ENERGY SECURITYHow Do We Dismantle Offshore Oil Structures Without Making the Public Pay?
More than 12,000 offshore oil and gas installations straddle the globe, and industry analysts anticipate annual offshore oil and gas investments to reach $173 billion by 2024. A number of oil companies are expected to significantly expand their offshore drilling activities in the coming years. At the same time, many jurisdictions face a growing need to dismantle offshore infrastructure, whether because it is aging, the resources are depleted, or mandated net-zero strategies require some installations to be decommissioned earlier than expected.
As pressures build for the energy industry to move away from fossil fuels, two new reports examine the risk that fossil-fuel companies will default on future obligations to decommission offshore oil and gas infrastructure and pass the costs on to the public. The reports lay out recommendations to avoid such a scenario. They were just published by the Sabin Center for Climate Change Law and the Columbia Center on Sustainable Investment (CCSI), as part of their broader Climate Law and Finance Initiative.
More than 12,000 offshore oil and gas installations straddle the globe, and industry analysts anticipate annual offshore oil and gas investments to reach $173 billion by 2024. A number of oil companies are expected to significantly expand their offshore drilling activities in the coming years.
At the same time, many jurisdictions face a growing need to dismantle offshore infrastructure, whether because it is aging, the resources are depleted, or mandated net-zero strategies require some installations to be decommissioned earlier than expected—a process that is can be laborious and expensive. A 2021 forecast by the financial analysis firm IHS Markit estimated that globally, offshore decommissioning could cost nearly $100 billion between 2021 and 2030, a period that S&P Global Commodity Insights has described as a potential “decade of offshore decommissioning.” Some experts have predicted that decommissioning costs may increase significantly. in coming years.
The Intergovernmental Panel on Climate Change projects that greenhouse gas emissions from existing and planned fossil-fuel infrastructure will push global warming past the Paris Agreement’s 1.5°C threshold. A separate study of detailed regional projections estimates that nearly 60 percent of known oil and gas reserves must remain in the ground to keep within that budget.
Increased public focus on reducing greenhouse emissions, coupled with the global push for electrification and declining prices for renewable energy, may cause a rapid decline in oil and gas demand that forces the mass closure of offshore installations. Even without policy changes or concerted climate action, the increasing adoption of renewable energy systems and energy-efficient technologies is likely to depress demand for fossil fuels.
