Decommissioning of Offshore Oil and Gas Infrastructure

Photo of Oil Rig

In the global transition to renewable energy systems, it will be necessary to shut down and decommission oil and gas infrastructure. The shift away from fossil fuels reinforces the need to comprehensively assess the governance of decommissioning. 

CCSI and the Sabin Center for Climate Change Law at Columbia University examined the laws, regulations, and contracts governing the allocation of liability during the decommissioning process of offshore oil and gas infrastructure in various countries. Read the joint August 2023 report: Decommissioning Liability at the End of Offshore Oil and Gas: A Review of International Obligations, National Laws, and Contractual Approaches in Ten Jurisdictions.

Read also CCSI’s August 2023 stand-alone report on the contractual governance of decommissioning: Provisions on Liability for Decommissioning of Upstream Offshore Oil and Gas Infrastructure in Investor–State Contracts.

While domestic statutes, decrees, and regulations that apply to the oil and gas industry are ideally suited for governing decommissioning liability, petroleum contracts between the host state and private oil companies may include decommissioning provisions, whether to govern the issue comprehensively where statutory or regulatory frameworks are silent on the issue or to complement them. 

To avoid a scenario where the government must cover decommissioning costs in case of noncompliance by the oil and gas company with its decommissioning obligations, CCSI’s report advances, among others, these recommendations for contractual approaches:

  • Including provisions governing decommissioning as an integral stage occurring at the end of the project (and not as a post-project activity), factoring in the health, environmental, safety, and financial risks it entails throughout the project’s life cycle.
  • Creating a dedicated decommissioning fund, with sufficient money to cover all decommissioning (including expected post-decommissioning) costs, pre-funded by the oil and gas company as part of capital and operating expenses, with contributions assured by the ultimate parent company and beginning before project construction.
  • Outlining objective conditions for the release of decommissioning liability, along with any subsisting obligations that the oil company and its ultimate parent company retain in perpetuity after decommissioning or after the sale or transfer of the upstream asset.
  • Not including non-fiscal stabilization provisions, to ensure that states can enforce any new or amended statutes or regulations governing decommissioning liability, without having to compensate oil and gas companies that are party to pre-existing contracts. 

The joint CCSI–Sabin Center blog post Decommissioning Offshore Oil and Gas Infrastructure in the Face of Climate Change and the Energy Transition summarizes the findings of the two reports.

This project supports the Institute for Energy Economics and Financial Analysis (IEEFA) in its analysis of the economic and policy implications of offshore decommissioning.