Decommissioning a $60bn opportunity

Australia's oil and gas industry faces a huge clean-up task over the coming decades.

It will need to spend an estimated $60 billion decommissioning equipment on projects that have reached the end of their economic life, with the majority off the coast of Western Australia.

Woodside Energy will be one of the biggest spenders: it has set aside $US6.2 billion ($A9.5 billion) in restoration provisions, according to its most recent annual report.

Santos also faces a very large bill. It has restoration provisions of $US3.9 billion ($A6 billion).

Exactly when and how that money is spent remains unclear. Nonetheless, the overall task is so vast, decommissioning is being spoken of as a new industry.

The Australian government is preparing a ‘roadmap’ to try and maximise jobs in the sector, while the WA government has been co-funding studies on the best places to undertake this work.

Against that backdrop, a planning dispute at Onslow illustrates how the different tiers of government do not always work well together.

Private Perth company Onslow Marine Supply Base was one of the early movers in the sector.

Its namesake supply base at Onslow’s Beadon Creek features a multi-user wharf designed to meet the needs of the offshore oil and gas sector under a prescribed premise licence granted by the Department of Water and Environmental Regulation.

Contractor Liberty Industrial was planning to use the facility to dismantle some of Chevron’s old equipment before taking it away to licensed waste facilities.

That raised the ire of the Shire of Ashburton, which said the site would process up to 10,000 tonnes per annum of scrap metal and 3,500tpa of other waste.

The shire said it acknowledged the need for decommissioning of resources sector waste material.

“Critically however, the shire’s support for these activities has never obviated the need for the relevant parties to apply for, obtain and comply with all necessary approvals from the shire and other relevant decision-making bodies,” it stated last month.

OMSB chief executive Andrew Natta insists the facility is compliant.

“Our existing approvals expressly permit servicing the resource industry and OMSB has provided the shire with detailed reasons for why it does not believe further approvals are required,” Mr Natta said.

The dispute, which is before the Supreme Court of Western Australia, is a worrying signal for the industry, as Onslow has been selected as one of the preferred locations for decommissioning work in WA.

The study of port locations was commissioned by the Centre of Decommissioning Australia (CODA), which is backed by the industry and the state government.

CODA initiated the study after quantifying the vast scale of the decommissioning task.

Across Australian waters, it will involve the removal of more than 50 platforms – large steel structures embedded in the sea floor – and 11 floating facilities.

About 1,000 wells need to be securely plugged. Or to use the unfortunate industry jargon, plugged and abandoned.

The industry has laid about 8,000 kilometres of pipelines and ‘umbilicals’ on the sea floor and installed hundreds of ‘flexible risers’ and ‘subsea lifts’.

Put another way, CODA has estimated up to 5.7 million tonnes of material will need to be removed from offshore projects.

Around 60 per cent is steel, which opens up a big opportunity for recycling, and a further 25 per cent is concrete (as part of offshore structures or pipeline coating).

Much of this material needs to be towed to ports where it can be dismantled before being transferred to appropriate recycling facilities.

Once the material has been removed, the marine environment needs to be rehabilitated.

CODA chief executive Francis Norman said there was a big opportunity for local industry to participate.

“This participation, however, will be contingent on having access to appropriate local facilities where the decommissioned and removed equipment can be landed for dismantling,” he said.

Samantha McCulloch is leading an industry push for more flexibility in decommissioning programs.

The CODA study identified four ports that are best suited to handle this work.

For smaller, lightweight material such as flexible pipelines and cables that can easily be transported, the ports at Onslow and Ashburton were found to be most appropriate.

A key advantage is their proximity to the oil and gas projects.

For large steel structures, the only suitable facilities were the Australian Marine Complex at Henderson and the port at Bunbury.

“Both of them would need some modifications to accommodate the size and type of equipment we’ve got,” Mr Norman said.

He noted that the volume of work in Australia was much smaller than in Europe, where several new facilities have been built.

“There isn’t the volume of material to make it sensible and cost effective to establish a new facility,” Mr Norman said.

The CODA study also looked at the likely needs of the offshore wind industry, which is targeting the coast between Bunbury and Mandurah for wind farms.

“For that, you need a facility more or less the same size and shape as you need to decommission one of these big structures,” Mr Norman said.

“So there is a lot of synergy in the facilities you need at a port and the skills you need.”

Federal Resources Minister Madeleine King is tuned in to the same opportunity.

“The Australian government wants as much of the anticipated sixty billion dollars in spending to remove old oil and gas infrastructure to be spent backing Australian ingenuity and jobs,” Ms King said recently.

“We want to build an industry to service not just ageing offshore oil and gas assets in Australia, but also meet future demand for sustainably decommissioning offshore wind farms at the end of their productive life.”

In support of this goal, the federal government is currently consulting with producers, service providers, unions and environmental groups on a roadmap for the decommissioning sector.

Mr Norman said there was a strong appetite to do the decommissioning work in Australia.

“Legislatively it is getting increasingly hard to transport this material across borders for disposal in another jurisdiction,” he said.

