Market Definition:
Offshore decommissioning involves the safe plugging of the oil or gas well and disposal of the equipment used in offshore oil and gas production. Offshore decommissioning encompasses activities ranging from removal of installations, project management, engineering and planning, regulatory compliance, preparation of a platform for decommissioning, well plugging and abandonment, demobilization of derrick barges, platform removal, materials disposal, and site clearance. The global offshore decommissioning market is anticipated to grow at a CAGR of 6.93 % during the forecast period of 2016 to 2023.
Market Dynamics:
Generation of Demand Due to Ageing of Wells, Coupled by Safety Concerns is expected to generate a Significant Growth
A number of oil & gas fields predominant in the North Sea region and Gulf of Mexico region are aging with more than 600 projects expected to be dismantled during the next five years. Thus, decommissioning is a rapidly developing sector in the petroleum business. The high risk and hazard associated with old platforms and rigs have created an intense need to remove these structures. The valuables scavenged such as high-quality steel, cables, machinery, drill bits and others can recoup and offset costs associated with decommissioning.
Technological advancement has resulted in technological obsolescence and shortening lifecycle of machinery. The growing capabilities and capacities of advanced machinery coupled with falling cost of new machinery have created a significant refurbishing business for decommissioning solution providers.
Enactment of Environmental and Safety Regulations is expected to Result in Faster Growth of the Market
The enactment of environmental regulations around the globe owing to ecological concerns originating from oil and gas scrap has triggered decommissioning for cash services. The adoption of environmental regulations such as the Convention for the Protection of the North East Atlantic (OSPAR Convention) provides a legally binding regulatory framework for offshore decommissioning in the OSPAR maritime area, including the North Sea. The high threat and environmental and regulatory liabilities associated with old oil and gas rigs owing to the presence of hazardous substances, which can have a direct effect on the marine ecosystem is a prime driver of the market.
Highly Consolidated Nature of the Market, High Costs, and Litigations May Hamper the Market
Despite a massive demand and need for decommissioning services, the market represents a consolidated look making it challenging to predict decommissioning costs, time and risks. There are a significant pricing differential and a scarcity of trained workforce in the offshore decommissioning business. The situation has been complicated by accusations that companies cut corners regarding worker safety and environmental regulations during projects completion. Offshore decommissioning is a source of major liabilities and litigations. The high risks of accidents and the prohibitive cost of noncompliance is a deterrent to the market.
Poor Engineering and Design Especially of Older Rigs and Platforms are Deterrents to Market Growth.
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Older large rigs were not designed for decommissioning and present a challenge to the decommissioning industry owing to their large size and poor design as exemplified by Shell’s Brent Spar decommissioning issues. Falling price margin of recycled materials and uncertainty of regulations are hampering the market. Thus, in the Gulf of Mexico, operators are expected to bear the whole after-tax cost of decommissioning as compared to North Sea operators which can justify not decommissioning by higher licensing fees over the lifetime of the asset.
Dominant Players:
The leading vendors operating in the market are Statoil ASA (Norway), Ramboll Group A/S (Denmark), Tetra Technologies, Inc., (U.S.), TechnipFMC PLC (U.K.), Claxton Engineering Services (U.K.), AF Gruppen ASA (Norway), Aker Solutions ASA (Norway), Amec Foster Wheeler (U.K.), BP P.L.C. (U.K.), John Wood Group Plc. (Scotland), Allseas group SA (Switzerland) and DeepOcean Group (Netherlands), DNV GL (Norway) and others.
Regional Analysis:
Europe accounts for the most significant share of 70 % regarding global offshore decommissioning market value in 2016, based on the size and volume of the structures, especially in the North Sea. Europe is followed by the North America region led by Mexico owing to the aging platforms most of which are more than 30 years old. The Gulf of Mexico accounts for the most substantial number of facilities requiring decommission with a lower cost structure between USD 0.5 million to 4 million for shallow water structures. The Gulf of Mexico has historically been the most significant region regarding the volume of platforms decommissioned, which is around 4,000. North America offshore decommissioning market was valued at USD 877.1 million in 2016 and which is expected to grow to USD 1,383.3 million by 2023, at a CAGR of 6.83 %.
Asia-Pacific accounted for a market share of 8.83% in 2016 and is expected to grow at a CAGR of 3.41% during the forecast period. The Middle East and Africa region is supposed to be dominated by Gulf economies of Saudi Arabia, UAE, Kuwait, and Qatar. The presence of large onshore oil and gas deposits in the Middle East and Africa hampers offshore oil exploration and thus accounts for the disproportionately small size of the market as compared to its petroleum production.
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