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Hand of a businessman stopping the chain of falling dominoes

Four ways to manage the domino effect of decommissioning.

The remaining life of the oil and gas industry has always been very difficult to predict, with numerous factors at play. The oil and gas price has the biggest influence on the number of years of remaining production - exposing high operating costs, with a significant number of UK oil fields operating at a loss.

Development engineers are often asked to predict when fields might reach the end of their field-life, when decommissioning might occur, or which infrastructure has the most robust field life in order to select export routes for new fields. These are difficult questions to answer given the complexity of the field and pipeline network in the UKCS, of which 90% are connected to over 70 pipelines, compounded by limited information in the public domain on long term plans.

Interconnected infrastructure

Infrastructure in the North Sea has developed by a "Hub and Spoke" system. Some of the initial giant oil and gas fields installed main trunk lines to onshore terminals; whilst fields which were developed latterly were installed as spokes to the hub, tapping into the existing infrastructure. This provided a lower capital cost for developing each field, however it now means many fields are inextricably connected. The shutdown of one field can lead to the premature closure of many others, either for technical or cost reasons; this is when the so-called "domino effect" can begin to take hold.

"Despite significant cost reductions, nearly half of the UKCS oil fields are likely to be operating at a loss in 2016 at prevailing prices. While this represents about a sixth of total oil production, these fields collectively provide a significant proportion of the infrastructure used to transport oil and gas ashore. Were a number of these fields to cease production, their interconnectivity would mean many more could become sub-commercial, known as the 'domino effect'"[1]

Predicting cessation of production dates

Lloyd's Register's pipeline network modelling tool predicts pipeline cessation of production (COP) dates, and allows modelling of the domino effect. There are over 70 key pipelines and around 300 fields in the model, which also takes into account interconnectivity with Norwegian fields. Tested sensitivities determine what factors have the biggest potential to shorten oil and gas production in the UK and, perhaps more importantly, what factors are key to prolonging the life of the Industry.

Key elements to consider are the production forecast, the operating costs of an asset and the forecasted oil and gas price. A comparison of revenue versus cost allows a determination of which fields are able to carry the OPEX burden.

DecomDominWheel

Modelling helps:

  • To understand longevity of export routes
  • Investors who may be purchasing fields
  • Any potential new field coming online
  • Operators understanding of when change to cost share may occur

So what can be done to avoid premature decommissioning of fields and pipelines and how can the ‘domino effect’ be reduced?

1. Maintaining production rates

Maintaining production rates in several key pipelines is critical as certain pipelines have minimum flow rates required to avoid operational issues.

A high number of fields will potentially be impacted when these low rates are reached, resulting in a significant loss of production at the tail end of a field’s life. Either a rationalisation of infrastructure will be required to ensure rates are kept high in a fewer number of pipelines, or new production is needed to fill up these key pipelines.

2. Rationalisation of infrastructure

Rationalisation of infrastructure can be challenging, with concern relating to the economics of the modifications required to change export routes late in field life . With ever smaller and more complex fields remaining to be developed, tying into any pipeline other than the closest is unlikely to result in an economic development.

A more cohesive strategy is needed, with a controlled and planned rationalisation, alongside managed field development plans to ensure optimisation and maximum economic recovery.

3. Field development plans

Field development plans must show that the operator has considered “maximising economic recovery”, and that the development option chosen is that which is most likely to secure the maximum value of economically recoverable petroleum from UK waters. (Link to :OGA FDP publication).

Operators must look beyond their immediate field development, and consider future production from the hubs in the near vicinity. Traditionally development work has focused on identifying spare capacity within facilities and pipelines and determining COP dates for major infrastructure. Future developments must consider MER and operators must look to choose an evacuation route is more robust in terms of future production, or justify reasons for alternatives.

Operators must also identifying clustering opportunities for small pool opportunities and cannot focus on their single development alone, when others may benefit from the development.

4. Prolonging critical infrastructure

In order to meet the MER strategy, the regulator and operators in the UKCS must identify critical infrastructure hubs and have an understanding of the interconnectivity of the infrastructure. Following the oil price crash at the end of 2014, industry made significant strides towards lowering operating costs, helping to prolong production. This can only work so far, and ultimately a rationalisation of infrastructure will be required to ensure a long term, economically viable industry.

By adopting a more collaborative approach and seeking to do what is right for the wider industry, individuals and companies across the supply chain will reap the benefits and prolong the viability of their business in the North Sea.

[1] Oil & Gas UK Activity Survey 2016. Available at http://oilandgasuk.co.uk/activitysurvey.cfm. Accessed March 2017.

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