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Securing a new deal for onshore decommissioning

November 2017 White Paper


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Securing a new deal for onshore decommissioning

Summary

This White Paper reports the findings of a 12-month listening exercise conducted by Peel Ports Group to investigate how new infrastructure could address the challenges of onshore decommissioning.

It may turn out to be both, although there are far too many uncertainties to predict this currently with any significant confidence.

With the UKCS decommissioning process planned to span several decades, there are clear concerns from industry and governmental stakeholders about how costs are to be minimised and funded. However, improvements to decommissioning management also present significant opportunities for innovation, cost reduction and development of exportable UK skills and capability.

While much of the decommissioning work will inevitably be concentrated on offshore activities, onshore activities have the potential to secure greater efficiency, better yield from scrap, and more jobs for UK workers. These include dismantling and demolition; cleaning and handling of hazardous waste; reuse, recycle and disposal of all wastes; and temporary storage of economically-viable byproducts.

The paper argues, based on discussions with multiple industry experts, that a radical new ambition is required, focussed on applying productionline methodologies, creating economies of scale, better integrating waste management operations to maximise the yield of scrap, and securing long-term commitment from multiple partners.

However, as the OGA’s decommissioning strategy notes, the UK industry is largely unfamiliar with large-scale decommissioning projects. It is recognised that much can be learned and transferred from other sectors and industries, there is work to do to create the right commercial cultures and conditions.

It sets out a three-part economic model to achieve a step change in the strategic management and cost of onshore decommissioning activity which combines the economics of dry-dock working, the economics of space, and the economics of scrap.

For much of the UK continental shelf, Scottish ports and onshore facilities do already provide a range of benefits, not least in proximity. As described by Scottish Enterprise in its decommissioning strategy, onshore recycling and disposal is a mature sector with established supply chain partnerships; there are established contractors experienced in handling hazardous materials, and an increasing awareness of circular economy approaches focussing on re-use/ re-manufacturing.

When combined, these three elements respond to the call for three ‘moonshots’ for decommissioning, as outlined in this Paper. Critically, the failure to provide one or more of these will prevent the sector from achieving the prize of greater efficiency, improved safety, lower carbon, and better yield from materials.

The challenge

With energy industry analysts Wood Mackenzie reporting that there will be a taxpayers’ bill of around £24bn for the task of winding up oil and gas fields in the North Sea, the decom sector is facing tough questions about the cost effectiveness of existing solutions. The OGA’s target for the industry to reduce decommissioning costs by 35% is seen as by some as ambitious and by others as achievable.

However, there is competition from European ports and yards, particularly those with deep water access, which only a few Scottish ports can offer. It is also the case that steel recycling facilities and other final disposal options are not located in Scotland, meaning the economics of storage and transport need to be carefully considered. Jobs and the opportunity to add value to scrap are being lost. One thing that is abundantly clear is that new solutions are required. This White Paper explores what is required in onshore decommissioning to create and implement a realistic means of securing significant cost reductions and related benefits in safety, the environment and UK plc’s export capabilities.


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“You can’t really approach the decommissioning challenge in traditional ways; traditional thinking will get you traditional results. We really do have to think quite deeply and differently about it, and draw on all the expertise in the industry, take on the issues, find the solutions and smart ways of working together whether in execution strategies of contracting strategies.” Steve Phimister, Upstream Director UK and Ireland, Shell (Quoted in Offshore Engineer, November 2017)

Methodology

This White Paper represents work over a 12-month period, led by Alex West of Westlord Associates (an adviser to Peel Ports Group on decommissioning) and Hamish Scott, Peel Ports Group’s Strategy Director. Together, they held more than 30 face-to-face and telephone discussions with senior executives and managers working for organisations involved in the following sectors: • • • • • • • • • • • • •

Oil & gas production Project management Engineering services Asset management Demolition Heavy lift and other marine services Scrap trading Steel production Recycling Waste management Governmental policy development Trade unions Economic development

This listening exercise was aimed at developing a greater understanding of the onshore decommissioning sector, gathering intelligence on the most important factors to particular interest groups. Named ‘Designed for Decom’, the ambition behind the project was to develop a new proposition for onshore decommissioning that would drive down costs, improve the value of waste material, and enable work to be carried out in the UK rather than being lost to overseas competitors.

