4,000 tonnes. It allows partial removal of installations in deeper waters, leaving a minimum 55 m of clear water for navigations safety. All structures installed after Jan. 1, 1998, must have a design that allows for complete removal. Some exceptions are:

    • The installation will serve a new use if it is permitted to remain partially or wholly in place.
    • Complete removal is not feasible technically; however, installations after Jan. 1, 1998, should have a design that allows for a technically feasible complete removal.
    • Complete removal would involve extreme cost or extreme risk to personnel or the environment.

Decommissioning impediments

In recent years, the countries in the region have developed local national laws and regulations concerning decommissioning.

The first contractual relationships between governments and companies neglected to consider decommissioning in sufficient detail. In fact, many of the earlier contractual regimes insisted that the concessionaire return all offshore and onshore facilities to the host country at the end of field life.

Some early production sharing agreements require that all imported facilities belong to the nation. The international oil companies used the installations during the entire operation, but the ownership belonged to either the national oil company or the host country.

The three main types of contractual regimes in the region are concession or royalty/tax system, production-sharing contracts-agreements, and service contracts.

All three contractual regimes historically have varied from being completely silent on decommissioning to having insufficient linkage and clarity between contractual regimes and the state law or regulation on decommissioning.

Furthermore many states had in place no suitable laws or regulations on decommissioning when these first-generation contractual regimes were devised. Table 5 lists the contractual regimes for various countries.

As these regimes have evolved, a legacy of multigenerational agreements has remained in place with different terms and financial arrangements for decommissioning. In countries with older producing oil and gas concessions, this legacy has in many cases resulted in the accrual in escrow of insufficient funds for decommissioning and tax regimes that are not optimized for decommissioning fund management.

Hence, installations that should have been removed have been mothballed or subjected to an uneconomic operational regime. As these mothballed platforms deteriorate due to insufficient maintenance, the cost of decommissioning likely will increase.

In recent years many countries have improved their management of future decommissioning cost management through revised regulations and updated contractual regimes that clearly address decommissioning as part of the life cycle of an offshore facility.

The Association of Southeast Asian Nations' Council on Petroleum (ASCOPE) decommissioning group, which represents nine Asia-Pacific countries, has been successfully coordinating a sustained effort to address regional decommissioning problems. In some countries there remains a historical gap in decommissioning funding that countries will need to address, although most have increased their vigilance on decommissioning planning and cost management.

Decommissioning projects

The Asia-Pacific region has had only a few offshore oil and gas facilities decommissioned. The first decommissioning projects in the region were carried out with minimal international regulatory interference because they occurred before the 1989 IMO guidelines and before the ratification of UNCLOS 1982, Article 60 (3).

Based on the best available information,12 the region has had 91 offshore installations removed since 1975.

Between 1975 and 1984, Brunei Shell Petroleum Co. decommissioned 23 small offshore installations, bringing all redundant structures either onshore for scrapping or disposing of them in international deep water after bringing the topsides onshore.13 14

Brunei instigated a formal rigs-to-reef policy in August 1988 and Shell started disposing of the redundant structures as artificial reefs in an area well outside commercial shipping lanes (Fig. 2). In 1988, the company placed two redundant offshore oil platforms on the seabed northwest of the original Tyre reef at Two Fathom Rocks near Jerudong. This program is the first in the Asia-Pacific region where redundant oil platforms serve as intentionally built artificial reefs.

In 1994, the company built a second reef from five redundant jackets and structural components from four other platforms, between 85 and 165 tonnes, at Two Fathom Rocks.

The largest offshore installations decommissioned in the region to date are the Aga platform, 4,860 tonnes in 94 m of water, and the Aga North platform, 4,700 tonnes in 82 m of water. Both were removed in Japanese waters.

To date, the region has had only 5.2% of the offshore installations removed.

Future decommissioning

The age profile of the offshore facilities in the Asia-Pacific region can indicate the potential timing and size of the decommissioning market. Also water depth and weight of the installations will indicate that number of offshore installations required to be removed totally under the IMO regulations.

Based on this age profile and assuming a platform design life of 25-30 years, one would have expected that between 206 and 570 offshore installations would have been decommissioned by now.

But as seen in Table 6, only 74 offshore installations have been totally removed and 16 partially removed. But as countries have addressed the historical gap in decommissioning funding and begun ongoing decommissioning planning and cost management, one would expect to see acceleration in the decommissioning of redundant offshore facilities in the region during the next 5 years.

