Ultra-deep water port: feasibility study

5. Sensitivity testing

Key Messages

• We consider the potential changes to market demand for an UDW port through four areas: new vessels entering service, the number of platforms and tonnage brought to an UDW port, changes in environmental considerations and other markets.
• Following market consultation, we concluded that whilst new vessels and changes to environmental standards may occur there was insufficient certainty to include a specific adjustment to the market assessment. As a result these impacts were considered within a general +/- 20% sensitivity.
• The method of platform removal is determined by a range of factors in addition to tonnage. In order to reflect this uncertainty we performed sensitivity testing by amending the base case limit from 8,000t to 5,000t and 10,000t.
• The results of the sensitivity analysis highlights:
• For the onshore recycling and disposal, downside sensitivities showed a total market value to £466m compared to £700m in the upside sensitivities.
• Regarding port income, downside sensitivities showed a total market for UDW ports income to be £54m, compared with £116m in the upside sensitivities.

5.1 Introduction

The purpose of this section is to perform sensitivity analysis on the market demand assessment. It sets out factors that could impact the market, such as new vessels entering service, the number of platforms and tonnage brought to an UDW port and the impact of changes in environmental regulations.

5.2 Market considerations

As in any industry there are a wide range of complex factors that impact on the market size. The section below considers four aspects specific to the decommissioning sector.

5.2.1 New vessels

Currently, there are two UHLVs and one SLV capable of decommissioning the largest platforms in the North Sea. The introduction of new vessels could disrupt the forecast market. Through desktop research and discussions with industry figures we have identified the following vessels as potential new entrants into the market:

• Sleipner (Heerema) - A new UHLV is under development and expected to commence operations in early 2019.
• Zeelandia, Serooskerke and Walcheren (OOS) - Serooskerke and Walcheren are new UHLVs expected to enter service in late 2019. Zeelandia is currently at the design stage.
• Amazing Grace (Allseas) - a proposed new SLV, which is of a similar concept and design, albeit larger, as the Pioneering Spirit. There is currently no certainty when or if this vessel will come to the market.
• Twin Marine Lifter (Shandong Twin Marine) - a different SLV concept to that of Pioneering Spirit or Amazing Grace. There is currently no certainty as to when or if this vessel will come to the market.

Three new UHLVs are in construction and can be expected to enter the market in 2019. The impact of this new capacity could increase the number of projects targeted by UHLVs, increasing the demand for an UDW port.

New SLVs are at the concept stage and the final investment decisions are awaited on both vessels. As such, there is no committed timetable for construction or entry into service.

We are also aware that capacity will be removed from the market as older vessels come to the end of their operational life.

Further detail on each of the new vessels is provided in Appendix E.

Given the uncertainty surrounding the timing and impact of new vessels we do not consider that there is sufficient certainty to include a specific adjustment to the market assessment. Rather, the impact of changes in vessel fleet capacity is considered within a general +/- 20% sensitivity.

5.2.2 Number of platforms

The market assessment methodology assumed that only platforms over 8,000t would be candidates for reverse engineer removal using UHLVs. However, the method of removal is determined by a range of factors other than tonnage, such as the form of structural design and whether this supports a particular lifting solution. To reflect this uncertainty we have performed sensitivity testing on revising the assumption to examine the impact of setting the limit at 5,000t and at 10,000t.

5.2.3 Environmental requirements

The importance of complying with environmental obligations is a key factor in all aspects of the O&G industry, including decommissioning activity. Any changes in the requirements could impact the market.

UK & International Regulation

The decommissioning of offshore O&G installations and pipelines on the UKCS is controlled by the Petroleum Act 1998 (as amended by the Energy Act 2008 and Energy Act 2016). The UK's international obligations are governed principally by the 1992 Convention for the Protection of the Marine Environment of the North East Atlantic (OSPAR Convention). The Offshore Petroleum Regulator for Environment and Decommissioning (OPRED), which is part of the Department for Business, Energy and Industrial Strategy (BEIS), is responsible for ensuring that requirements of the Petroleum Act and international regulations are met.

The most significant obligations for decommissioning offshore O&G operations are set out in OSPAR 98/3, which outlines that 'the dumping, and the leaving wholly or partly in place, of disused offshore installations within the maritime area is prohibited'^[9]. However, OSPAR 98/3 recognises the difficulty in performing a complete removal to land of certain installations and may allow for certain installations to be left wholly or partially in place. The table below provides a summary of options that can be considered for different types of installation.

Table 8: OSPAR 98/3 Options

Installation (excluding topsides)	Weight (tonnes)	Complete removal to land	Partial removal to land	Leave wholly in place	Re-use	Disposal at sea
Fixed Steel	<10,000	Yes	No	No	Yes	No
	>10,000	Yes	Yes*	No	Yes	No
Concrete - gravity	Any	Yes	Yes	Yes	Yes	Yes
Floating	Any	Yes	No	No	Yes	No
Subsea	Any	Yes	No	No	Yes	No

Source: BEIS: Decommissioning of Offshore Oil and Gas Installations and Pipelines, *relates only steel installations emplaced before 9 February 1999

Each decommissioning plan is reviewed by OPRED on a case by case basis. In all cases, only the footings or part of the footings can be left in place and partially removed installations which do not project above the sea surface require a minimum water clearance of 55m. All topsides must be returned to land for re-use, recycling or disposal.

