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Offshore Decommissioning in Malaysia. Lessons from the UK’s Regulatory Landscape and Implementation

Master's Thesis 2015 72 Pages

Politics - International Politics - Region: South Asia

Excerpt

TABLE OF CONTENTS

ABSTRACT

LIST OF FIGURES

LIST OF TABLES

ACKNOWLEDGEMENTS

TECHNICAL TERMINOLOGY

1.0 INTRODUCTION
1.1 RESEARCH BACKGROUND
1.2 OVERVIEW OF OFFSHORE DECOMMISSIONING IN MALAYSIA AND IN THE UK
1.3 RESEARCH AIM, OBJECTIVES AND QUESTIONS
1.3.1 Research aim
1.3.2 Research objectives
1.3.3 Research questions
1.4 RESEARCH STRUCTURE

2.0 LITERATURE REVIEW
2.1 UNDERSTANDING DECOMMISSIONING
2.2 BRIEF HISTORY OF WORLDWIDE OFFSHORE DECOMMISSIONING WITH A LOOK AT FUTURE PROSPECTS
2.3 OFFSHORE DECOMMISSIONING OPTIONS
2.4 OFFSHORE DECOMMISSIONING INTERNATIONAL LEGAL REQUIREMENTS
2.5 THE UK’S EXPERIENCE
2.5.1 Overview of the UK’s offshore decommissioning legislation
2.5.2 Overview of the UK’s offshore installations and decommissioning practices with a look at future prospects
2.6 MALAYSIA’S EXPERIENCE
2.6.1 Overview of Malaysia’s offshore decommissioning legislation
2.6.2 Overview of Malaysia’s offshore installations and decommissioning practices with a look at future prospects
2.7 KEY FINDINGS
2.7.1 What has been researched?
2.7.2 What are the research gaps?

3.0 METHODOLOGY
3.1 INTRODUCTION
3.2 RESEARCH DESIGN AND METHODOLOGY
3.3 DATA COLLECTION METHOD
3.4 ANALYTICAL PROCEDURE
3.4.1 How to estimate the scale of offshore decommissioning activities in Malaysia over next decade?
3.4.2 How to determine the practical impact of Malaysia’s offshore decommissioning legislation’s weaknesses?
3.4.3 How to suggest lessons on offshore decommissioning regulation and implementation that Malaysia could learn from the UK’s experience?
3.5 RESEARCH LIMITATIONS
3.5.1 Limitations in achieving objective I
3.5.2 Limitations in achieving objective II
3.5.3 Limitations in achieving objective III

4.0 RESULTS AND DISCUSSION
4.1 INTRODUCTION
4.2 RESULTS ANALYSIS
4.2.1 Estimated offshore decommissioning activities in Malaysia over next decade
4.2.2 Weak in theory and practice
4.2.3 Comparison study of the British and Malaysian offshore decommissioning regulation and implementation
4.3 KEY FINDINGS

5.0 CONCLUSION AND RECOMMENDATIONS
5.1 CONCLUSION
5.2 RECOMMENDATIONS

REFERENCE LIST

LIST OF FIGURES

Figure 2.1: Life cycle of an offshore production platform

Figure 2.2: Diagram of the decommissioning process

Figure 2.3: Elements coming into play when deciding on decommissioning

Figure 2.4: Global distribution of offshore O&G platforms

Figure 2.5: Decommissioning options for pipelines

Figure 2.6: Decommissioning options for topsides

Figure 2.7: Decommissioning options for substructures

Figure 2.8: Structure toppled in place

Figure 2.9: Structure towed and placed

Figure 2.10: Structure partially toppled in place

Figure 2.11: UK’s administrative procedure to develop a decommissioning programme

Figure 2.12: Piper Alpha disaster

Figure 2.13: Some North Sea platforms related to the London Eye

Figure 2.14: Typical offshore platform found in the North Sea

Figure 2.15: Location of current O&G infrastructures on the UKCS

Figure 2.16: Brent Spar platform occupied by environmental activists

Figure 2.17: International and national legal framework governing offshore decommissioning in Malaysia

Figure 2.18: Location of O&G installations in offshore Malaysia

Figure 2.19: Location of +20 years old O&G installations in Southeast Asia waters

Figure 3.1: Asia-Pacific offshore O&G decommissioning market forecast 2013-2023

Figure 3.2: Asia-Pacific platform decommissioning forecast by country 2013-2020

Figure 4.1: Malaysia’s offshore decommissioning growth trend to 2025

Figure 4.2: Asia-Pacific VS Malaysia’s platform decommissioning forecast 2016-2025

Figure 4.3: Shipping traffic in Southeast Asia

Figure 4.4:The UK’s offshore decommissioning flowchart

Figure 4.5: Malaysia’s offshore decommissioning flowchart

LIST OF TABLES

Table 0.1: Definition of technical terms and concepts found in this research

Table 2.1: Facilities decommissioned on the UKCS as of yet

Table 2.2: Type and number of platforms on the UKCS

Table 2.3: Examples of decommissioning carried out on the UKCS

Table 2.4: O&G installations typically found in offshore Malaysia

Table 2.5: Malaysia’s oldest offshore O&G installations

Table 2.6: Malaysia’s offshore O&G installations decommissioned to 2009

Table 4.1: Malaysia’s platform decommissioning forecast and growth 2016-2025

Table 4.2: Comparative analysis between the UK and Malaysia with regard to regulation and execution of offshore decommissioning activities