Currently the Iwaki platform decommissioning project is ongoing in Japan with removal of the 20,734-tonne platform scheduled for May-June 2010.

The Iwaki platform is northeast of Japan in 154 m of water. The plan involves removing the topsides with the Sapura 3000 crane vessel and then placing the top 97.6 m of the jacket on the seabed next to the jacket base to form an artificial reef. When completed, this would be the largest jacket converted into an artificial reef to date.

Decommissioning costs

Because each offshore installation is unique, an accurate cost estimate (±30%) requires a specific evaluation, risk assessment, environmental assessment, and cost analysis for each offshore facility. Because this would be a huge task, we did not attempt this approach in our cost estimate but aimed for a rough cost estimate based on:

• Available Asia-Pacific decommissioning cost data.

• Regional Asia-Pacific cost database covering all marine spread and services required.

• A modified worldwide decommissioning database (to supplement the limited decommissioning cost data in Asia-Pacific region) to generate an approximate mean cost per tonne.

• An average cost per tonne in the offshore facility weight range.

• An average cost per offshore facility in the weight range

• Exclusion of the costs for well plug and abandonment and subsea installations.

• Assumption that pipelines are left in place.

• Assumption that the offshore installations will be totally removed.

Table 7 shows the rough cost estimate for only 819 offshore facilities out of the estimated 1,732 offshore facilities in the region because key data were missing on the other offshore facilities.

Because of the missing information, the decommission costs are much greater than the estimated $15.2 billion shown in Table 7 and could be as high as $32 billion.

References

1. Waste recycling for sustainable development: the case of obsolete oil and gas production structures in Asia-Pacific waters (Country Perspectives), Vol. 2, UN Economic & Social Commission For Asia And The Pacific, 1994.

2. Reverse Engineering Ltd. various decommissioning studies in Asia-Pacific Region, 1992-2008.

3. REL internal worldwide decommissioning database, 2009.

4. World Offshore Field Development Guide Database—Vol. 2: Asia, India, Australasia & Far East, OPL, 2009.

5. "Technical aspects and legal framework for the removal and disposal of offshore installations and structures in Asia and the Pacific," Vol. 3, Country and industrial perspectives: The case of obsolete oil and gas production platforms in Asia-Pacific waters, UN Economic & Social Commission for Asia and the Pacific, 1996.

6. Fjellsa, O., "Technical aspects and legal framework for the removal and disposal of offshore installations and structures in Asia and the Pacific," UN ESCAP, Bangkok, 1995.

7. Martin, P.E., "Decommissioning: The United States Government Prospective," Minerals Management Service, OGP Workshop, Houston, Sept. 27, 2000.

8. Pradnyana, G., "Guideline for Offshore Platform Decommissioning in Indonesia," ASCOPE Workshop on Regional Guidelines for Decommissioning & Removal of Platforms, Hanoi, Feb. 25-27, 2009.

9. Shuhud, I.M., "Decommissioning: A Malaysian Overview," ASCOPE Workshop on Regional Guidelines for Decommissioning & Removal of Platforms, Denpasar, Indonesia, Apr. 3, 2008.

10. Legislative framework, Oil & Gas UK, May 14, 2009.

11. Hewitt, T., "The legal framework for offshore decommissioning in the Asia-Pacific Region," Offshore Decommissioning Summit, Asia-Pacific, Kuala Lumpur, Oct. 1, 2009.

12. Twomey, B.G., "Introduction to Offshore Asia-Pacific," Offshore Decommissioning Summit, Asia-Pacific, Kuala Lumpur, Oct. 1, 2009.

13. Twomey, B.G., and Shaw, D., "Strategic Decommissioning Study for Brunei Shell Petroleum Co., Sarawak Shell Bhd., and Sabah Shell Petroleum Co. Ltd.," Reverse Engineering Ltd., March 1998.

14. Haji, M., and Nasar bin Haji, M., "Rigs to reef," UN Economic & Social Commission for Asia and the Pacific (ESCAP), 1994.

The author

Brian Twomey (twomeybg@gmail@com) is the managing director of Reverse Engineering Services Ltd., Manchester, UK, responsible for decommissioning and abandonment operations planning, decommissioning engineering, peer review work, and cost analysis. He has worked on oil and gas decommissioning and pipelines for more than 22 years and has carried out decommissioning work on more than 700 offshore installations worldwide. Twomey holds a BSc in mechanical engineering from Birmingham and an MSc and a PhD in applied mechanics from the University of Manchester Institute of Science and Technology (UMIST).

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