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Offshore Support Journal

Offshore Support Journal

Capitalising on a US$500Bn market

Fri 25 Jan 2019 by Edwin Lampert

Capitalising on a US$500Bn market
Martha Vasquez (BCG): The UK was 50% of the global market in 2018

Predictions that the need to decommission would be a means of absorbing significant numbers of laid up OSVs have so far proved wide of the mark, but operators are still able to capitalise

Ahead of this year’s Annual Offshore Support Journal Conference, Offshore Support Journal spoke with Boston Consulting Group’s Martha Vasquez* on the size of the offshore decommissioning prize for the offshore support vessel sector.

OSJ: How did you calculate the decommissioning market is a US$500Bn global market?

MV: We aggregated public announcements of expected decom spend, including the June 2018 UK Oil and Gas Authority Decommissioning Cost Report, and triangulated with our own decommissioning cost model, which takes into account cost and operational norms for the various types of activity we expect for each installation and well in the world.

OSJ: How much of this will go to vessel owners and operators, where and when?

MV: We are refining our market size estimate. As of now, we believe that it is not unreasonable to believe that vessel owners and operators’ share in decom is equivalent to the share of E&P spend decom represents in a basin.

OSJ: Of course the North Sea is the epicentre of this activity.

MV: Definitely. The UK is the largest decommissioning market today and is expected to be the largest decommissioning market going forward. It was a US$1.5Bn market in 2018, or 50% of the global market.

That said, no area in the world has more experience with decommissioning than the Gulf of Mexico. The first intense wave of decommissioning started in the late 1980s. Since then, operators have removed structures at a rate of 150 to 250 a year. Cash constraints caused by depressed oil prices have been the greatest obstacle.

“The UK is the largest decommissioning market today and is expected to be the largest decommissioning market going forward”

OSJ: How will the yo-yoing oil price impact the sector?

MV: We see a two-fold impact: higher oil prices typically mean more cash available, some of which could go to decommissioning. However, higher oil prices could also mean some fields suddenly become economical to continue to produce for longer, delaying their decommissioning. Likewise, lower oil prices typically mean some fields become uneconomical – potentially accelerating their production ramp down. However, lower oil prices mean less cash available, again pushing back decommissioning activity.

OSJ: Will NGO activism help or harm market prospects?

MV: In some of the more mature basins, government, operators, supply chain and NGOs are coming together around the table to tackle decommissioning as a joint challenge.

OSJ: How is the present regulatory regime helping or harming the market outlook?

MV: We have seen examples of regulation helping drive decommissioning activity through prescriptive requirements … for example, the requirements on timing for decommissioning activity in the Gulf of Mexico. We have also seen the impact that an absence of certain regulatory requirements can have on a market. For example, in Alberta, the number of inactive wells is now close to around 90,000. What I’d like to see more of is higher scrutiny on the decommissioning plans and decommissioning performance of individual activities, in order to drive a whole basin’s performance improvement.

* Boston Consulting Group’s Martha Vasquez will be presenting a paper titled Where are the decommissioning hotspots? on 6 February at the Annual Offshore Support Journal Conference

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