Ultra-deep water port: feasibility study

4. Market assessment

Key Messages

• There is no standard industry approach to estimating the proportion of the £1.2bn onshore recycling and disposal market that is applicable for an UDW port. As such, we have developed a bespoke methodology to estimate the potential market size.
• Of the 322 platforms in the UKCS, we estimate 64 are potential candidates for removal by reverse engineer using UHLVs, and likely to need an UDW port.
• Based on an onshore recycling and disposal cost per tonne estimate of £300, the overall market value for activities that an UDW port could support equates to £583m.
• The UDW port owner could generate income from activities such as charges levied on the vessel operator, the onshore recycling contractor and various other support vessels.
• The level of charges is held commercially confidential by port authorities. Applying a range of £35-£50 per tonne as a proxy would give a total market in the region of £68m-£97m.
• This estimate reflects the total income potential. Factors such as competition from other removal methods or non UK ports will impact the market share that a UK UDW port could secure.

4.1 Introduction

This section forecasts the market size for potential reverse engineer decommissioning projects using UHLVs. It describes our methodology for identifying the number of potential platforms, demonstrates the application of the methodology to calculate potential platform numbers and associated tonnages and finally sets out how this converts to potential income for an UDW port through the application of an estimated income per tonne.

It should be noted that the work performed has not covered a detailed review of each platform and the most appropriate method of removal. Potential reverse engineering projects may also be potential candidates for single-lift or reverse engineering using smaller HLVs which do not require UDW ports.

4.2 Our approach

There is no standard industry approach to assessing the size of the market for an UDW port. Consequently, EY developed a bespoke approach for use in this feasibility study. The approach is outlined in the figure overleaf.

Figure 2: Market Demand Approach

Source: EY Analysis

The approach followed the following steps:

1. List of Platforms: the list of all UKCS offshore installations was obtained from the OSPAR website. This contained information on the asset location, production start dates, substructure tonnage, topside tonnage and asset type (e.g. floating, fixed steel or gravity based concrete).

2. Remove Floating Assets: all floating assets were removed from the list on the assumption these assets can be towed directly to the shore for removal and do not require an UDW port.

3. Remove 'already committed' projects: projects which have already committed to a particular decommissioning programme (e.g. decommissioning method and disposal yard already agreed) were removed from the sample as a newly developed UK UDW port would not be able to bid for these projects.

4. Remove Small Platforms: smaller platforms may opt for the use of smaller vessels in the decommissioning process which do not specifically need an UDW port. As such, these platforms were removed.

5. Derogation Consideration: certain structures can be granted derogation from decommissioning regulation, allowing part or all of the structure to remain in situ. Consideration is given to the list of candidate platforms and whether derogation could be granted for these.

6. List of Candidate Platforms: the remaining list represents an estimate of those platforms considered candidates for reverse engineer decommissioning using an UHLV.

7. Estimate Cessation of Production (CoP): Estimated CoP dates were obtained from the OGA.

8. Establish decommissioning timeline: The annual number of projects and expected tonnage were based on the estimated CoP dates.

9. Estimate decommissioning value: define value of platform decommissioning at two levels. Firstly, for all of the onshore recycling and disposal activities. Secondly, for the income an UDW port may receive from those activities. It aims to establish measures which can be used as multiples of tonnage coming onshore to provide an estimate of the value delivered; and

10. Upper/Lower income range estimate: established as:

• Demand (in tonnes) multiplied by the decommissioning upper range income estimate.
• Demand (in tonnes) multiplied by the decommissioning lower range income estimates.

The results of this process are outlined in the remainder of this section.

4.3 List of candidate platforms (Steps 1-6)

The table below outlines how the final list of candidate platforms was established, working through steps 1-6 above.

Table 4: Calculation of candidate platforms

Stage	Number of platforms	Tonnage (Topsides and Substructures)	Note
List of platforms	322	5,558,505	Per the OSPAR list of UKCS list installations.
Floating asset filter	(32)	(1,230,928)	Removed all assets listed as 'Floating steel'.
'Already committed' filter*	(2)	(219,311)	Removal of Brent A and Brent B platforms which have already committed to using single lift decommissioning method.
Small platform filter**	(224)	(770,367)	Removed all platforms with topsides under 8,000t.
Derogations	-	(1,394,808)	It is assumed that for the five concrete gravity based platforms the substructure is granted derogation to remain in situ. However, the topside will still require removal.
List of candidate platforms	64	1,943,091

Source: EY Analysis

*The Brent B has a gravity based concrete substructure, but due to its removal method being agreed it has been included in the 'Already committed' category
** Two platforms with a gravity based substructure have been included in this category due to the topsides being under 8000t

This filtering process identifies 64 platforms (5 of which may only perform topside removal) with a total weight of 1.94m tonnes which are potential candidates for reverse engineer decommissioning using an UHLV.

The most subjective element of this filtering process is the assumption applied to the small platform filter. 8,000 tonnes is used on account of Thames AP decommissioning (6,488 tonnes) using the Rambiz vessel. This is the largest such project we have noted using a smaller HLV. This assumption is flexed as part of the base sensitivity testing in Section 5 of this report.

4.4 Platform removal timeline (Steps 7 - 8)

The CoP dates for many of the platforms in our sample were provided by the OGA. In reviewing this data, we noted that on average, a platform will reach CoP 35 years after production commences. This was incorporated into the analysis for all platforms where CoP dates are not available.

The year in which a topside or substructure is removed post-CoP varies from platform to platform. Therefore for the purposes of this analysis we have assumed that:

• A topside will be removed three years after CoP; and
• A substructure will be removed four years after CoP.

