Dismantling the oil industry: Rough North Sea waters test new ideas

A workman on board an oil platform in the Clair Ridge oilfield in the North Sea, 45 miles off the coast of Scotland. (AFP)
Updated 27 November 2018
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Dismantling the oil industry: Rough North Sea waters test new ideas

  • Aging oil fields in UK could be worth up to £17 billion
  • Platforms removed piece by piece in lengthy process

LONDON: Scottish marine salvage group Ardent is adapting the tanks it used to refloat the Costa Concordia, the cruise ship wrecked off the Italian coast in 2012, to decommission North Sea oil platforms.
It is one of several companies trying new ideas to win business in the market for dismantling disused oil platforms.
In Britain’s aging oil fields alone, the opportunities could be worth up to £17 billion ($21.85 billion) before 2025, according to industry body Oil and Gas UK. The ideas could then be deployed to other maturing fields such as in the Gulf of Mexico and southeast Asia.
Ardent says it needs at least two companies to sign up for a project to get off the ground. Well-Safe, another company offering a new approach, also needs several operators to commit.
So far, Ardent has found it challenging to persuade companies to be the first to sign up.
“Everyone is queuing to be second,” said Ardent’s Decommissioning Director Stuart Martin.
Oil companies are keen to reduce costs in a part of the market dominated by major global players such as TechnipFMC , Schlumberger, Saipem and AllSeas.
Beyond the floating tanks, Ardent has also joined forces with oil services firm WorleyParsons and technology and shipping group Lloyd’s Register, to bring a one-stop-shop service.
This could save money by cutting out the need for lots of different contractors. Well-Safe proposes coordinating decommissioning work across companies to share equipment and staff.
“You got to give Well-Safe and the others a real tip of the hat. We all want them to win. It’s in the best interest of the industry,” said Jim House, CEO of Neptune Energy, which is planning decommissioning for its Juliet and Minke fields in the North Sea.
Oil platforms are usually removed piece by piece and taken to the shore using complex vessels. The floating tanks that Ardent used to lift the Costa Concordia, are much cheaper to use, industry experts say.
“This technology could have significant potential cost efficiencies,” the Oil and Gas Technology Center, which is funded by the British government, said in a report.
But Ardent says it would need contracts for at least two buoyant tanks to go below current costs per ton of steel removed and three to get below its target cost reduction of around a third. Britain’s industry regulator, the Oil and Gas Authority, has set a target of 35 percent cost cuts compared with 2015 levels.
Well-Safe’s main lever for cost reduction also depends on several operators committing to contracts.
Ardent is also proposing to oversee a project from production to scrapping the metal onshore. Worley Parsons would operate the platform and maintain the equipment and Lloyd’s Register would plug the wells.
“It’s a lot about an emerging set of companies and we don’t yet know which is going to be the winning model,” said Boston Consulting Group’s Philip Whittaker.
With other fields maturing and drying up across the world and some experts expecting demand for oil to peak in the 2030s, the North Sea is a test bed for new decommissioning projects.
If a company can plug oil wells without leaks and remove thousands of tons of steel platforms and pipelines, some 50 years old, in the rough, deep seas between Scotland, England and Norway, they should be able to do it anywhere.
Industry body Oil and Gas UK, expects oil companies to spend £17 billion ($22.05 billion) on removing around 1,600 wells, 100 platforms, and 5,500 kilometers of pipelines in the next seven years. Some 840,000 tons of material will be returned to shore to meet environmental regulations.
“We’ve got a mature basin with a steady flow of work,” said Joe Laesk, decommissioning manager at Oil and Gas UK.
“Those resources and expertise can be exportable globally.”
The Gulf of Mexico has had decommissioning projects in its warm, calm waters for years but Southeast Asia is a new hot spot, with more than 1,500 platforms and 7,000 subsea wells expected to be uneconomical by 2038, according to the BCG.
That is followed by Latin America, West Africa and the Middle East Gulf.
With so much potential, more established players are also trying different approaches to make decommissioning cheaper.
Service vessel group Allseas is experimenting with new ideas. It specializes in subsea construction but is converting huge ships to lift structures as heavy as 48,000 tons in one haul.
“We lift in a matter of hours and we’re gone,” said Allseas President Edward Heerema.
The first job for Allseas’ Pioneering Spirit, the biggest construction vessel in the world, was in the Norwegian North Sea removing Repsol’s 13,500 ton Yme production unit.
Shell also used it to remove its 24,000 ton Brent Delta platform in 2017.
“We have taken substantial costs out of our major decommissioning project, the Brent, and we will continue to do so,” said Steve Phimister, head of Shell’s North Sea upstream.
“The whole industry needs to do that by innovating.”


Asia’s refining profits slump as Mideast exports surge

Updated 49 min 1 sec ago
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Asia’s refining profits slump as Mideast exports surge

  • Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India
  • However, overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs

SINGAPORE: Asia’s biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.
Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India.
Yet overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs.
Compounding the supply overhang, fuel exports from the Middle East, which BP data shows added more than 1 million barrels per day (bpd) of refining capacity from 2013 to 2017, have doubled since 2014 to around 55 million tons, according to Refinitiv.
Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, suggesting a slowdown in gasoline demand.
For diesel, China National Petroleum Corp. in January said that it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
The surge in fuel exports combined with a 25 percent jump in crude oil prices so far this year has collapsed Singapore refinery margins, the Asian benchmark, from more than $11 per barrel in mid-2017 to just over $2.
Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.
The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Asia’s top oil refiner China Petroleum & Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year. Jeff Brown, president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.
“The pressure on refinery margins is a case of death by a thousand cuts ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.
The profit slump follows a surge in fuel exports from China, India, Japan, South Korea and Taiwan. Refinitiv shipping data shows fuel exports from those countries have risen threefold since 2014, to a record of around 15 million tons in January.
The biggest jump in exports has come from China, where refiners are selling off record amounts of excess fuel into Asia.
“There is a risk for Asian market turmoil if (China’s fuel) export capacity remains at the current level or grows further,” said Noriaki Sakai, chief executive officer at Idemitsu Kosan during a news conference last week.
But Japanese and South Korean fuel exports have also risen as demand at home falls amid mature industry and a shrinking population. Japan’s 2019 oil demand will drop by 0.1 percent from 2018, while South Korea’s will remain flat, according to forecasts from Energy Aspects.
In Japan, oil imports have been falling steadily for years, yet its refiners produce more fuel than its industry can absorb. The situation is similar in South Korea, the world’s fifth-biggest refiner by capacity, according to data from BP.
Cho Sang-bum, an official at the Korea Petroleum Association, which represents South Korean refiners, said the surging exports had “triggered a gasoline glut.”
That glut caused negative gasoline margins in January.