“[The North Sea is set to become] a significant annual expenditure for government, rather than a provider of income.” Fiona Legate, Senior Analyst - UK Upstream Oil & Gas at Wood Mackenzie (Quoted in Financial Times, January 2017)

Through this primary research with decommissioning stakeholders, the authors were able to distil the challenges facing the sector and identify opportunities to transform the economics of onshore decommissioning. The discussions explored the opportunities for progress through the use of new infrastructure, the use of new ways of working, and new formats for strategic partnerships. This work has resulted in the development of what is termed ‘a new deal for onshore decommissioning’: a scheme to unlock economic value, consisting of three new ‘moonshots’ and a three-part economic model.

Profile: Alex West Alex West has extensive experience in all aspects of decommissioning having held Technical and Operations Director roles for a leading service company. He was a founding director of Decom North Sea, serving as Vice Chairman from 2009-2015, and has acted in an advisory capacity to international organisations and trade bodies.


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Securing a new deal for onshore decommissioning

Findings Moonshots Three ambitions for onshore decommissioning are central to the transformation of the economics, safety and environmental standards of the UK’s activities. These are founded on fundamental tenets of manufacturing and processing efficiencies, and have further been tested in discussion with senior executives in a wide range of expertise. 1. ‘Productionisation’ calls for a rethink of the conventional and dominant project-by-project approach. Batching work would reduce the costs of mobilisation and demobilisation. There is also the potential to secure the benefits of stacking and sequencing work to achieve smooth workflows and improve capacity usage of infrastructure and labour. 2. The creation of a ‘decom campus’ would seek to use co-location as a means to drive efficiency improvements. It would bring together the full range of specialists involved in onshore decommissioning and repurposing, from inspection and dismantling to hazardous material management and recycling. This approach would also allow maximum value to be extracted while minimising wasted costs through transport and other logistical inefficiencies. 3. Commitment is essential for providing the stability, predictability and certainty required for investment. The benefits of batch and scale require this. Any new solutions that will help the UK achieve its decommissioning objectives will require this investment – of money, time and faith. As can be inferred from the above, all of these ‘moonshots’ are complementary and, indeed, highly interdependent. Investment by facilities providers and/or the government to create the necessary infrastructure is highly likely to depend on a long-term commitment by the customers of those facilities. However, it may not be possible to secure this until the customers are clear that it will be possible to achieve the benefits required to justify this commitment. Such a ‘chicken and egg’ situation - allied with the scale of challenge - will require a greater

degree of transparency, cooperation and risk than may be traditionally comfortable for many players in this market. This means that stakeholders in the decommissioning process will need to take a different approach to co-creating solutions that the whole sector can benefit from. Three-part economic model Having tested the above ‘moonshots’ with sector representatives, and subsequently refined them, the project then explored the more practical implications of this radical new ambition and some of the key enablers required to deliver it. The outcome was a three-part economic model, with each element essential to the others being viable solutions for onshore decommissioning, not only financially but in maximising safe operations, minimising environmental risk and impact, and developing exportable expertise and capabilities that can benefit the UK economy. 1. Economics of dry-docking Dry docks offer potentially significant benefits for a wide range of structures that float or have a significant below-waterline component where these would be difficult to bring back directly to a quayside. These could include Floating Production Storage & Offloading (FPSO) and other Floating Production Units, Mobile Offshore Drilling Units, subsea storage tanks, gravity base structures and self-floating substructures. Dry docks have a variety of advantages, including: • Safe working in stable, dry environment on multiple workfaces • Easy ‘walk-to-work’ site access • Full containment of all hazardous elements, materials and fluids • Stability of working area enhances the ability to easily separate structures into components and blocks for easy onward transportation – for sale, refurbishment, storage or recycling. Ideally, dry docks to be used in onshore decommissioning would also have deepwater access, gate access and previous experience of either offshore structure production or decommissioning.


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“Open sea deepwater access to an unrestricted harbour is of prime importance to be able to get rapid vessel turn-round and better project economics” Heavy lift vessel owner

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“Scotland needs oil & gas decommissioning capacity to cope with the bulge of work which is coming” Oil operator & asset owner

2. Economics of space The research identified the practical challenges and limitations of small quayside footprints for onshore decommissioning activity as well as the additional costs associated with logistics and inefficiencies where complementary activities cannot be colocated. It is often not possible to concentrate activity on a single site, meaning it is not possible to achieve the economies of scale that are required to drive down decommissioning costs. Having adequate space is a vital prerequisite of two of the ‘moonshots’ set out above: ‘productionisation’ and the ‘decom campus’ approach. There is an opportunity for large-scale brownfield sites which can deliver these along with access to deep water, labour and the wider supply chain. 3. Economics of scrap To minimise costs it is essential to extract full value from the material salvaged through decommissioning. This means treating ‘scrap’ as an asset rather than a cost, and an activity that is seen as a job creator rather than an area where work is lost to overseas markets. To achieve this would be to show how the UK can make the ‘circular economy’ more of a reality than an ambition.

