The headaches of decommissioning oil installations – Is Ghana ready?

The West Africa coast has undoubtedly a long and rich oil industry history spanning many decades. It is however pitiable that most energies have been trained on just getting the oil out as it yields quick and ready money, while a relatively lucrative undertaking in the same industry - decommissioning - is paid scant attention.

As is usual in many other fields, African oil nations prefer to out-source when it comes to decommissioning as no country within the sub-region has yet developed the needed skills to play lead roles.

That reality must change however, and as Ghana gets ready to retire two of its oil rigs in two if its offshore basins, it must show leadership by plucking the required courage so the rest could follow.

The three basins

After many decades searching for oil in the three offshore basins of Accra-Keta, Saltpond and Tano, a field and rigs have served their usefulness and must be retired.

Before other commercial discoveries were made, including Tano Basin, Saltpond was up but currently has been declared by the sector ministry as not economically viable and is up for decommissioning in addition to North Sea Pioneer anchored off the coast of Sekondi/Takoradi.

Due to the high cost of the process of decommissioning, experts warn that the procedure is not for the timid, it requires decisive approaches and high caution. The Ministry for Petroleum has eventually terminated the Saltpond Petroleum Agreement, (according to Petroleum Commission) after several years of back and forth.

Good move, but…!

The explanation given for the decision was that the field had reached its economic limit and so the Ministry has set up a committee under the Ghana National Petroleum Corporation (GNPC) to decommission the installations.

A good move, but the question is who is responsible for the project since it requires billions of dollars to decommission the field whose rigs were built to endure decades of rough sea life and whose removal is as tough as installation.

Currently, the country’s offshore upstream is growing and oil companies would sure desire to consolidate long stay in Ghana as they explore for more oil to build their reserves. It therefore goes without saying that the country must review its strategies and develop the decommissioning industry in the value chain.

Decommissioning cost

Of course the industry is not just a process from acquisition of data, exploration, development and production – there is the decommissioning stage involving the removal of topside of the platform, decks, jackets, damaged and subsea pipelines, and the eventual abandonment of wells.

Aside the torturous process, the cost component globally is a problem. In 2013 the estimated cost of total global expenditures on decommissioning was $3.24 billion and in 2015 an amount of $4.3 billion was projected. Industry watchers expect the decommissioning bill to hit $40.6 billion by year 2040.

It is per some of these realities that governments are being urged not to remain on the sidelines but move to become equity players in decommissioning and show willingness to take on risk and cost.

The views are that if host nations assume a degree of risk with the majors focusing on squeezing out the last drops of oil from the fields, they should consider setting up a decommissioning fund or a guarantee scheme which helps smaller companies cover their letters of credit requirements for decommissioning.

The experts are also of the view that considering the cost component, it would be tangible for host nations to play within the decommissioning space by owning facilities which require late life assets at zero cost and manage the decommissioning, paid for by the operators.

Decommissioning fund

In the case of Ghana, the legislative and contractual arrangements make it obligatory to decommission which require a decommissioning plan subject to periodic review under the current agreements.

These led to the establishment of the decommissioning fund, and the accruing amount to the fund is pushed into the escrow accounts to ensure when the offshore or onshore upstream installation reaches its economic limit funding would be available.

From the Public Interest and Accountability Committee (PIAC) report on Saltpond, the Phase I of the process started in October 2016 and entailed the selection of a Consultant to lead the process. Again the technical and financial proposals from shortlisted consultants have been submitted and evaluations completed. The selection of the consultant is however said to be pending as at the end of the period under review, according to the Ministry of Finance, 2017.

However, in the case of the Tano basins, the question is who is responsible for the decommissioning of Saltpond facility? – The taxpayer, grant, the fund or operators?

Saltpond in History

The facts have it that when Saltpond Oilfields started its operations in the 1970s by the Signal-Amoco Consortium, there was a provision for decommissioning.

When the company decided to move out, Ghana took over the facility with the GNPC as a strong player after its establishment and managed Saltpond Offshore Producing Company (SOPCL).

