UK oil and gas decommissioning costs cut by 25pc: NSTA

The estimated cost of decommissioning the UK's offshore oil and gas infrastructure has been reduced by a quarter in the past five years, according to new report from the country's North Sea Transition Authority (NSTA).

The total cost of decommissioning is now estimated at £44.5bn ($54bn), a drop of around £15bn since 2017, when the NSTA — formerly the Oil and Gas Authority — introduced a five-year cost reduction target.

The estimate has fallen every year since 2017 but the pace of decline has slowed in the past two years partly due to the logistical and economic pressures of the pandemic, the NSTA said. The current forecast is just 2pc lower than a year earlier.

The NSTA's original target, based on 2016 prices, was for a 35pc cut by the end of this year compared with 2017 levels. "The Covid-19 pandemic has undoubtedly had a negative impact on progress, and it will be challenging to achieve the ambitious 35pc target set by the NSTA by the end of 2022," the report said.

Spending on decommissioning totalled £1.2bn in 2021, lower than the forecast £1.4bn owing to improved project execution and some pandemic-related postponement, the NSTA said. But decommissioning spending is forecast to pick up to £1.5bn-2bn/yr in 2022-24, reaching £2.5bn/yr towards the end of this decade, according to the report.

The upstream sector can further reduce costs, although inflation, rising energy prices and increased demand on supply chains will prove challenging, the NSTA said. It also points to challenges stemming from emerging technologies. "The impact of having to decommission wells to the standard required for carbon capture and storage has not been fully quantified but presents a risk of future cost growth," the NSTA noted.

The organisation launched the UK's first carbon storage licensing round in June. It plans to launch a new baseline estimate and a new five-year cost efficiency target from the beginning of next year, which it is developing with the industry. The government benefits from lower decommissioning costs as the UK offers tax relief on decommissioning expenditure.

By Georgia Gratton