The Impact of Delayed Decommissioning on the UK’s Energy Sector

With investor confidence taking a hit in the aftermath of political and fiscal woes, hydrocarbon exploration in a slump, and supply chain costs likely to rise, a postponement of plug and abandonment (P&A) assignments could hike the UK’s decommissioning bill by $5.5 billion, according to the research conducted by Westwood Global Energy, an energy market research and consultancy firm.

Westwood’s analysis looks into the extent of financial and logistical hurdles for the North Sea decommissioning segment, predicting that $26 billion could be poured into decommissioning over the next decade, with well plug and abandonment operations alone accounting for around 50% of the cost.

This analysis shows political and fiscal uncertainty is accelerating the UK North Sea production decline, as it has left its mark on investor confidence. With this at the forefront, Westwood highlights that delays in decommissioning work could strain the limited supply chain capacity, potentially increasing well P&A costs by up to $5.5 billion.

The hike in costs is a possible scenario spurred by higher rig day rates, which create financial liabilities for operators and the UK government. The company’s analysis reveals that timing uncertainty is driving financial and operational risks for operators as the decommissioning workload ramps up, but contract awards are lagging, particularly for rigs.

According to Westwood, deferring work scopes could strain the supply chain’s limited capacity to execute the work. Therefore, should delays persist and rig availability tighten, well P&A costs could climb up because of higher offshore rig day rates, increasing financial liabilities for both operators and the UK government, which provides tax relief on decommissioning costs.

Yvonne Telford, Research Director at Westwood, commented: “As the UK North Sea enters a new phase where decommissioning becomes the dominant industry driver, the supply chain faces significant demand and major financial risk.

“Based on current investment plans, up to 40% of UK fields could cease production before 2030. With the impact of decommissioning tax liabilities on abandonment expenditure, cost-effective P&A must be paramount.”

Decommissioning Forecast by Industry Experts

Offshore Energies UK (OEUK), Britain’s trade body for the offshore energy industry, emphasized in November 2024 the possibility of a surge to 33% in total expenditures by 2030 in its report, with the decommissioning portion possibly accounting for 22% of the cumulative oil and gas spending over the next decade.

OEUK’s Offshore Decommissioning Report 2024 provided further insight into decommissioning activities across the UK’s offshore energy sector, providing an outlook for the next decade. This builds on the previous reports from 2022 and 2023, which predicted that around 2,100 North Sea wells needed to be decommissioned at a cost of about £20 billion over the decade.

The report served to hammer home the significant growth in decommissioning activities, covering the removal of over 2,000 wells, 914,000 tons of topsides, and 508,000 tons of substructures, expected to come with a forecasted expenditure of £24.6 billion by 2033.

Around 60% of the North Sea basin’s topsides and subsea decommissioning is anticipated to happen during the 2026-2032 period, with 2026 projected to see over 100,000 tons of topsides and substructures removed and 200 large-scale wind turbines installed.

OEUK believes the central North Sea could account for more than two-thirds of the estimated figure by 2031, given the 6% increase in annual spending.

Introducing Westwood’s Atlas Decommissioning Module

Meanwhile, Westwood has launched a new Atlas Decommissioning module said to provide real-time data insights to help stakeholders better understand timing, costs, and risks associated with North Sea decommissioning activities.

Dominic Ferry, CEO at Westwood, stated: “Westwood’s new Atlas Decommissioning module provides the clarity the market needs by linking infrastructure data with economic forecasts, offering stakeholders a clear view of the timing, cost, and risks associated.

“By delivering granular insights into decommissioning activity, the module helps operators, service providers, and investors make informed decisions, mitigate financial exposure, and seize emerging opportunities in this evolving landscape.”