Logically therefore, the cost of decommissioning would rest on the shoulders of the GNPC and the state. Probably, what can be done is to ensure government through the industry regulator has to capitalize on the pending decommissioning to create the needed scale in that area.

Elsewhere, to secure the future of the services industry over the long term the experts are advising governments to focus on the need to develop a transferable, exportable and scalable skill set around decommissioning projects.

From the views expressed by the ministry, the shortlisted consultants and the eventual winner should be made to put in their plan for the decommissioning process to develop local skills.

Decommissioning industry

As the industry evolves with existing companies exploring further to build reserves, majors heading to the country, and with the first field has chalked half a decade of production, developing the a transferable, exportable and scalable skills around the industry would be a palpable thing to do.

It would be best for GNPC as an indigenous – but international oil and Gas company to establish a company/unit under it, with special skills for decommissioning which can then be exported to other parts of Africa.

This decommissioning industry has become very well established, it produces nothing and uses billions of taxpayers’ money that could do a lot of good for the economy.

The decommissioning industry, while it is true creates short-term employment, requires no factories or new infrastructure to serve society and the economy.

In the United Kingdom, if the Oil and Gas Authority (OGA), an executive agency of the UK Department for Business, Energy and Industrial Strategy (BEIS) is also obliged to maximise the economic recovery of the country’s petroleum resources, then Ghana has no excuse not to take advantage and strategize.

Other related matters

Again it is interesting that several issues about the decommissioning of the SOPCL and the defunct North Sea Pioneer are out but environmental groupings are yet to direct their probing eyes to the proposition.

During the dismantling of the North Sea oil rigs, according the environment group The Conservation, oil giant Royal Dutch Shell came under fire from environmental groups over its proposal to decommission the Brent oilfield in the North Sea.

The company submitted plans to the government relating to four concrete and steel platforms, which were commissioned into service for four decades.

It was reported that the environmental groups, which include WWF Scotland and Greenpeace UK, refused to back plans. The groups claimed the company had not made enough information public to properly cross-reference its proposals against the internationally agreed OSPAR rules that were supposed to govern the decommissioning.

Need to know

It is intriguing this scenario that is playing out. While the decommissioning process has been triggered in the Saltpond basin case, members of the immediate environment have not been primed, or at least they are not aware. From Simpa to Sekondi, the fisherfolk need be engaged to have a full understanding of the proposed project and management of probable hazards.

In the North Sea instance, Shell was one of a number of oil producers looking at decommissioning now that many North Sea oil and gas fields are reaching the end of their productive lives. The process which was opposed led to the boycott of Shell’s products.

A test case for Ghana

It is obvious that decommissioning is a massive, expensive and technically challenging task; and Brent is seen as a test case for the rest of the UK industry, therefore, it would be important to ensure that SOPCL would also be a test case for Ghana going forward.

It is also important to note that transparency in the entire processes is key, if we must build upon the experiences.

Revenue expectations and receipts, and tax reliefs if any, are matters that should be openly available and in the public domain.

It should be obvious that many years after installation, the removal process would create a lot of problems for the environment.

Off the coasts of the Central Region are habitats for several marine lives, however, the process is likely to agitate the seabed, create noise and the removal process itself, said to be very energy intensive, will therefore be a major source of harmful emissions.

Some experts say if the architecture is left in place, it will naturally reef and arguably create an environmental positive. The reefing concept has been used extensively in the Gulf of Mexico with the Rigs to Reefs programme.

In an area which lacks natural reefs, this has enhanced the marine habitat for many species of fish. Admittedly some people have raised concerns about environmental damage from deteriorating metals and reefing potentially disrupting the natural ecology, but one can certainly argue the positives outweigh any negatives.

Though by international laws it should be removed, some have argued that considering the cost, leaving this offshore infrastructure in place and using the savings from taxpayers’ money to fund green energy projects would be much more desirable.

To holders of these views, the high cost could be invested in improving social infrastructure in Saltpond and help in recovering the country’s manufacturing base, health insurance funding, education, marine conservation, improving agriculture and tackling poverty in the immediate host communities.