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Decommissioning the offshore platforms that have reached the end of their productive life will cost UK taxpayers some US$31.46 billion (24 billion pounds) over the next 45 years, a new report from the National Audit Office.
The decommissioning costs for platform operators are rising, the report also noted, saying since 2014, the total annual spent on decommissioning has been about US$1.31 billion (1 billion pounds). This could be worrisome for the government budget because platform operators are entitled to tax relief that lowers their decommissioning costs.
And that’s not all, the National Audit Office says in its report. “With decommissioning activity increasing, the government is paying out more in tax reliefs for decommissioning at the same time as tax revenues have fallen due to a combination of lower production rates, a reduction in oil and gas prices and operators incurring high tax-deductible expenditure,” its authors say.
The UK’s continental shelf in the North Sea is one of the longest-producing oil and gas regions globally with some 44 billion barrels of oil equivalent extracted since the start of the boom in the 1970s. However, many fields are now nearing depletion and the platforms pumping the oil need to be decommissioned.
There are currently about 320 so-called fixed installations in the UK North Sea, including platforms and pipelines, that will need to be dismantled in the next four decades as the wells dry up. And the NAO’s US$31.46 billion estimate could turn out to be lower than the actual price tag of the endeavor.
“The actual cost to government of decommissioning is highly uncertain as it will depend on how much decommissioning ultimately costs operators as well as future economic conditions, such as oil prices and exchange rates, which determine profits,” the report said.
Platform and pipeline operators will have to spend even more: according to calculations by the Oil and Gas authority, as quoted by the Financial Times, their tab will be between US$59 billion (45 billion pounds) and US$101 billion (77 billion pounds).
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.