As government and industry grapple with how to handle Australia’s ageing offshore oil and gas infrastructure, lessons learned from mature sectors overseas – which unlike Australia have established decommissioning regulatory frameworks – lessons learned have indicated concerning rates of structural issues and well failures.
Underlying a recent report by Macquarie University’s Centre for Energy and Natural Resources Innovation is a serious concern that the structural integrity of suspended or plugged and abandoned wells offshore Australia – and failure risks – may be severely underestimated.
This is evidenced by research showing about 25 per cent of all offshore wells on the Norwegian continental shelf (including those in operation) had experienced either well integrity issues or failures, as had 10 per cent of wells on the UK shelf, 43 per cent in the Gulf of Mexico, and 20 per cent offshore Canada.
Written by Tina Soliman-Hunter, Professor of Energy and Resources Law at Macquarie, the report assessed best practice and regulatory reform for plugged and abandoned oil and gas wells, making six recommendations around handling the end-of-life assets.
While there is no equivalent well integrity data available for Australia, it can be assumed structural issues would arise, and particularly so for improperly abandoned wells, with Prof Soliman-Hunter pointing to several wells in the Legendre field that have been leaking post-decommissioning in 2014.
Improperly abandoned wells pose great risk to the environment and the health of neighbouring communities, and without adequate plugging, can contribute to climate change by emitting large volumes of methane.
Structures left in marine environments must also be continually monitored and maintained, as leaks and other mechanical issues can become safety hazards.
Prof Soliman-Hunter explained that historically, oil and gas wells had often been poorly plugged and abandoned, as it was a substantial cost with no return to the operator.
She said: “The IOGP assessment of 35 legal frameworks for well plug and abandonment reveals Australia to be the only mature offshore petroleum jurisdiction to not set out requirements or stipulate guidelines/standards.
“Australia’s absence of minimum requirements and no set standards for well plugging and abandoning, combined with a lack of well inspection, establishes a substandard regime with poor oversight of decommissioned offshore oil and gas infrastructure.”
This puts Australia in the company of Algeria, Spain, Kazakhstan, Oman, Angola, Gabon, Nigeria, South Africa, Myanmar and Venezuela – all of which Prof Soliman-Hunter described as poorly developed regulatory jurisdictions.
At the report’s launch, members of the Maritime Union of Australia (MUA) together with Prof Soliman-Hunter, called on a strengthened regulatory framework for offshore oil and gas fields nearing the end of their operational life.
MUA Assistant National Secretary Thomas Mayo said the report recognised both shortfalls in legislation and how offshore oil and gas companies were gaming the system, leaving a mess for taxpayers to clean up.
He added: “There must be a regime of maintenance, monitoring and remediation for those plugged wells so that they remain safely capped.
“There are thousands of jobs for Australian workers if we get this right, and massive benefits for onshore and offshore businesses.”
The federal government last year sought public submissions for a roadmap to establish an offshore decommissioning industry, and this year asked industry with an interest in decommissioning oil and gas assets for feedback on draft guidance that clarified what infrastructure could and could not be left in situ.
While these are positive steps, the flurry of action reveals the legislative shortcomings and current incapacity to deal with Australia’s enormous decommissioning liability, estimated to be at least US$40 billion by 2040.
CODA has forecast a rapidly increasing workload on top of the bill, with about 51 per cent of Australia’s total on- and offshore decommissioning liability occurring before 2030 and a further 23 per cent between 2031-2040.
The liability estimate considers the removal of about 5.7 million tonnes of offshore infrastructure material, or the equivalent of 110 Sydney Harbour Bridges, the vast majority of which (89 per cent) is offshore Western Australia and the rest offshore Victoria. Steel makes up about 60 per cent of all material, much of which can be recycled, and 25 per cent is concrete as part of offshore structures or pipeline coating.
In fact, most offshore infrastructure material (67 per cent) is related to pipelines – trunklines and infield – and its removal will depend on NOPSEMA requirements. In late August, Victoria’s government voted to establish a parliamentary inquiry into decommissioning offshore oil and gas infrastructure, focusing on the hundreds of plugged and abandoned wells dotted along the state’s coast.
Sarah Mansfield, Deputy Leader of the Victorian Greens and Member of the Victorian Legislative Council, brought forward the motion initiating the inquiry, telling the state government’s Environment and Planning Committee proper rehabilitation had to be at the forefront of their planning as Victoria transitioned away from oil and gas towards renewables.
She said: “Extensive systems of ageing oil and gas infrastructure can be found all across Victoria – the state is scarred with old fossil fuel pipelines and wells, some of which are in use but most of which are approaching the end of their life.
“While the marine environment faces immediate threats from sudden rushes and spills, faulty fossil fuel infrastructure is also slowly leaking gas into the atmosphere, amounting to a significant proportion of Victoria’s carbon emissions.”
Mansfield said the extent of these emissions in Victoria was not known, but noted an investigation undertaken in New South Wales which found just a handful of surveyed sites were contributing about 150,000 tonnes of methane gas every year.
Warning that the risk of decommissioning liability falling onto the taxpayer was not abstract but a real possibility, Mansfield mentioned Northern Oil and Gas Australia (NOGA) going bust in 2019 and abandoning its aging Northern Endeavour FPSO.
NOGA had purchased the asset from Woodside in 2016 for only US$95 million, at a time when Woodside was generating revenue of US$5 billion and had an enterprise value of US$19 billion.
While the transaction was legal, Woodside was criticised for selling an aging asset with declining production and a $200-million clean-up bill to an inexperienced junior without the funds to cover it. The gas major denied it had unloaded the asset to avoid the liability, but nonetheless it was left to the taxpayer to pick up the bill.
This led the government to impose a levy on the industry to recoup its costs, as well as implementing a strengthened trailing liability to ensure operators bore decommissioning costs. Mansfield said the inquiry needed to acknowledge these risks should the owners of oil and gas infrastructure be unable to meet their obligations.
She added that while important from an environmental perspective, decommissioning provided many opportunities for communities transitioning away from coal mining, as their skills were at the forefront of the clean energy transition and the decommissioning process had strong employment opportunities.
