Coronavirus likely to spur decommissioning frenzy
With few profitable investment opportunities left as a result of the coronavirus, oil companies will likely increase their spending on decommissioning contracts. Global projects through 2024 could reach a value of 42 billion dollars, say analysts of Rystad Energy.
Activity will be the highest in Europe. With an average asset age of 25 years, the Northwest European decommissioning market could grow 20% in annual commitments through 2022 if the current low oil prices don’t show signs of substantial recovery soon, the analysts state.
Oil prices have fallen substantially since the outbreak of the coronavirus. A barrel of Brent oil currently sells for just over 35 dollars compared to 65 dollars at the start of the year. US traders in April even paid to get rid of their oil, with prices for West Texas Intermediate oil dipping to negative 38 dollars per barrel. OPEC+ has agreed on record production cuts of almost 10 million barrels per day but analysts immediately said that would not be enough.
In the North Sea, the low oil prices erode commercial viability and potential life extensions of the rapidly maturing asset base. The low price environment also means oil companies will be able to secure favourable service contract prices, presenting an opportunity to fulfil their decommissioning obligations at a lower cost.
“After the oil price slump of 2014, rig and vessel rates declined by 30% to 40%. We expect a downward trend this time as well, with declines likely lasting until 2022″, says Sumit Yadev, energy service analyst at Rystad Energy. Despite the lower rates, the increased decommissioning activity will also provide welcome opportunities for contractors as they face an otherwise gloomy oilfield services market.
So far, only 15% of North Sea assets have been decommissioned, but Rystad Energy expects an average of 23 assets to cease production annually in the coming five years, creating a 17 billion dollar market. Activity in the US will be lower with an estimated value of 5.7 billion dollars for the same period.
While the offshore decommissioning market is characterized by large topsides removals and vessels like the Pioneering Spirit, the market is interesting for heavy-lift shipping companies like Jumbo Shipping as well. Most of the work will consist of removing subsea structures for which geared vessels with a lift capacity of up to 2,000 tonnes are most cost-effective.