This assumption was discussed with industry stakeholders who agreed it was not an unreasonable assumption to make in the absence of more detailed analysis or information.

Using this data we were able to establish a timeline of expected decommissioning projects which is detailed in the figure below.

Figure 3: Estimated topside and substructure decommissioning tonnage per year

Source: EY Analysis

As illustrated:

• For most years under review, there is a consistent stream of tonnage being removed between 75,000t and 100,000t per year; and
• The peak year is 2033 with more than 200,000t forecast to come onshore in this period.

It is important to highlight that these estimates are based on current market conditions which are subject to frequent changes. Two key factors: CoP and time from CoP to platform/substructure removal are different for every platform. A number of factors, which have not been considered in this report, could influence these. A long term increase in oil prices could increase the life of the platform and delay CoP. Conversely, a long term decline in oil prices could accelerate a number of decommissioning programmes.

Operators may also attempt to delay decommissioning projects to benefit from favourable market conditions. For example, if in any given year there are a number of platforms expected to be removed, it could create a strain on the UHLVs and disposal yards. This excess demand could increase prices. As such, operators may wish to change the removal date, to avoid higher decommissioning costs.

4.5 Estimate decommissioning value (Step 9)

This step estimates the potential market value for:

• All onshore recycling and disposal activities; and
• Income received by an UDW port as a share of the onshore activity.

These areas are considered in the following sections.

4.5.1 Value of onshore recycling and removal

In the previous section we outlined the OGA estimate of onshore recycling and removal activity as £1.2bn, within a range of between £890m and £1.7bn. The table below calculates a cost per tonne for each of these scenarios, based on the total tonnage for all 322 UKCS platforms identified in Step 1.

Table 5: UKCS estimated onshore recycling and removal cost per tonne

Description	Estimated Total Cost £m	Tonnage (Topsides and Substructures)	Cost per tonne £
Lower estimate	890	5,558,505	160
Mid estimate	1,200	5,558,505	215
Upper estimate	1,700	5,558,505	305

Source: OGA - UKCS Decommissioning 2017 Cost Estimate Report and EY Analysis

It should be noted that in the OGA's decommissioning cost estimate report, the tonnages are not reported. As such, caution should be applied when interpreting the results of this table and the conclusions drawn from combining two data-sets from different sources. However, as a reasonableness check, the table demonstrates that the cost per tonne ranges from £160 in the lower estimate to £305 in the upper estimate, with £215 as the mid estimate.

Through the market consultation a range of quotes were provided for an estimate of the onshore recycling and disposal process on a per tonnage basis. In general, respondents highlighted that the £300 per tonne was a reasonable assumption. Certain responses highlighted this could be less, however the most robust piece of evidence provided to EY outlined it would be more than £300^[8]. As such, £300 per tonne is used as the most reasonable estimate for the purposes of this analysis. The actual costs for onshore recycling and disposal activities will vary from platform to platform.

In general, onshore contractors take the risk on the value they will recover from onward sale of recovered material. As such, the £300 per tonne figure used is considered to be net of the value the onshore contractor can recover from recyclable materials, but cover all other aspects of the onshore decommissioning process. The value of the recyclable material is considered as part of the CBA.

To estimate the market size for all onshore disposal and recycling activities that may need an UDW port we have applied the cost per tonne assumption to the list of candidate platforms from step 6.

Table 6: Estimated onshore recycling and removal market

Description	Number of platforms	Tonnage (Topsides and Substructures)	Cost per tonne £	Estimated Market Value £m
List of candidate platforms	64	1,943,091	300	583

Source: EY Analysis

The estimated market value for all onshore activities is therefore £583m. Applying the lowest cost per tonne from the OGA of £160 would reduce this market to £311m, but for the purposes of our analysis the base case is assumed to be £583m.

It should be noted this may not be the market solely for reverse engineer decommissioning projects which require UDW ports. These projects may also be candidates for single-lift decommissioning projects as well as projects which may use smaller HLVs which do not need UDW ports.

4.5.2 Estimate of port income

An UDW port would expect to generate income through a series of charges levied on the vessel operator, the onshore recycling contractor and various other support vessels. This information is considered commercially sensitive and accordingly is not publically available. Industry analysis does not provide published benchmarks of this form of income. Consequently, the lack of data restricts this aspect of the analysis.

To estimate the port's share on a per tonnage basis, EY performed an estimate based on an example project of a topside (25,000 tonnes) and substructure (15,000 tonnes) removal over a two year period. The project generated port income of approximately £35 per tonne. Due to lack of available data the £35 was considered a reasonable proxy for the revenue which could be generated by an UDW port for each tonne it receives onshore. However, given that the figure is based on one sample project it is conceivable that other income could be generated on future projects. Therefore the analysis will include a scenario where this income is increased to £50 per tonne, in order to provide a range of estimated income.

4.6 Upper/lower income range estimate (Step 10)

The income range for an UDW port is estimated by applying the rates per tonne to the total tonnage for topsides and substructures. This is set out in the table below, followed by charts illustrating the trend over time.

Table 7: Estimates income range

Estimate	Number of platforms	Tonnage (Topsides and Substructures)	Income per tonne £	Estimated Total Income £m
Upper income range	64	1,943,091	50	97
Lower income range	64	1,943,091	35	68

Source: EY Analysis

Figure 4: Upper income range (2018 prices)

Source: EY Analysis

The analysis above indicates:

• The total income for UDW ports is estimated within a range from £68m to £97m, based on 64 platforms with a total tonnage of 1.94m.
• This estimate reflects the total income potential, factors such as competition from other removal methods or non UK ports would be expected to limit the market share that a UK UDW port could secure.

The following section performs sensitivity analysis on this market demand assessment.