Joy Dimka, Legal Officer, Nigerian Shippers' Council.
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Prospects of decommissioning oil & gas installations in Nigeria 22 Jan 2018
Given the outlook of low oil prices, a number of oil and gas contracts across the globe have been terminated and the labour market has been impacted. Nevertheless, the oil and gas industry's decommissioning sector in some advanced countries has been growing.
The decommissioning expenditure on the United Kingdom Continental Shelf (UKCS) is expected to reach £16.9 billion over the decade between 2015-2024. Over the next 30 to 40 years, around 470 installations are forecast to be decommissioned across the UKCS. About 79 platforms will be removed during the next 10 years, according to the 2015 Decommissioning Insight published by Oil and Gas UK, a not-for-profit organisation in Britain. These decommissioning projects present a lot of opportunities for oil and gas suppliers who can demonstrate expertise in construction and deconstruction of installations.
'Decommissioning' (also referred to as 'abandonment' and 'recommissioning') is the physical removal and disposal of obsolete installations at the end of their operational life. Usually, a plan of action is formulated by the operator and presented to the government for approval before it is implemented. It is a complex process that can last several years. It involves uninstalling several structures such as artificial islands, wellheads, oil rigs, thereby rendering them out of use or temporarily inoperable.
There are two types of decommissioning, namely onshore and offshore decommissioning. Onshore decommissioning, which is uncontroversial, has legal backing under Nigerian law. However, there are no clear regulatory guidelines for decommissioning of offshore assets in Nigeria, Africa's largest oil producer.
There are two possible reasons for this state of affairs. One, the Nigerian offshore oil and gas industry has not reached the maturity seen in the Gulf of Mexico or the North Sea. As such, no decommissioning of offshore structures has taken place in Nigeria. Two, the country has yet to come to terms that oil is a diminishing commodity. There is a global consensus that the end of the oil age is not a matter of whether but of when.
The Nigerian economy is still oil-dependent despite much political debate about diversifying the economy to expand the gains of economic growth and providing critical infrastructure for the real sector to thrive. The country recently came out of a recession after a rebound in oil production and relatively stable prices.
However, as developed countries like the UK and other developing countries cut back on their consumption of fossil fuels, replacing them with sustainable energy sources, this will affect the bottom line of oil companies in Nigeria who would lay off workers. Government's revenue will plunge and a debt crisis would be a potential fallout. Given these looming scenarios, a rare opportunity might be presenting itself for the development of a viable decommissioning sector in Nigeria's oil and gas industry.
While Nigerian oil wells and rigs may not have reached the end of their operational lives, this is the time for indigenous suppliers to start building their expertise to have the competitive edge when investments begin to flow in the local decommissioning sector. But before the sector gains maturity, there has to be a comprehensive and effective decommissioning legislation in the country. Such legislation must take cognizance of Nigeria's international obligations, particularly in the area of marine environment.
Given the migratory nature of pollution in international waters, various international and regional conventions have been implemented to address offshore decommissioning. Suffice it to state some of the obligatory issues in any decommissioning project. They include removal of petroleum facilities, disposal of petroleum facilities, obligation to pay for removal and disposal, and residual liability.
There are three major international conventions that apply to the removal and disposal of offshore installations. They are somewhat contradictory in their requirements and their applicability to any platform decommissioning depends upon whether the particular jurisdiction where the platform is located has ratified the convention in question. These conventions are as follows:
1. 1958 Geneva Convention on the Continental Shelf: The critical provision is Article 5(5), which states that: “Any installations which are abandoned or disused must be entirely removed.” The convention does not identify pipelines as part of the infrastructure to be removed. Therefore, one can argue that this convention does not place a strict obligation to remove pipelines. It also has a minimal reference to living marine resources (in Article 5(2)) and does not place an explicit requirement to protect the offshore environment.