ABSTRACT

This research aimed at determining whether the Malaysian regulatory landscape governing offshore decommissioning is adequate to face the scale of offshore decommissioning activities which will involve Malaysia, or whether it may need to be reviewed and inspired by the m ore established and long-standing UK’s offshore decommissioning regime and practices. Specifically, the researcher estimated that 195 offshore installations will undergo decommissioning in Malaysia by the year 2025, with a growth of offshore decommissioning activities equal to 244.4% over a ten-year period.Despite this, it was found out that Malaysia has not yet promulgated any national decommissioning regulations for the oil and gas (O&G) industry, but it only relies on the guidelines provided by its national oil company (NOC) PETRONAS. However, both these guidelines and the current Malaysian production-sharing contract (PSC) appeared to have various weak points, with possible adverse implicationssuch as: unpredicted effects on the marine fauna and flora which may then be difficult to tackle; risks to the health & safety of both the personnel performing decommissioning operations and other sea users; non-fulfilment of international obligations by the international oil companies (IOCs), with consequent imposition of a fine on the Malaysian government and loss of reputation by PETRONAS; high risk for Malaysian tax payers to shoulder a large share of offshore decommissioning costs. In lightof these information, therefore, improvements to the Malaysian offshore decommissioning regulatory landscape and implementation inspired by the British experience and suggested by the researcher were: the establishment of an independent body to monitor both the administrative and executive aspects of offshore decommissioning; the development of a comprehensive national legislation for offshore decommissioning which would survive PETRONAS’ eventualbankruptcy and closure; the requirement forthe environmental impact assessment (EIA) made compulsory; the timing of the submission of the offshore decommissioning programme, the EIA and the close-out report made tighter; the involvement of local government authorities in the decommissioning process made compulsory; primary and residual liability associated with offshore decommissioning fully and expressly placed on the IOCs; a revision of the current PSC placing more financial responsibility on the IOCs, andprotecting Malaysian tax payers even in case of insolvent contractors; the adoption of international conventions governing the disposal of offshore installations; more investments in the construction of handling facilities capableto dismantleplatforms for reusing or recycling, and in the construction of facilities capable to handle radioactive waste;more transparencytowards all stakeholders.

ACKNOWLEDGEMENTS

First and foremost, thank you to Allah the Almighty for the opportunity to live and explore His priceless knowledge.

Secondly, the author would like to extend her sincere gratitude and appreciation to the following persons who, in one way or another, have contributed in making this project possible.

- Mr. Tharwat and Mrs. Rosa, for instilling a loveof learning and understanding in her from an early age, funding her education and raising her as an Amazon warrior.
- Mrs. Anita, for her friendship, smile, courage, solidarity and emotional buoyancy.
- Mr. Arslan, for his immense support, for his constructive criticism and for sharing with her every failure and success throughout the toughest, yet most enlightening, year oftheir lives.

TECHNICAL TERMINOLOGY

A list and explanation of technical terms and concepts used throughout this research is given in Table 0.1 for every reader to fully enjoy their reading.

Table 0.1: Definition of technical terms and concepts found in this research.

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1.0 INTRODUCTION

1.1 RESEARCH BACKGROUND

When an oil and gas (O&G) structure comes to the end of its life span, arrangements have to be made for its abandonment. Abandonment of an installation entails various steps, one of which is called ‘decommissioning’. ‘Decommissioning’ refers to the ‘dismantling, decontamination and removal of process equipment and facility structures’ (Ruivo 2001:1). Today, there are around 7,300 offshore platforms and production facilitiesacross 53 countries, one fourth of which are at least 35-40 years old (Ayoade 2011:3, Mokhtar 2014:2). Thus, due to the progressive aging of installations, but also to more stringent and complex legal requirements, decommissioned offshore structures have grown in number, with between 250 and 350 offshore platforms decommissioned globally since 1987 (Mokhtar 2014:2, Schlumberger 2001:28).Many experts agree on the fact that this trend will keep on growing, with decommissioning playing a major role in the O&G industry in the coming decades. In particular, it is estimated that 97% of the World’s offshore platforms will undergo decommissioning (Pittard 1997).

1.2 OVERVIEW OF OFFSHORE DECOMMISSIONING IN MALAYSIA AND IN THE UK

The UK and Malaysia are not an exception to the raising trend of offshore decommissioning activities (Boothby 2010, Bureau Veritas 2011:3-7, Jamieson 2013:4, Mokhtar 2014:41, Offshoretechnology 2012, Rach 2012, Scottish Enterprise 2008:57, Stancich 2011, Twomey 2010, Vieira 2014:17, Wan Abdullah Zawawi et al. 2012a). However, they do not appear to be equally prepared to carry out decommissioning operations in their waters. Indeed, the UK has an experience of offshore decommissioning dating back to 1988, and it relies on the implementation of well-established national, regional and international legislations(Azaino 2012:18, DECC 2015a, Stevens 2012:3-5).This is the reason why more than a researcher has taken the UK’s experience as a model to propose improvements to the offshore decommissioning regime and implementationin developing countries like Nigeria or Ghana (Azaino 2012, Ogbomo 2008, Songi 2014, Zahreddine and Songi 2012). By contrast,only a handful of offshore platforms have been decommissioned in Malaysia, and the countryhas not yet promulgated any specific decommissioning regulations for the O&G industry. In fact, the main regulatory framework governing decommissioning in Malaysia remainthe guidelines provided by the national oil company (NOC) PETRONAS. But as detailed further on in this research, both these guidelines and the current Malaysian production-sharing contract (PSC) lack guiding principles and allow international oil companies (IOCs) to escape their legal and financial responsibilities associated with offshore decommissioning.Therefore, the researcher believes that Malaysia could draw meaningful lessons from the UK’s regulatory landscape and practices in order to make its offshore decommissioning process relatively painless.