In exceptional and unforeseen circumstances, installations can be granted derogation from OSPAR 98/3 for disposal at sea or to be partially or wholly left in place. BEIS guidance outlines that this is only likely to be granted where there is significant environmental, technical or safety reasons why an installation cannot be wholly or partially removed.

As such, the option to not remove parts or all of offshore installations from the UKCS is prohibited under current legislation. If there was a change to the application of these requirements, it could impact on the level of decommissioning

Transfrontier Shipment of Waste Regulations

Transfrontier Shipment of Waste regulations (TFS) ensure that any UK installations that are to be transported for decommissioning abroad are only taken to places where there is the appropriate due regard for health and safety requirements in the decommissioning process. It also requires that any naturally occurring radioactive waste (NORM) which is part of installations being shipped abroad is repatriated to the UK for treatment and disposal. Operators are required to apply to Scottish Environmental Protection Agency (SEPA) for authorisation to allow NORM waste and NORM contaminated items to leave the UK.

Mercury Export

Discussions with project stakeholders have highlighted there may be impending changes to mercury waste legislation. It is suggested that the new regulations could prohibit the export of mercury from the UK. This would therefore require that all mercury is removed from platforms before they are transported abroad for decommissioning. It is understood that this would be cost prohibitive and therefore all UKCS based platforms, which contain mercury, would need to be decommissioned in the UK. We have been unable to obtain further detail on these potential regulatory changes, or verify the impact they would have on the onshore decommissioning location decision.

Potential changes

Certain industry stakeholders have outlined arguments which suggest that leaving a greater number of offshore installations in place could lead to a better overall outcome for the UK and its environment^[10] through:

• Lower decommissioning costs and resultant impact on the UK taxpayer; and
• Structures left in situ acting as artificial reefs which can deliver benefits for the marine environment.

These suggestions have been met by opposition from environmental groups such as Greenpeace and World Wide Fund for Nature, which have been aware of and willing to challenge operators' decommissioning plans^[11].

There is no evidence to suggest that a relaxation of current regulations is being considered by relevant parties. Conversely, certain industry stakeholders have argued that with advances in technology and the current resources being allocated to decommissioning programmes that there may be an argument for more stringent requirements on operators.

Specifically in relation to transfrontier shipment of waste and mercury legislation, stricter enforcement of existing regulations or changes to the regulation could have an impact on the ability of operators to transfer platforms outside the UKCS for decommissioning. EY have been unable to verify the expected impacts of these regulatory changes during our consultation process.

As such, there is no substantial evidence to support a change in regulation is expected in the future. Therefore, we have not performed a specific sensitivity in this area but have considered it in respect of a general +/- 20% sensitivity.

5.2.4 Other markets

The market demand has focused on the value of the UKCS decommissioning market. Given the UK's proximity to the Norwegian Continental Shelf, it is also possible that a UK UDW port could bid for and win projects from there. As such, the potential for this is included within the general 20% upside sensitivity scenario.

5.3 Sensitivity testing results

On the basis of the market considerations we have identified the following sensitivities:

Upside sensitivities that could increase the market:

• The number of platforms brought to an UDW port increase as those with a tonnage of between 5,000-8,000t are included; an
• A general upside sensitivity where the total tonnage increases by 20% due to the impact of new vessels, environmental considerations or other markets.

Downside sensitivities that could decrease the market:

• The number of platforms brought to an UDW port decrease as those with a tonnage over 10,000t only are included; and
• A general downside sensitivity where the total tonnage decreases by 20% due to the impact of the types of vessels coming to market, environmental considerations, use of technical alternatives such as barge transfers or other factors.

The following table sets out the impact on the estimated range of total income of each sensitivity.

Table 9: Results of sensitivity testing

Scenario	Number of platforms	Tonnage	Onshore Market Cost per tonne (£)	Onshore Market Value (£m)	Port Income range per tonne (£)	Estimated Range of Port Income (£m)
Base Case	64	1,943,091	300	583	35 - 50	68 - 97
Upside sensitivities
Small platforms decreased to 5,000t	84	2,131,105	300	639	35 - 50	74 - 106
General Upside Sensitivity (+20%)	71	2,331,709	300	700	35 - 50	81 - 116
Downside sensitivities
Small platform increased to 10,000t	52	1,773,238	300	532	35 - 50	62 - 88
General Downside Sensitivity (-20%)	51	1,554,473	300	466	35 - 50	54 - 77

Source: EY Analysis

The analysis in this table demonstrates that for the onshore recycling and disposal market:

• The upside scenarios increase the market from the base case of £583m to a maximum of £700m under the general sensitivity.
• For the downside sensitivities the market reduced by £51m and £166m for the small platform and general downside sensitivities respectively.

For port income the analysis illustrates:

• Including platforms with a tonnage of between 5,000-8,000t would increase the total number of platforms to 79. In this case, the total income for UDW ports would be within a range of £74m to £106m.
• If total tonnage were to increase by 20% to 2.1mt, the total income for UDW ports would be within a range of £81m to £116m.
• Increasing the small platform criteria from <8,000t to <10,000t would decrease the number of platforms to 52. In this case, the total income for UDW ports would be within a range of £62m to £88m.
• If total tonnage were to be reduced by 20% to 1.5mt, the total income for UDW ports would be within a range of £54m to £77m.