Monday, 10 April 2017

Decommissioning UK North Sea platforms comes at a huge price - tax payer likely to foot the bill

Research into the decommissioning of UK North Sea oil rigs found that the industry is facing huge costs. However, due to insufficient financial reserves it is likely that the tax payer has to pay for the majority of the costs. This poses legal questions about liability and the so called `polluter pays principle´.

The United Nations Convention on Law of the Seas (UNCLOS) obliges oil and gas firms to remove disfunct infrastructure from the North Sea, an obligation that applies to oil rigs, pipelines, etc. Particularly in the deeper parts of the North Sea this can turn into a considerable technical, ecological and financial challenge. In the part of the North Sea over which the UK has jurisdiction more than 5000 wells need to be sealed, 470 rigs decomissioned and 10.000 kilometer offshore pipelines have to be removed in the coming years.


The costs are considerable. While estimates vary wildly, most settle on 70-110 billion euros that have to be spent on decommissioning installations in the UK part of the North Sea in the next 40 years. The crucial question is who is going to pay for it. Research group Wood Mackenzie warned taxpayers are facing a 24 billion euro bill for decommissioning oil and gas fields, 50 per cent higher than the official Treasury estimate of around 16 billion http://www.telegraph.co.uk/news/2017/01/09/cost-decommissioning-north-sea-wipe-future-tax-revenues/


The industry argues that the latest nose-dive of oil prices and declining production rates make tax-reliefs inevitable. The arguments seem to resonate with the regulator. According to a new study by the GMB union, the taxpayer might be liable for up to £75bn, as the UK government pledged in 76 different agreements to provide government aid for decomissioning http://www.bbc.com/news/uk-scotland-scotland-business-38048562.


This is not in line with legal obligations. According to the overarching `polluter pays principle,` the industry is responsible for tackling challenges that are brought about by ageing infrastructure. However, this is not likely to be implemented stringently in practice, as the UK industry failed to build up substantial financial reserves throughout the last decades to pay for decommissioning, according to the report.






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