1.3 RESEARCH AIM, OBJECTIVES AND QUESTIONS

1.3.1 Research aim

As industry experts forecast a rise in the number of decommissioned offshore platforms in Southeast Asia in the coming decades, yet without providing a numeric estimate of platforms involved, and as there is a dearth of literature on the suitability of the Malaysian offshore decommissioninglegal framework, the aim of this research is to determine whether the Malaysian regulatory landscape governingoffshore decommissioning isadequate to face the scale of offshore decommissioning activities which will involve the country. And in case it was proven to beinadequate, whether the UK’s decommissioning regime could be taken as a point of reference for improvement, in light of the fact that the UK’s regulatory framework is older and more established than the Malaysian one, and that the UKhas had more decommissioning activities than Malaysia. The motivation for this research is the novelty of the subject in Malaysia, since the national industry is just beginning to deal with offshore decommissioning operations, having only six platforms decommissioned to date (Twomey 2010). The main ambition of this study is to stimulate debate about pertinent issuesas well as provide Malaysian policy makerswith influential recommendations on how to raise national standards in terms of regulation and execution of offshore decommissioning of O&G structures.Finally, this research could benefit companies currently involved in offshore decommissioning operations in Malaysia, or interested in undertaking such profitable activities in the coming years, as it provides an overview of relevant legal and contractual obligations and best practices.

1.3.2 Research objectives

In order to achieve the above-mentioned aim, this research is broken down into the following objectives:

I) To estimate the scale ofoffshore decommissioning activities in Malaysia over next decade;
II) To examine the current regulatory landscape of offshore decommissioning in Malaysia, identifying weak points and theirimpact on a practical level.
III) To examine the current regulatory landscape and implementation of offshore decommissioning in the UK, identifying strong points and suggesting possible lessons that Malaysia could draw from the UK’s experience.

Even though, at a glance, objective I could seem not to be germane to the legal nature of this study, the ratio behind it is that the researcher would like Malaysian policy makers to have a precise idea of thenumber of offshore platforms to be decommissioned in the near future, in order for them to consider in all honesty and realism whether their current legal tools are adequate to succeed in this venture, or may need to be reviewed.

1.3.3 Research questions

The present research revolves around the following questions:

I) How many platforms will undergo decommissioning inoffshore Malaysia by 2025?
II) What are the weaknesses of the current regulatory landscape and implementation of offshore decommissioning in Malaysia?
III) What could be practical consequences of the weaknesses mentioned in point ii)?
IV) What are the strengths of the current regulatory landscape andimplementation of offshore decommissioning in the UK?
V) What are possible lessons on offshore decommissioning regulation and implementationthat Malaysia could learn from the UK?

1.4 RESEARCH STRUCTURE

This research is divided into fivechapters whose content is briefly summarised in the following lines.

Chapter 1.0 – INTRODUCTION: This chapter briefly introduces offshore decommissioning in Malaysia and in the UK, providing reasons for the researcher to selectthis topic. Also, research aim, objectives and questions are herein outlined.

Chapter 2.0 – LITERATURE REVIEW: This chapter summarises what the research community and existing regulations have saidabout offshore decommissioning in Malaysia and in the UK, in order to identify research gaps to bridge.

Chapter 3.0 – METHODOLOGY: This chapter deals with the research methodology. It is the chapter that should be looked at toknow what steps the researcher has followed to achieve the wanted results. In other words, this chapter would allowthe reader to replicatethis research while being aware of reliability and limitations of the study.

Chapter 4.0 – RESULTS AND DISCUSSION:Consistently with the objectives set in chapter 1.0 and the methodology described in chapter 3.0, this chapter explains the results obtained and their implications.

Chapter 5.0 – CONCLUSION AND RECOMMENDATIONS: This last chapter sums up the research results illustrated in chapter 4.0, and finally proposes recommendations for Malaysia to improve its offshore decommissioning regulations and practices.

2.0 LITERATURE REVIEW

2.1 UNDERSTANDING DECOMMISSIONING

When an O&Ginstallation comes to the end of its design and economic life as shown in Figure 2.1, arrangements have to be made for its abandonment (Beheshti 2014:13). Abandonment of an installation entails four steps: obtaining necessary permits and approvals; plugging the well; decommissioning the structure; clearing the site (Mokhtar 2014:2). ‘Decommissioning’refers to the ‘dismantling, decontamination and removal of process equipment and facility structures’, and it may be described as ‘the best way to shut down production operation at the end of a field’s life’(Ruivo 2001:1). According toVinogradov (2005:508), decommissioning covers the following: cessation of well operations; removal of plant and equipment;removal or partial removal of any fixed or floating structures;removal or stabilization of drill cuttings;decommissioning or removal of pipelines;rehabilitation of the seabed along with any related onshore activities such as recycling or stabilization of waste (Figure 2.2).Decommissioning involves a multidisciplinary process which requires to find the right balance between several areas such as theenvironmental, financial, political, health & safety, technical and legal ones (Figure 2.3) (Mokhtar 2014:2, Ruivo 2001:1).

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Figure 2.1: Life cycle of an offshore production platform (Wan Abdullah Zawawi et al. 2012b:3).

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Figure 2.2: Diagram of the decommissioning process (Byrd et al. 2014:6).

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Figure 2.3: Elements coming into play when deciding on decommissioning (Ruivo 2001:11).

