Decommissioning Challenges Escalating in South East Asia

For many decades now, South East Asia has been an important oil and gas producer, accounting for five percent of current global oil production. But now, age has caught up with oil and gas infrastructure in Myanmar, Thailand, Vietnam, Brunei, Malaysia and Indonesia.

In February 2018 the Jakarta Post estimated that over the next decade, around 380 fields will cease production, leaving 35,000 offshore wells serviced by 2,600 platforms incorporating 7.5 million tonnes of steel and more than 55,000 kilometres of pipelines for decommissioning.

Decommissioning costs
Decommissioning is expensive. Wood McKenzie estimates that operators of offshore installations in the Asia-Pacific region, which includes the South East Asia region, Australia and New Zealand, could face a total decommissioning bill of over $100 billion for just 2,600 platforms and 35,000 wells. Between 2018 and 2022, the spend on decommissioning in Australia and Malaysia alone could amount to some $25 billion.

Most countries in the region, apart from Australia and Thailand, have yet to develop the comprehensive legislative and regulatory frameworks for decommissioning. Wood Mackenzie notes that apart from Singapore — which seems to be developing into a hub of financial, technical and skilled expertise, in the same way as Aberdeen for the North Sea – -the rest of the region has neither industrial nor financial capacity.

Legislative and regulatory framework
There is no common regulatory legislative or regulatory framework governing decommissioning. For example, Thailand has one of the most advanced petroleum regimes in the region but Indonesia is just starting. In addition, not all countries have signed up to the relevant United Nations Conventions, international agreements such as the Basel Conventions (1989, 2011) nor regional agreements such as the Coordinating Body Of The Seas Of South East Asia (Cob sea) and the Regional Sea and Asian Council Of Petroleum (Ascope) Guidelines.

Paying for it
It is not only the cost but also funding that concerns governments and companies alike. The latter can pay for necessary decommissioning costs by directly self-insuring with the purchase of specialist insurance products, or indirectly, by creating a licensed insurance company. Alternatively, companies can self-pay by contributing to designated reclamation bonds or common bond pools held by states or regulators or, more directly, with letters of credit and escrow accounts.

However, as Alberta and Texas have shown, these schemes have insufficient funds to meet cover decommissioning and rehabilitation costs. To address this problem, London based start-up, Quatre Ltd. offers both an investment and insurance package under which oil and gas companies can securely and tax efficiently set aside an amount each year to fund future liabilities, providing stakeholders with the assurance that future decommissioning and reinstatement liabilities will be met.

A matter of innovation
Decommissioning projects require superior management skills and specialist equipment to dismantle, lift and transport huge parts of oil and gas infrastructure. For example, removal of the Brent Spar platform depended on Allseas’ Pioneering Spirit, a purpose built single-lift vessel. But, doubling the maximum weight of heavy- lift vessels from 5,000 to 10,000-tonne could reduce future costs.

Likewise, where large numbers of ageing wells and platforms are concentrated, batch decommissioning could yield huge cost-savings. Economies of scale and cost savings are also to be found by employing batch decommissioning across blocs of different operators. The offshore fields of Peninsula Malaysia and Sumatra are prime candidates for these cost saving approaches.

The imminent need for decommissioning of a large inventory of ageing oil and gas infrastructure could be helped by information-sharing and capability-building, both within and between regulators and operators to ensure consistent, consensual and cost-and-time efficient outcomes.


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