Decommissioning exercise could create thousands of jobs in the North East

Hundreds of offshore oil and gas platforms will be recovered from the North Sea over the coming years and this huge decommissioning exercise could create 7,000 North East jobs

An oil platform being decommissioned
An oil platform being decommissioned

Next week more than 40 businesses and public bodies, including some oil and gas majors, will gather on Tyneside to discuss the opportunities in the offshore sector.

But this time, it’s not about the prospects for offshore wind, “green jobs” or further subsea oil and gas exploration.

Binding international conventions stipulate that almost all of the 600 or so offshore oil and platforms in the North Sea, and associated subsea infrastructure, must eventually be removed.

Ed Brown, of Newcastle oil and gas consultancy Hardy AVAAR, has organised this decommissioning conference in central Newcastle and says the prospects for the North East region are immense.

Analysis by industry body Oil and Gas UK and decommissioning agency Decom North Sea put the value of this work at £30bn over the next 25 years, with the potential to create and sustain more than 35,000 so-called “brown jobs”.

Brown says: “If just 20% of that market could be captured by the North East that has the potential to create 7,200 jobs. The decommissioning sector has been bubbling up for a few years but we expect to see some major progress over the next five to ten years.

“The Tyne, the Wear and the Port of Blyth are all ideally suited to handle these huge structures and we have the skills in the area to undertake the work. The opportunities for the North East are huge.”

A recent survey by industry body Oil & Gas UK highlights these opportunities. It recently conducted a survey of 25 oil and exploration and production companies to gauge their decommissioning plans.

The subsequent report highlights an increase in decommissioning activity after 2014. It says £4.5bn is expected to be spent by 2017, £10bn by 2002 and £30bn by 2040.

Brown says the decommissioning market should grow from 10 platforms a year in 2018, to 20 platforms a year by 2020.

“This work has to go somewhere and we want to ensure we can secure a good chunk of this for the region,” he said. The first North Sea oil and gas platform was built on Tyneside and over the years almost three-quarters of fabrications came from the North East.

There are now some 450 in UK waters, with a further 150-plus off Norway, the Netherlands and Denmark.

Almost half of these platforms are over 15 years old, with the current average age of a decommissioned platform being 17 years.

To date only 39 platforms have been decommissioned since the first installations on the Brent, Fortes and Ekofisk fields in the 1970s.

Decom North Sea has been established with funding from Scottish Enterprise, Highlands & Islands Enterprise and the Department for Energy & Climate Change (DECC) to lead the UK’s decommissioning activity.

It aims to encourage the supply chain, respond to the economic, technological and strategic challenges, and co-ordinate activities to support the industry.

Decom represents all nations operating in the North Sea, with most decommissioning work to date being carried out in Norway. A recent report from Decom highlights four North Sea yards which have handled larger scale projects to date with two of these being in Norway one in Shetland and one on Teesside.

Able UK operates the Teesside Environmental Reclamation and Recycling Centre (TERRC) at Seaton Port, Billingham, and has been decommissioning redundant offshore oil and gas structures at the facility since 1985

Peter Stephenson, executive chairman of Able UK, said: “We have completed decommissioning of 17 projects to date.

“At this stage we had expected to be doing four to five platforms a year, but the industry has not yet developed as expected and it may yet be another few years before it really takes off.”

Stephenson highlights a number of issues which impact on the speed and scale of decommissioning activity.

“The ability of the oil companies to find more oil reserves and improving technology mean existing platforms are continuing to operate, longer than anticipated.

“The current price of oil makes it more attractive to extract more difficult to get reserves.”

He added: “We expect decommissioning to eventually grow, but do not anticipate decommissioning more than one structure a year for the next few years.”

Oil and gas production in the North Sea fell from a high of 4.5 million barrels of oil equivalent a day (boe/d) in 1999 to 1.5 million boe/d last year.

But Government tax breaks and new recovery techniques mean there will be a record investment of £13bn in the UK continental shelf this year, which will help production bounce back to two million boe/d by 2017.