2.2 BRIEF HISTORY OF WORLDWIDE OFFSHORE DECOMMISSIONING WITH A LOOK AT FUTURE PROSPECTS

Decommissioning is a relatively new issueto most oil producing countries, reason why the level of expertise in building platforms today remains greater than the one in decommissioning them (Ferreira et al. 2004:1175, Parente et al. 2005:1992). In fact, while offshore installations exist since the 1920s, first platforms to be disposed date back to the last quarter-century, with the most complex structures to be decommissioned starting from the 1990s (Athanassopoulos et al. 1999:iii, Parente et al. 2005:1994). Moreover, despite offshore installations must be decommissioned at the end of their service life, most of them were not designed to be removed(Parente et al. 2005:1994).First information about the issue of anoffshore structure decommissioning programme,date back to 1988, when the Piper Alpha platform located in the North Sea was toppled (DECC 2015a). In July 1988, a gas leakage from one of the condensate pipes at the Piper Alpha platform, coupled with a series of unfortunate circumstances such as communication errors, a pressure safety valve removed as part of the routine maintenance, temporary sealing of the condensate pipe, etc., led to gas ignition and consequent explosion, killing 167 workers out of 226 (Offshoretechnology 2014). Following thisaccident, a decommissioning programme was submitted to and approved by the Department of Energy and Climate Change (DECC) the same year (DECC 2015a). Ever since, due to the progressive aging of installations which have reached their productive and economic limit, and due to more stringent and complex legal requirements, offshore decommissioning programmes and operations have grown in number, with between 250 and 350 offshore platforms decommissioned globally since 1987(Mokhtar 2014:2, Schlumberger 2001:28). Mokhtar (2014:41), Osmundsen and Tveterås (2003:1580), Parente et al. (2005:1995), Schlumberger (2001:28) and many others agree on the fact that decommissioning will play a major rolein the global O&G industry in the coming decades. In particular, Pittard (1997) estimates that 97% of the World’s offshore platforms, which according to Ayoade (2011:3) are over 7,300, will undergo decommissioning (Figure 2.4).The cost of this venture is estimated at US$40 billion (Ayoade 2011:4).One fourth of the World’s offshore installations are now 35-40 years old or more (Mokhtar 2014:2). Decommissioningwill involve powerful players such as governments, IOCs and environmental organisations, especially with regard to economic and social costs associated with decommissioning(Osmundsen and Tveterås 2003:1579). In fact, in regions where decommissioning is partially or totally responsibility of the government, goals pursued are not only the maximisation of profits, as for private oil companies instead, rather other factors, especially environmental and social ones, come into play when determining the decommissioning strategy (Athanassopoulos et al. 1999:65, Schlumberger 2001:28). So, at times, the most cost-effective decommissioning option could be rejected in favour of an option able to win the goodwill of public opinion and environmental activists (Athanassopoulos et al. 1999:72,Parente et al. 2005:1995). The decommissioning of theBrent Spar platform which is discussed in section 2.5.2 of this research is an exemplar case ofwhat has just been stated.

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Figure2.4: Global distribution of offshore O&G platforms (Parente et al. 2005:1994).

2.3 OFFSHORE DECOMMISSIONING OPTIONS

There are a variety of ways in which offshore decommissioning may be implemented, depending on a set of factors such as costs, health &safety, size and type of construction, legislation, available technology, weather conditions, distance from shore and, as mentioned shortly before, the local population’s level of tolerance with respect to how the sea is used(Athanassopoulos et al. 1999:72, Gorman et al. 1998:23, Pittard 1997). Wellscan only be plugged, whereas different decommissioning options are possible forpipelines, topsides and substructures, as illustrated in Figure 2.5, Figure 2.6 and Figure 2.7 respectively.

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Figure2.5: Decommissioning options for pipelines (Ruivo 2001:12).

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Figure 2.6: Decommissioning options for topsides (Ruivo 2001:12).

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Figure 2.7: Decommissioning options for substructures (Gormanet al. 1998).

There are three main options for decommissioning a substructure, each having advantages and disadvantages:

- Leave in place: The substructure is cleaned and made safe, but not removed. Despite being apparently the cheapest, this option is rarely chosen due both to regulations requiring at least partial removal and to subsequent costs associated with maintenance, accident liability and other potential hazards related to navigation and fishing (Pittard 1997). The substructure may be:
- Abandoned with navigation marks.
- Intended for other uses, e.g. turned into a touristic structure for divers (Mokhtar 2014:6).
- Toppled in place (Figure 2.8).

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Figure 2.8: Structure toppled in place (Ruivo 2001:12).

- Total removal: The substructure is cut at a reasonable depth below the mudline in order to avert any interference with other sea users, and debris are cleared by trawling. Despite being the most expensive decommissioning option, it is also the most common due to strict regulations (Pittard 1997). What has been removed can have different fates:

- Carried to the shore for recycling or disposal as waste.
- Intended for other uses, e.g.transformed into artificial reefs which have been proved to enhance marine habitats, so favouring marine life flourishing (Osmundsen and Tveterås 2003:1580).
- Towed and disposed of in deepwater (Figure 2.9).

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Figure 2.9: Structure towed and placed (Ruivo 2001:12).

- Partial removal: The top section of the substructure is cut. The clearance from the sea surface to the remaining substructure depends on regulations. This option is cheaper than total removal, because transportation costs are reduced or eliminated; however, it must be performed only if it does not imply safety or environmental concerns (Pittard 1997). Sub-options entail the substructure to be:

- Carried to the shore for recycling or disposal as waste.
- Towed and disposed of in deepwater.
- Intended for other uses, e.g. transformed into artificial reefs.
- Toppled in place, as shown in Figure 2.10. This sub-option is the cheapestone, because transportation costs are totally eliminated (Pittard 1997).

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Figure 2.10: Structure partially toppled in place (Mokhtar 2014:24-27).

2.4 OFFSHORE DECOMMISSIONING INTERNATIONAL LEGAL REQUIREMENTS

Both removal and disposal of offshore installations are governed byan internationalregulatory framework.In particular, removal is governed by:

- The 1958 Geneva Convention on the Continental Shelf:

- Article 5, Section 1: Requires that the exploration of natural resources of the continental shelf does not result in an unjustifiable interference with other activities in the sea, e.g. navigation, fishing, scientific research;
- Article 5, Section 5: Requires that any installations which are abandoned or disused be completely removed.

- The 1982 United Nations Conference of the Law of the Sea (UNCLOS):

- Article 60, Section 3: Requires that any installations which are abandoned or disused be completely removed; however, partial removal is permitted, provided that this does not imply a risk to the safety of other users of the sea, and provided that appropriate publicity is given to the depth, position and dimensions of the remaining structure. Although an apparent legal conflict with the above-mentioned Article 5 of the Geneva Convention on the Continental Shelf which instead requires complete removal, decisions on the extent of removal depend on the participating status of States concerned (Vinogradov 2005:515). For instance, for those States which are party to the 1982 UNCLOS, the latter prevails, while the 1958 Geneva Convention on the Continental Shelf is considered redundant.