This aligns with the government’s aim of finding solutions that maximise value for our communities and the taxpayer, and would demonstrate this country’s capabilities in dealing with scrap responsibly to the highest standards. The call from the research is for an approach that maximises value from scrap and cuts logistics costs for waste handlers. This is an area where Peel Ports already has some existing expertise, given that 45% of Scottish scrap metal exports already flow through its facilities. The research still sought to understand the views of its current and potential partners on how to extract more value, and minimise risk in the sector. Many operators value the opportunity to ‘set down’, i.e. temporary storage of materials, so they can optimise the timing of disposal in line with market conditions. Ideally, this would involve locating dismantling activity close to existing outlets and co-locating recycling and other waste management activities alongside this. The research suggests that better use of set down, improved co-location and improved proximity to existing scrap outlets could improve yield per tonne enough to tip projects towards UK sites rather than overseas locations.

“We will introduce large scale, collaborative approaches to re-use, including identifying priority components for re-use in the oil and gas industry, developing protocols and standards for component reuse and supporting the development of re-use markets in oil and gas and other sectors” Scottish Government Strategy


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Securing a new deal for onshore decommissioning

Conclusion The UK has the opportunity to drive down the cost of decommissioning, in a way that also benefits workforce safety, the environment and the UK’s export capabilities.

Such an approach would also present the advantage of being able to co-locate the wide variety of specialisms required throughout decommissioning.

The three key onshore dependencies required to deliver this are dry-docking, onsite economies and efficiencies of scale, and the use of space to maximise yield from waste materials.

Finally, operators and the government must make a shared and tangible commitment to realising this ambition, thus enabling supply chain and infrastructure providers to make the necessary, significant and long-term investments with confidence.

Critically, they must all be present to allow commercial and public partners in the decommissioning process to create strategic centres that will facilitate a more efficient production-line approach.

About Peel Group and Peel Ports The Peel Group is one of the UK’s leading infrastructure, transport and real estate investors with collective investments owned and under management of more than £5 billion. The Group has a record of facilitating transformational change in range of sectors from media to energy, and its success is based on its ability to invest for the long-term and form partnerships across industry with companies that share the scale of its ambitions. Investments have included MediaCity in Manchester, Pinewood Studios, the Trafford Centre and Liverpool John Lennon Airport. The Peel Group owns Peel Ports Group, which also has an extensive track record of delivering some of the UK’s premier industrial developments.

Recent examples include the £400m Liverpool2 container terminal, a £100m biomass terminal at Liverpool, multi-site cement import hubs at Manchester and London Medway, and a £150m tri-modal logistics hub currently under development at Port Salford. Peel Ports Group also has extensive experience of servicing the decommissioning sector through its Great Yarmouth facility, where it supports South North Sea projects undertaken by several leading service companies.

About Hunterston Port and Resource Centre (PARC) Hunterston PARC is owned and managed by Peel Ports Group. Located in Ayrshire on Scotland’s west coast, the site offers a unique combination of a deepwater berth, a dry dock, 320 acres of development land, rail terminals and energy from private wire supply and the grid.

HUNTERSTON


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Securing a new deal for onshore decommissioning

References 1. House of Commons briefing paper (CBP 07268)

http://researchbriefings.files.parliament.uk/documents/CBP-7268/CBP-7268.pdfw

2. Scottish Enterprise decommissioning action plan

https://www.scottish-enterprise.com/~/media/se_2013/sectors/documents/se%20decom%20action%20plan%20 for%20online%20se_4652_feb17.pdf?la=en

3. Oil and Gas Authority decommissioning strategy:

https://www.ogauthority.co.uk/news-publications/publications/2016/decommissioning-strategy/

4. Offshore Engineer, November 2017

https://mydigitalpublication.com/publication/?m=41347&l=1&p=&pn=#{“issue_id”:449498,”page”:0}

5. Financial Times, January 2017

https://www.ft.com/content/9b1d17d0-d425-11e6-b06b-680c49b4b4c0

6. Scottish Government – A Circular Economy Strategy for Scotland http://www.gov.scot/Publications/2016/02/1761

Hamish Scott Strategy Director, Peel Ports Group T: 0151 949 6000 | M: 0773 453 0999 E: Hamish.Scott@PeelPorts.com

Securing a new deal for onshore decomissioning  

Read our latest white paper for onshore decommissioning.

Securing a new deal for onshore decomissioning  

Read our latest white paper for onshore decommissioning.