Shell kicks off costly sunset phase of oil extraction

Cleaning up an oil field in a forbidding environment like the North Sea may be almost as formidable a task as developing one, and in the coming years, those waters are likely to serve as a laboratory for what happens when the useful lives of oil fields expire.

Royal Dutch Shell is beginning to decommission and dismantle its installations in the Brent field, which has produced nearly 10 per cent of all the oil and gas extracted from British waters and gave its name to the most important globally traded blend of crude.

Twenty years ago, Brent, which lies under more than 400 feet of water between the Shetland Islands, off Scotland, and Norway, was the scene of a landmark battle between the environmental movement and the oil industry over a relatively minor dismantling job.

Greenpeace, the activist group, succeeded in deterring Royal Dutch Shell from disposing of a mammoth storage buoy called the Brent Spar in the depths of the ocean through stunts like landing a protester on the installation with a helicopter.

Now, after nearly 40 years of production that yielded about 30 billion pounds, or about $46 billion, in revenue, two-thirds of it going to taxes, Shell has filed proposals to start taking apart one of the field’s four platforms, called the Brent Delta.

“One wonders if future generations will see this as one of the events marking the beginning of the end of the fossil fuel era,” said Anthony Hobley, chief executive of Carbon-Tracker, a London-based organisation that advises investors on the risk of fossil fuel investments. Shell estimates that cleaning up the whole field, which has four platforms, will require a decade and cost billions of pounds.

Other operators stare at closures

Certainly the process will be closely watched, not least because Brent will be the largest North Sea field to be decommissioned so far. With many of the sea’s fields in decline and running at meager profit levels, or even losses, after the recent sharp fall in oil prices, other operators are facing the same gargantuan task now confronting Shell.

The decommissioning will mark the beginning of an expensive sunset phase. “No one quite knows the full extent of the cost of decommissioning,” said Malcolm Dickson, an analyst at Wood Mackenzie, an industry consulting firm based in Edinburgh. Estimates of the costs keep going up year after year because “companies have not grasped the extent that could be involved.”

Wood Mackenzie forecasts that the oil industry will spend £15 billion over the next decade on decommissioning in Britain, and that by the early 2020s, annual costs for dismantling fields may exceed new investment. As recently as 2013, the industry spent about £900 million on decommissioning while investing more than £14 billion in British waters.

The sheer scale of the task that Shell is facing on Brent gives an inkling of the complexity and potential risks. Earlier this month, Shell filed plans with the British government to remove the portion of the Brent Delta platform that includes the housing for crew members and heavy-duty work areas. A giant, specially built ship will lift off this top section, a structure that weighs 23,500 tonnes, and carry it to shore to be cut into pieces and largely recycled.

Shell also plans to take apart two other Brent platforms called Alpha and Bravo, which ceased production at the end of last year. Production at the Delta platform, which is more than 100 miles from shore, ceased in 2011, and workers have already begun to dismantle it.

What’s likely to be particularly expensive and difficult to assess beforehand is dealing with the massive support pillars, pipelines and other apparatus that are underwater. The North Sea is like a spaghetti bowl whose rim is laced with pipelines and other equipment.

Brent, for instance, has 28 pipelines and 140 wells that will need to have their well heads and other equipment removed before being plugged. Each platform is anchored to a concrete base that weighs almost as much as the Empire State Building in Manhattan, according to Shell.

“Everyone thinks about the topsides and what is visible above the waves,” said Duncan Manning, Shell’s business opportunity manager for the Brent project, “but what actually takes the time is plugging and making safe the wells.”

Because of the costs and the unknowns, operators try to keep oil fields going even if they are running at a loss. In the 1990s, Shell and co-owner Exxon Mobil spent big money refashioning Brent, which had been a key oil producer, into a natural gas field. Manning said that before deciding on decommissioning Brent, the company also considered other possible uses for its structures there, like wind farms or the emission reduction technique known as carbon capture and storage.

Other operators seem likely to face similar problems. Over the next decade, for instance, more than 900 wells in British waters, nearly 20 per cent of the total, are expected to be taken offline at a total cost of £6.4 billion, or about £7 million per well, according to Oil & Gas UK, an industry group. The organisation estimates that decommissioning will cost nearly £40 billion through 2040. A large part of the cost will probably be funded by the British taxpayer.

Greenpeace may take a certain satisfaction in the plans that have been revealed by Shell, which is based in The Hague. The company is following a treaty called the Oslo/Paris Convention that was signed by northern European countries in the years after the Brent Spar fight.