- The 1989 UN International Maritime Organisation (IMO) Guidelines and Standards on the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Economic Zone (EEZ), also known as IMO Guidelines:

- Article 1, Section 1: Reiterates the partial removal option embodied in the 1982 UNCLOS;
- Article 2: Specifies that the extent of the removal should be decided on a case-by-case basis depending on a range of factors such as costs, technical feasibility, safety;
- Article 3, Section 1: Requires that all abandoned or disused installations standing in less than 75 m of water and weighting less than 4,000 tonnes in air be completely removed.
- Article 3, Section 2: Requires that all abandoned or disused installations built after 1st January 1998, standing in less than 100 m of water and weighting less than 4,000 tonnes in airbe completely removed;
- Article 3, Section 4, 5 and 6: Allows partial or non-removal in the exceptional cases of technical unfeasibility, extreme costs, acceptable riskto the safety of other sea users,enhancement of the marine environment, installations assigned for new uses,etc.Moreover, in case of partial removal, an unobstructed water column of at least 55 m should be provided above the partially removed installation in orderto eliminate navigation hazards;
- Article 3, Section 11: Requires that responsibility for maintenance of partially or non-removed installations be unambiguous, so as financial ability to assume liability for future damages be clearly established;
- Article 3, Section 13: Requires that after 1st January 1998 no installations be placed on the Continental Shelf or in the EEZ, unless total removal be permitted by the design and construction of such installations.

Disposal of offshore installations instead is governed at international level by:

- The 1982 UNCLOS: Requires States to reduce and control pollution of the marine environment by dumping through legal instruments such as standards, rules, practices, laws, etc. Also, dumping activities need express prior approval by the competent authorities of States.
- The 1972 London Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter, also known as London Dumping Convention (LDC): Permits disposal of platforms upon the issue of a special permit taking into consideration all relevant factors e.g. effects on the marine environment, availability of alternatives, etc.
- The 1996 Protocol to the 1972 Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter, simply called 1996London Dumping Protocol: Prohibits in principle all dumping; however, there are a few exceptions regarding certain structures at sea, exceptions which anyway require the issue of a special permit by the designated authorities. Furthermore,both the ‘precautionary approach’ and the ‘polluter pays principle’ are herebyintroduced. The latter is quite self-explanatory, whereas the former means that if an action is suspected to be potentially risky or harmful to the environment or the public, and if there are no scientific evidences proving that it is not so, then the burden of proof that it is not harmful falls on those who recommended taking such action (Brackett 2012:30). So the precautionary approach is a strategy to cope with possible risks where scientific understanding is yet incomplete (COMEST 2005:8).

Althoughvarious efforts are underway towards establishing international best practices in the offshore decommissioning sector, national governments still enjoya large degree of discretion when it comes to regulating decommissioning activities in their State’s jurisdiction (Osmundsen and Tveterås 2003:1580, Parente et al. 2005:1992).Some international or regional conventions, most notably the OSPAR agreement which is discussed in section 2.5.1 and the IMO Guidelines, do not provide national governments with clear regulations about the fate of underwater pipelines, drill cuttings left around the installations and well capping(Bureau Veritas 2011:78, Hamzah 2003:348, Lyons 2013a:3, Osmundsen and Tveterås 2003:1586, Patin n.d.). Furthermore, the IMO Guidelines reflect the best solutions for abandonment currently available, yet, legally speaking, they are mere recommendations, hence not binding, especially on State parties (Hamzah 2003:348, Vinogradov 2005:516). The IMO Guidelines could prevail over existing treaty obligations only if they were transformed into law through proper legal procedure, or if a State voluntarily decided to include them in its domestic practice and legislation (Vinogradov 2005:516). Another example could be the UNCLOS,as itis considered to deal with the issue of offshore disposal in a very general manner (Vinogradov 2005:516). Finally, it must be pointed out that not all oil producing countries are party to IMO Guidelines, UNLCOS or other international legal tools (Hamzah 2003:348).

2.5 THE UK’S EXPERIENCE

Having looked at the international regulatory landscape in the preceding section, it is now relevant to mention that both regional and national regulatory frameworks governing offshore decommissioning are also existing and applicable to the UK.

2.5.1 Overview of the UK’s offshore decommissioning legislation

Part IV of the 1988 Petroleum Act,which is called ‘Abandonment of Offshore Installations’and which recalls Part I and Part II of an earlier 1987 Petroleum Act, is whatprimarily governs the decommissioning of offshore O&G assets in the UK (Azaino 2012:17, Bureau Veritas 2011:3).According to Section 29 and Section 30 of the 1988 Petroleum Act, the Secretary of State can request that an ‘abandonment programme’, also called ‘decommissioning programme’, be submitted by the appropriate parties. This programme is the main document required for approval of any offshore decommissioning projectin the UK, and it includes details about estimated costs, an environmental impact assessment (EIA) and ongoing monitoring (Bureau Veritas 2011:24-42, ILO 2011). The UK’s administrative procedure leading to the development of a decommissioning programme is provided in Figure 2.11.Once approved, holders are legally obliged to implement the decommissioning programme (ILO 2011).If the appropriate parties fail to submit the required documentation, the Secretary of State can take charge of preparing the decommissioning programme, but then ask for a reimbursement from the defaulting parties (Azaino 2012:18).

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Figure 2.11: UK’s administrative procedure to develop a decommissioning programme (Bureau Veritas 2011:34).