In the last Budget, Chancellor George Osborne gave the decommissioning industry a shot in the arm announcing the 50% tax relief operators can claim for decommissioning costs can be passed on if it sells the asset to a new operator.

There are concerns that decommissioning will be hampered by a shortage of skills and equipment.

Oil and Gas UK has warned there are a limited number of companies with the capacity to lift and transport the massive tonnage involved in scrapping some of the largest installations.

Brian Nixon, chief executive of Decom North Sea, has concerns that if the renewables sector gathers momentum there won’t be enough skilled staff to meet the demands of both “green” and “brown” offshore industries.

He said: “What you also have to bear in mind is that we have offshore wind picking up, and it is going to pull on the same kind of companies and the same kind of skills as we need for offshore oil and gas decommissioning.”

Paul Charlton, chief executive officer of subsea firm PDL Solutions of Hexham sits on the board of Decom North Sea, and industry body Subsea North East.

Charlton says all of the operators in the North Sea are well on with their decommissioning plans, although the actual timing of the work is uncertain.

He added: “At this stage decommissioning is still an emerging market, but it is real, it will happen and the North East is ideally placed to capitalise on the opportunities it offers.”

Oonagah Werngren, Oil & Gas UK’s operations director, shares these sentiments. She said: “The North East of England, with its rich heritage of manufacturing and engineering expertise, continues to play a significant role in supporting the UK oil and gas industry’s efforts to maximise recovery of the remaining estimated 24 billion barrels of oil equivalent on the UKCS.

“While the oil and gas industry today focuses on realising the potential of those reserves, an increasing number of decommissioning projects appear on the horizon and represent growing business opportunity for the UK supply chain, particularly for those companies in the North East which have heavy engineering capability.”

Brown expects the region’s ports to play a major role in the decommissioning sector and the Port of Sunderland is actively exploring the opportunities in this market.

Coun Paul Watson, leader of Sunderland City Council and chair of the port board, said: “Sunderland is extremely well-placed to support companies involved in the decommissioning of North Sea oil rigs. Our closeness to open sea and the availability of laydown and storage space is something we believe will be extremely attractive to businesses operating in this sector.”

The port was recently involved in a small decommissioning project, with the Bibby Topaz docking last summer while undertaking a project to clear subsea metal work in the North Sea.

Port of Sunderland believes that Greenwells Quay – which has seen significant investment as part of a wave of improvements undertaken at the port over recent months – is an ideal facility for decommissioning projects, with a Heavy Lift Crane Slab and Heavy Weight Load-Out Quay available for use.

Matthew Hunt, director of Port of Sunderland, said: “We have invested heavily in equipment to support with heavy lift projects, and believe that we have the right assets to tap into this potentially lucrative sector.”

Paul Livingstone, business development manager at Durham-based membership body NOF Energy, said: “Decommissioning is a growing market which presents a wealth of opportunities for our members, potentially creating millions of pounds worth of contracts and supporting thousands of jobs.

“We have a number of members who would be well-placed to gain from these emerging opportunities. We have been working closely with Decom North Sea to help put our members in the best possible position to take advantage of this exciting new market.”

In attendance at next week’s meeting will be many of the industry’s main players including US, Canadian and European oil majors. Brown is aiming to provide a one-stop solution for these industry giants.

He said: “They don’t want to have to deal with numerous contractors. We want to establish a North East consortium which can handle the whole process.”

Also in attendance will be Decom North Sea chief executive Brian Nixon, representatives from North East offshore supply chain businesses, local authorities and the Local Enterprise Partnership (LEP)

Edward Twiddy, director of the North East LEP, said: “We are very supportive of the Hardy AVAAR initiative and its aim of creating a North East consortium to bid for major decommissioning work.

“If the bid was to be successful, it could create significant numbers of skilled jobs in the area, and long-term opportunities for growth.

“The North East LEP is helping to advise Hardy AVAAR and hopes to be actively involved in supporting its plans for a bid.

“If the bid is successful, the LEP’s North East Investment Fund is a possible source to help fund infrastructure for the chosen location.”

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