2. 1972 London Dumping Convention: This convention is applicable to all marine areas except the internal waters of a coastal state. It is now generally accepted that the abandonment of a structure (such as an offshore platform) at sea, either totally or partially, is considered dumping under the definition of the London Dumping Convention. This general understanding was confirmed by a subsequent Protocol adopted by a special meeting of the contracting parties to the London Convention on 7 November, 1996. Under this Protocol, the definition of 'Dumping' in the convention was updated and expanded to explicitly include: “Any abandonment or toppling at site of platforms or other man-made structures at sea, for the purpose of deliberate disposal.” Therefore, the London Dumping Convention clearly covers the disposal of offshore platforms at sea, either totally or partially.
3. 1982 UN Convention on the Law of the Sea: Article 60(3) of the 1982 United Nations Convention on the Law of the Sea (UNCLOS) specifically provides for the removal of offshore installations. It states that: “Any installations or structures [in the exclusive economic zone] which are abandoned or disused shall be removed to ensure safety of navigation, considering any generally accepted international standards established in this regard by the competent international organization.
Such removal shall also have due regard to fishing, the protection of marine environment and the rights and duties of the other states. Appropriate publicity shall be given to the depth, position and dimensions of any installation or structures not entirely removed.” Article 80 of the UNCLOS states that Article 60 applies mutatis mutandis to artificial islands, installations and structures on the continental shelf.
Although Article 5(5) of the Geneva Convention requires installations in the continental shelf to be “removed entirely,” Article 60(3) of the UNCLOS requires simple “removal”. The term “entirely” has been omitted in the latter. Consequently, the obligation to remove installations and structures exists under the UNCLOS. However, it could be set aside by coastal states, so long as they adhere to the international standards established in this regard.
That being said, there are over 170 structures located off the coast of Nigeria. As the most important oil and gas producer on the continent, Nigeria's obligation to protect and preserve the marine environment extends beyond the territorial sea. It also applies to the Exclusive Economic Zone, where coastal States enjoy sovereign rights for the exploration, exploitation, conservation and management of their natural resources, while protecting and preserving the marine environment.
International law also recognizes that a State's national laws and regulations must not be less effective than the global rules that prevent and control marine pollution by dumping.
Based on Nigeria's decommissioning laws such as the 1967 Territorial Water Act and the 1969 Petroleum Act, there appears to be a 'complete removal' obligation, except where the oil and gas facilities are to be taken over by the Minister – an option that is to be exercised where the facilities can be recommissioned for some other useful purposes.
The difficulty with the extant regulations, however, is that they treat onshore and offshore facilities alike without considering the special nature of offshore facilities. In other words, the country has no dedicated set of laws or regulations dealing exclusively with the offshore sector.
A new legislation should not leave decommissioning of oil and gas assets at the dictates of the Minister of Petroleum Resources. Knowing full well how governments change every now and then, projects implemented by a previous administration or previous minister are likely to be cancelled by the next officeholder. As a result, we will be left with uncompleted projects and a haphazard system/process for decommissioning. But where the implementation of a decommissioning process is backed by an Act of Parliament, it will not be amenable to the whims of whoever is in power.
Nigeria stands a chance to gain economically by investing in decommissioning projects. The primary and most relevant gain lies in the protection, preservation and sustenance of the aquatic ecosystems, coastal resources, and human health within our geographical territory. Secondly, indigenous suppliers that can demonstrate construction or deconstruction skills, as well as maintenance or fabrication experience, will be in high demand, thereby creating jobs.
There is also the untapped investment opportunity in decommissioning services as oil and gas companies look to uninstall their artificial islands and oil rigs either for divestment purpose or temporary removal, pending future exploration.
Therefore, the country's lawmakers have a responsibility to draft a robust and forward-thinking set of laws to regulate offshore and onshore decommissioning in strict accordance with global sustainable best practices. The oil and gas industry regulators must also advocate for the training of local content providers as regards large-scale offshore and onshore decommissioning services. An agency also needs to be created with the responsibility to regulate such services.
Joy Asanga has an LL.M. from the International Maritime Law Institute, Malta, established under the auspices of the International Maritime Organization, a specialised agency of the United Nations.