With regard to the UK, particularly relevant is also the 1992 Oslo and Paris Convention for the Protection of the Marine Environment of the Northeast Atlantic, simply known as OSPAR, which has replaced an earlier 1972 Oslo Dumping Convention. The North Sea decommissioning is in fact regulated by the OSPAR Decision 98/3 which, therefore,the UK’s internal decommissioning regulation also refers to (Decomnorthsea n.d.). The OSPAR Decision 98/3 on the Disposal at Sea of Disused Offshore Installations in the North Sea or North East Atlantic prohibits dumping as well as partial or non-removal of disused offshore installations within the maritime area, unless the competent authority of the relevant contracting party hasissued a permit on a case-by-case basis. The permit could be issued only if the installation does not contain certain listed hazardous materials which may result in harm to marine life, damage to amenities, interference with other legitimate users of the sea, and in general only if good reasons are given for sea disposal. The use of rigs to form reefs instead is always forbidden by OSPAR (ILO 2011).The OSPAR Commission has the role to facilitate consultation between the contracting party willing to issue a permit for dumping, partial removal or non-removal of offshore installations and other contracting parties (Bureau Veritas 2011:26). Following the Brent Spar controversy which is discussed in next section of this research, the OSPAR Commission released the Sintra Statement in 1998 (Athanassopoulos et al. 1999:63, Osmundsen and Tveterås 2003:1580-1581). The Sintra Statement re-emphasises the prohibition to use the sea as a dumping ground as well as the priority to reuse offshore installations and pipelines or return them to the shore for disposal or recycling; however, partial or non-removal of installations and pipelines is permitted under certain circumstances such as technical complexity or safety reasons.Also, the Sintra Statement requires that after 1st January 1998 no installation be placed on any continental shelf or EEZ, unless its design and construction allow total removal, so tightening the standards established by Article 3 of theIMO Guidelines. With regard to installations constructed before 1st January 1998 instead, they should be decommissioned to the most practicable extent.A case-by-case approach is suggested where there is no generic solution. Finally, national regulatory agencies have to approve all decommissioning decisions. In the UK, these agencies would be the Health & Safety Executive, the Department of Trade and the Department of Fisheries and Agriculture (Athanassopoulos et al. 1999: 64).In 2009,theindustry body Oil & Gas UK (OGUK)introducedthe Decommissioning Security Agreement (DSA) as the industry’s standard agreement on decommissioning liability within the United Kingdom Continental Shelf (UKCS) (Azaino 2012:18, Stevens 2009:11). The DSA can be agreed upon at the signing of a joint operating agreement (JOA), and itensures that licenseesallocate sufficient funds to cover costs associated with decommissioning (Azaino 2012:18, Stevens 2009:11). The 2008 Energy Act has modified the 1988 Petroleum Act in two ways. First, Section 38A of the 2008 Energy Act provides protection of all sums set aside under a DSA, meaning that during insolvency no creditor could draw upon such sums, which therefore will remain available for paying decommissioning costs (Azaino 2012:18). Second, the Energy Act allows the DECC to request the submission of a decommissioning programme at any time (ILO 2011).Being responsible for accepting or rejecting decommissioning programmes, the DECC’s Offshore Decommissioning Unitmust ensure that the decommissioning of offshore O&G installations and pipelines be carried outin compliance with all applicable laws and standards as well as having an impact on the environment and climate change which is as little as possible (Bureau Veritas 2011:3, DECC 2011, DECC 2015a, ILO 2011).Another key legislation is the 2009 Marine and Coastal Access Act which requires a licence for all decommissioning operations (OGUK 2014).Besides key legislation discussed above, the UK relies onsupporting legislation including a range of Acts and Regulations governing waste management, marine conservation, prevention and control of pollution, production and pipelines, chemicals and radioactive substances, merchant shipping, etc. (OGUK 2014). Finally, in addition tothe above-mentioned key and supporting legislations, the DECC has published its Guidance Notes on the Decommissioning of Offshore Oil and Gas Installations and Pipelines in 2000, and regularly updated them, most recently in 2011 (ILO 2011). These Guidance Notesprovide derogation from complete removal in case of unacceptable safety risk or intolerable environmental impact (Stevens 2009:6).Specifically, operators are required to provide information including safety, environmental, technical, societal and economic criteria for the DECC to allow derogation from the baseline principle of complete removal (Stevens 2009:6-7).The Guidance Notes try to provide more flexibility to licensees while remaining within the legislative constraints of the Petroleum Act (ILO 2011).What emerges from a review of the UK’s offshore decommissioning legal landscape is that safety is paramount, even though this may mean leaving platforms and pipelines fully in place.Hence, judgements based on a case-by-case basis are becoming increasingly established as a UK’s offshore decommissioning practice. Furthermore, the UK’s legal regime may seem excessively strict, but this is toprevent decommissioning costs from falling on British tax payers (ILO 2011).In fact, bad experiences with decommissioning in the past, have led the UK to develop a highly sophisticated regulatory framework for offshore decommissioning; a framework which is intricate but flexible at the same time, and which clearly identifies roles and responsibilities as well as provide a mechanism for ensuring legal compliance (Azaino 2012:17). As Hamzah (2003:343) reminds, the UK was one of the two dominant maritime powers in the 1950s pushing for an international treaty on platform abandonment under the pretext of freedom of navigation, even though the real motive was maritime security. Therefore, today’s regulatory landscape on offshore platform decommissioning is greatly due to the UK’s efforts and will. The UK legal framework governing decommissioning is far from being perfect, yet it is considered to be one of the best decommissioning regulations in the World, because it is a well-established framework based on the implementation of national, regional and international legislations (Azaino 2012:18, Stevens 2012:3-5).The UK has always been and remains in the front line of States that are seeking to develop a sound regime for decommissioning, balancing public with private concerns(CEPMLP n.d.).This is why Hamzah (2003:341) suggests the ‘Third World’ to learn from the UK’s experience the important role that the Government plays in regulating and facilitating the process of platform decommissioning undertaken by the operator. Specifically, the British government enacts the relevant legislation, monitors the whole decommissioning process, and eventually offers tax breaks to the operator (Hamzah 2003:341). A furtherlesson from the UK’s experience could be to be as much transparent as possible towards all stakeholders, because a perfect plan and technical competence may still see a project fail due to the pressure from the civil society (Hamzah 2003:341, Wan Abdullah Zawawi et al. 2012a).It is probably for the above reasons that researchers like Azaino (2012), Ogbomo (2008), Songi (2014) and Zahreddine and Songi (2012) have looked at the UK as a model to improve decommissioning regulations and practices in developing countries like Nigeria or Ghana. On the contrary, no offshore decommissioning comparative analysis between the UK and Malaysia appears to have been published by the research community.