“It is easier to control the process. You have more visibility on the disposal chain.

“I think, increasingly, the work is likely to happen in Australia so long as we have places to do it.”

However, he cautioned the sector would not be a big jobs creator.

“Decommissioning isn’t an employer of very large numbers of people,” Mr Norman said.

“It has a much smaller workforce than a construction project would, but there are specific skills that are needed.”

He said Australia was more advanced than many other jurisdictions.

“Because of what happened off the back of Northern Endeavour, we are about three of four years ahead of a lot of the rest of the world in terms of our planning,” Mr Norman said.

Lessons

Northern Endeavour was a floating, production, storage and offtake (FPSO) vessel used to extract oil from the Laminaria and Corallina fields in the Timor Sea.

It was owned and operated by Woodside for most of its life but was sold in 2016 to a small company, Northern Oil and Gas Australia, that went bust just four years later.

That left the Australian government in charge of decommissioning a rusting, 270-metre vessel and the associated subsea equipment.

The cost of the clean-up has come to at least $500 million so far and is tipped to reach $1 billion.

The federal government introduced a special levy to cover the cost, to be paid by offshore oil and gas producers.

The levy collected $391 million in the year to June 2023, the first year in which it applied.

The federal government has also taken steps to ensure there is no repeat of the Northern Endeavour saga.

It amended the Offshore Petroleum and Greenhouse Gas Storage Act to introduce a new ‘trailing liability’.

Gavin Vallely, a partner at law firm HFW, described trailing liability as a regime whereby the regulator can, as a last resort, call back (that is, force) a past titleholder to remediate the environment or remove property.

“The new provisions expanded the existing remedial direction provisions to enable a greater range of people to be called back to do remedial work,” Mr Vallely said.

The changes enhanced the power of the regulator and brought Australia’s regime more closely into line with some of the other countries with significant offshore oil and gas infrastructure.

“It is important to note that, under the current regime, trailing liability only applies to titleholders, not operators, contractors, banks, employees and other stakeholders,” Mr Vallely said.

Greenpeace protesters draped a banner on Woodside's Ngurra riser turret mooring last year.

Further changes to this policy have been flagged.

“The government will develop and implement further reforms to ensure the costs and liabilities of Australian offshore oil and gas activities remain the responsibility of industry,” a federal government spokesperson said.

More work

The volume of decommissioning work in WA has increased in the past couple of years.

In part, this has been driven by environmental activists.

In one case, Greenpeace activists climbed onto Woodside’s Ngurra riser turret mooring (RTM) and draped a banner that read ‘Woodside, Don’t Be a Tosser’.

That followed the regulator – the National Offshore Petroleum Safety and Environmental Management Authority – taking compliance action against Woodside after the company was unable to comply with an originally approved plan to remove the Ngurra RTM.

Mr Norman said there had been a broad shift.

“The change in regulations that came off the back of Northern Endeavour were really what triggered this large volume of work we have now,” he said.

Last year, Woodside announced it had awarded contracts for the decommissioning of subsea infrastructure at its Enfield, Griffin, Stybarrow and Echo Yodel oil and gas fields off the WA coast.

It has also disclosed its spending on decommissioning will increase from about $US500 million in 2023 to $US800 million in 2024, before falling back to about $US400 million in 2025.

Woodside’s quarterly investor updates now include progress reports on its decommissioning activities.

The latest update said the Ngurra RTM had been successfully transported to Perth to be cleaned and dismantled ready for recycling.

Chevron has also been active.

It completed onshore decommissioning at its Thevenard Island oil field last year, nine years after production ceased, and is due to commence onshore decommissioning of its Barrow Island oil facility next year.

Key issues

A key question for the sector is whether all subsea equipment should be removed.

In particular, there are commercial and environmental arguments for leaving heavy trunklines in place.

Santos said leaving some of its pipelines in place would result in better environmental and safety outcomes than full removal and would be satisfactory to the relevant regulator.

It would also deliver a big financial benefit, with Santos saying its restoration cost would increase by as much as $US600 million if it needed to remove all major trunklines.

Industry lobby group Australian Energy Producers also argues that full removal of subsea infrastructure is not always appropriate.

“Full-removal requirements should be moderated to promote improved environmental outcomes and minimise disturbance of established marine ecosystems,” chief executive Samantha McCulloch said.

She also supports the repurposing of existing infrastructure, including for carbon capture and storage projects.

Santos has proposed that its depleted Bayu Undan gas field in the Timor Sea could be used for a CCS project.

If this project was to proceed, some existing assets would get a new lease of life.

“Extending the life of these assets will likely defer certain decommissioning activities and could reduce the decommissioning provision accordingly,” Santos stated.

HFW’s Mr Vallely said partial removal of structures and equipment is effectively a departure from the base case.

“It is possible, but will require the approval of the regulator following detailed engagement with each application being approached on a case-by-case basis,” he said.

“There are no guarantees that approval will be obtained for partial removal.”