2.5.2 Overview of the UK’s offshore installations and decommissioning practices with a look at future prospects

As mentioned earlier in this research, the UK has been pioneering in terms of offshore decommissioning, with the Piper Alpha fixed-steel platform being the first installation in the World to undergo this process after the disaster of 1988 which is pictured in Figure 2.12 (Smith 2005).

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Figure 2.12: Piper Alpha disaster (Energy Reporter 2013).

As shown in Figure 2.13 and Figure 2.14, North Sea structures are typically larger and heavier than those in Southeast Asia, because they were built to bear one of the World’s most inhospitable environments; therefore, many are the challenges of removing them, especially as work depths increase (Bureau Veritas 2011:7, Mokhtar 204:41, Pittard 1997). If in the shallower waters platforms typically weigh less than 5,000 tonnes, in deepwater they can weigh up to 200,000 tonnes (Gorman et al. 1998:1). However, being more difficult and costly to remove, these structures have allowed the UK to develop special techniques and leading expertise in the field of offshore decommissioning (Pittard 1997).

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Figure 2.13: Some North Sea platforms related to the London Eye (Jamieson 2013:4).

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Figure 2.14: Typical offshore platform found in the North Sea (Twomey 2012b:38).

As partially visible in Figure 2.15, approximatively 470 installations, 10,000 km of pipelines, 5,000 wells and 15 terminals onshore are found in the North Sea today, and it is estimated that these facilities will undergo decommissioning between 2010 and 2040, giving a return of around US$88.4 billion (Jamieson 2013:4, Mokhtar 2014:41).

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Figure 2.15: Location of current O&G infrastructures on the UKCS (DECC 2015b).

To date, just 7% of offshore facilities on the UKCS has been decommissioned, including all what is represented in Table 2.1 (Bureau Veritas 2011:3, Offshoretechnology 2012). However, the rate of decommissioning activities is expected to rapidly increase in next decades due both to infrastructures approaching the end of their useful life and more stringent legal requirements (Bureau Veritas 2011:3-7, Offshoretechnology 2012). Concerning the former factor, it is relevant to mention that oil production in the North Sea is in decline since it peaked in 1999 (Offshoretechnology 2012).Vieira (2014:17) and Offshoretechnology (2012) agree that the decommissioning market is growing in the UKCS, with US$22.7 billion forecasted to be spent on decommissioning projects from 2014 to 2023, and over US$46.7 by 2042.

Table 2.1: Facilities decommissioned on the UKCS as of yet (Jamieson 2013:4).

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Installations and pipelines have been built and installed on the UKCS since the mid 1960s (Gorman et al. 1998:1). These installations vary in terms of size, type, material and depth, as partially shown in Table 2.2 (Gorman et al. 1998:1).

Table 2.2: Type and number of platforms on the UKCS (Ekins et al. 2005:14).

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The most controversial episode concerning decommissioning in the North Sea is certainly represented by the Brent Sparoil storage and loading buoy (Figure 2.16). The Brent Spar was located in the Brent field, Scotland, andwas operated by Shell UK (DECC 2015a). In 1991, the platform was considered to be of no further value, reason why Shell applied for disposal in deepwater under the 1987 British Petroleum Act. When in 1995 the British government, and especially the then Prime Minister John Major, announced their support for this decommissioning programme, Greenpeace activists occupied the platform and organised a media campaign against this solution (Grove-White 1997).This issue became front-page news in the UK and abroad, fostering European-wide consumer boycotts of Shell products, and bringing to violent attacks against gas stations operated by Shell (Athanassopoulos et al. 1999:63).In spite of being completely legal according to international standards, the Brent Spar decommissioning programme was reconsidered by Shell for a matter of reputational concerns, and in January 1998 the company announced the decision to dispose of the platform onshore, using it as foundations for a new ferry terminal (Na et al. 2012:1, Osmundsen and Tveterås 2003:1579). This decision made disposal costs increase from an estimated US$38.5 million to US$71.4 million, but clearly public image damage was considered to be much more costly (Lode 1999:6). Beingthe first deepwater installation to be totally decommissioned and removed from its original location, the Brent Spar represented a turning point in decommissioning planning in the North Sea (Athanassopoulos et al. 1999:64). For the first time in history, governments and oil companies realised how influential can environmental and social factors be when deciding what decommissioning strategy to adopt; influential to the point that, following this episode,a change of policy unsettled the very basis of executive authority (Athanassopoulos et al. 1999:63-65, Grove-White 1997). In fact, few months after Shell announced its new decommissioning plan, the OSPAR Commission released the Sintra Statement foronshore disposal of petroleum offshore installationsin the future (Osmundsen and Tveterås 2003:1579).The Sintra Statement has already been discussed in section 2.5.1 of this research, highlighting how costs are not the main criterion to determine the decommissioning option.As Noreng (1980) notes, the British government has a strong tradition of social planning, andthis tradition has manifested itself in the rational-scientific approach to decommissioning planning.

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Figure 2.16: Brent Spar platform occupied by environmental activists (Softwarehistorian 2009).

Twocase studies of decommissioning carried out on the UKCS are illustrated in Table2.3. Topsides and jackets are usually carried to the shore for recycling, reuse or disposal as waste; pipelines and drill cuttings aretypically left in place(Ekins et al. 2005:13). The Maureen platform operated by Conoco Phillips was the first North Sea installation to be removed after the OSPAR Decision 98/3(Hall 2014).In 1999, the platform was lifted off the seabed by injecting water under the base, whileseawater was deballasted in Maureen’s three tanks (Hall 2014). Finally, the one-well satellite facility was removed too, carried to the shore and recycled (Hall 2014). 95% of the Maureen platform has been reused as a quayside in Norway (Maritime Journal 2002).

Table 2.3: Examples of decommissioning carried out on the UKCS (Ekins et al. 2005:13).

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To date, the UK counts9 decommissioning programmesapproved and49decommissioning programmesunder consideration (DECC 2015a). In 2009, AF Group (AFG) signed a US$30 million contract with Shell for the decommissioning of six platforms from the British North Sea Indefatigable gas field (Mokhtar 2014:44). More recently, in 2013, Able UK signed a similar contract with ExxonMobil for the decommissioning of four platforms standing in 140 m deepwater (Mokhtar 2014:44). Works by Able UK will start between 2015 and 2016, and are expected to last around eight years (Mokhtar 2014:44). ‘Allseas’, a vessel under construction, will do most of the work thanks to a lift capacity of up to 48,000 tonnes (Mokhtar 2014:44). These informationprove that forecasts about the UK witnessing a hike in offshore decommissioning over next decades are likely to be correct.

2.6 MALAYSIA’S EXPERIENCE

2.6.1 Overview of Malaysia’s offshore decommissioning legislation

In Malaysia, decommissioning plans have to comply with the following eight laws: 1952 Merchant Shipping Ordinance (MSO), 1972 Continental Shelf Act (CSA), 1984 Exclusive Economic Zone Act (EEZA), 1974 Environmental Quality Act (EQA), 1985 Fisheries Act (FA), 1994 Occupational Safety & Health Act (OSHA), 1994 Natural Resources and Environmental Ordinance (NREO) and 1996 Conservation of Environment Enactment (CEE) (Alonzo Ibañez 2011:9, ICLG n.d., PETRONAS 2008:180-182, Twomey 2012a:15). However, despite a remarkable potential for offshore decommissioning activities, the country has not promulgated any specific decommissioning regulations for the O&G industry, nor it has united those eight laws into one comprehensive law (Alonzo Ibañez 2011:9). In addition to this, both regional sea programmes or projects and joint development agreements (JDAs) for hydrocarbon resources do not include provisions on offshore decommissioning (Lyons 2012:6). Belonging to the Association of Southeast Asian Nations (ASEAN), Malaysia is a member of the ASEAN’s Council on Petroleum (ASCOPE). In 2008, ASCOPE formulated the ASCOPE Decommissioning Guidelines (ADG) for O&G facilities, and ever since it has been pressing for every member country to link their current procedures with the ADG (ASCOPE 2012:13).However, to date, the main relevant regulatory framework in Malaysia remain the 2008 PETRONAS Procedures and Guidelines for Upstream Activities (PPGUA), and in particular their Volume 7 Section 10 which is entitled ‘Decommissioning of Upstream Installations’ and is composed of less than 20 pages. Sincethe Petroleum Development Act of 1974established the Malaysian NOC as statutory manager for petroleum resources and owner of petroleum facilities in the country, PETRONAS is fully accountable for ‘decommissioning of disused upstream installations that have ceased to accommodate O&G production or are at the end of their design life, consistent with the national laws and international conventions’, and all companies wishing to work within Malaysia must partner with PETRONAS in some form (Beheshti 2014:4, PETRONAS 2008:178, Scottish Enterprise 2008:15). Similarly tokey international conventions such as the 1958 Geneva Convention, the 1982 UNCLOSand the 1989 IMO Guidelines, PETRONAS (2008:178-179) requires that all disused upstream installations be fully decommissioned; however, the extent of the removal shall be decided on a case-by-case assessment taking into account the preservation of the marine environment as well as the safety and legitimate interests of other sea users. It follows that decommissioning in offshore Malaysia may legally involve any of the following options: complete removal, partial removal, reefing or re-using (PETRONAS 2008:190-191). Thelegal framework governing offshore decommissioning in Malaysia is provided in Figure 2.17.Malaysia is one of those developing countries where oil platforms and first generation of PSCs were designed without having decommissioning in mind (Hamzah 2003:343, Twomey 2012a:17). That kind of PSCs included a general provision requiring contractors to operate with ‘proper scientific method in accordance with good and modern petroleum practices’; however, for long time this allowed IOCs to escape their responsibility (Hamzah 2003:343, Twomey 2012a:17). The situation has changed under the current PSC which requires contractors to carry out decommissioning operations ‘in accordance with Malaysian law’or, in the absence of such specific law, ‘in accordance with good and modern international practice’. However, there is not Malaysian legislation on decommissioning, and there is little proven ‘good and modern international practice’ (Twomey 2012a:17). Therefore, despite containing a provision for the contractor to decommission unused platforms, the current PSC in Malaysia lacks details and does not oblige the contractors to actually remove and dispose of any abandoned installation (Hamzah 2003:343). Another ambiguous aspect concerns costs:the current PSC entails an ‘abandonment cess’ which is a special fund for abandonment and decommissioning operations to be paid by contractors upon oil production, and to be managed by PETRONAS (Hamza 2003:343, ICLG n.d.). But the IOCs can recover their contribution to the abandonment cess through the mechanism of cost recovery entailed by the terms of the PSC (Hamzah 2003:343, ICLG n.d.). So, in the end, the Malaysian NOC may be the only one absorbing all decommissioning costs, whereas the IOCs can legally avoid their economic responsibilities (Hamzah 2003:343).

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Pages
72
Year
2015
ISBN (eBook)
9783668282544
ISBN (Book)
9783668282551
File size
2.9 MB
Language
English
Catalog Number
v338540
Institution / College
Coventry University
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Tags
Offshore Decommissioning Oil & Gas Petroleum Malaysia UK

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Title: Offshore Decommissioning in Malaysia. Lessons from the UK’s Regulatory Landscape and Implementation