April 9, 2019
The House Environmental Affairs Subcommittee is holding a public meeting on Wednesday, April 10th, to hear testimony on two bills.
One of the bills (H.3087) would prohibit the facilitation of offshore oil along the South Carolina coast by blocking the development of and infrastructure needed for offshore oil transportation or storage in our state waters or on land.
The other bill (H.3471) is supportive of offshore oil. It would prohibit any government actions to not allow offshore oil from being transported or stored in our state waters or on land.
Please contact the subcommittee member listed below before noon on Wednesday (April 10) with this message:
Please support H.3087 that would protect the South Carolina Coast from the economic and environmental threats of offshore oil should the federal government approve drilling offshore. There is strong bipartisan opposition to offshore drilling and exploration that includes our Governor, Attorney General, Republican and Democratic Congressional members, South Carolina legislators and all our coastal cities. We neither want or need offshore oil from the Atlantic.
House Subcommittee Members
Bill Chumley, Chairman firstname.lastname@example.org (803) 212-6894
Bruce Byrant email@example.com (803) 212-6888
Mike Burns firstname.lastname@example.org (803) 212-6891
Lee Hewitt email@example.com (803) 212-6927
Rosalyn Henderson-Myers firstname.lastname@example.org (803) 212-6965
Josiah Magnuson email@example.com (803) 212-6876
Robert Williams firstname.lastname@example.org (803) 734-3142
April 9, 2019
U.S. taxpayers could pay $10B for oil rig cleanup
Nathanial Gronewold, E&E News reporter
Taxpayers may be on the hook for billions of dollars to help clean up the oil industry’s rig messes in the Gulf of Mexico, experts are now warning.
Federal regulators say they’ll do everything in their power to prevent this from happening, but industry researchers monitoring skyrocketing costs for offshore well plugging, abandonment and rig decommissioning in the world’s ocean oil hubs say the reality of rising financial burdens faced by foreign governments strongly suggests that the United States is next.
The oil and gas industry has installed thousands of artificial islands to extract hydrocarbons from deep within the Earth’s crust. Many of these offshore platforms are among the heaviest, most complicated and expensive pieces of marine equipment ever to be constructed.
Adept at installing them, the oil giants never designed them to be removed, though they were required to eventually do so by law. Now, the rapidly escalating offshore decommissioning price tag is the largest liability the industry faces as wells run dry and rigs rust and age well past their prime (Energywire, March 23, 2017).
Martha Vasquez and Philip Whittaker, analysts with the Boston Consulting Group, who’ve been investigating the oil and gas industry’s offshore decommissioning dilemma, say the mounting problem is forcing taxpayers to contribute billions of dollars for rig removals in the North Sea and Southeast Asia. Latin America, offshore Africa, and the U.S. Gulf of Mexico are next, they believe.
It’s hardly a popular topic in the United States today; “however, the rest of the world is getting really excited about this,” said Whittaker. “Now they are spending colossal amounts of taxpayer money in the majority of countries outside the U.S.”
Vasquez says BCG’s assessment puts the potential burden on U.S. taxpayers at about 30 percent of the oil industry’s outstanding Gulf decommissioning liabilities. Estimates vary, but it’s generally agreed that the industry faces at least a $30 billion gap in meeting future U.S. Gulf rig teardown costs. That suggests a burden of around $10 billion for taxpayers if the U.S. government must be called in to cover at least a third of it, as Vasquez believes it will. Many experts say the costs could hit in the next 10 years.
A 30 percent government share of the liability is actually on the low end of what’s being witnessed so far around the world, she said.
“Thirty to 80 percent is the full range of what the government is entitled to finance,” said Vasquez. “In the U.S., I think it’s 30 percent. In Norway, it’s around 80 percent.”
John Filostrat, a public affairs officer with the Bureau of Ocean Energy Management (BOEM), says the agency intends to write new rules on offshore decommissioning liability assurance in a way that ensures taxpayers will not be held liable for any part of the expense.
“Our goal is that taxpayers should never have to pay for the cost of decommissioning,” said Filostrat in an email.
He said that rule drafting is now underway and should be completed and ready for review within the coming months. “The draft rule is under development and is expected to publish this summer for public comment,” Filostrat said.
The rulemaking exercise has been delayed. BOEM officials earlier estimated that new guidelines on offshore decommissioning insurance and assurance would be ready by June 2017 (Energywire, May 11, 2017).
According to BOEM, government funds have been directed to help pay for decommissioning costs in the past. The government didn’t pay the company’s expenses directly but allowed it to forgo royalty payments in exchange for applying those funds to platform tear down and removal instead.
This is how it’s generally being handled abroad, as well, when a government doesn’t own or hold any direct stakes in a national oil company, Whittaker said.
“It’s relief, rebates to previous taxes paid, this kind of thing,” he said. Government assistance can also come in the form of allowing companies to deduct their decommissioning liabilities from their taxable profits or by using the estimated liabilities to claim credit on some taxes already paid, he added.
The third option is direct funding, something that the Netherlands, Norway and other countries are now grappling with, Whittaker said. “They have to directly foot a chunk of the bill in addition to the tax relief treatment that the government is giving, so then you start getting into big scary numbers of taxpayer exposure,” he said.
“When you start drawing up the tradeoff between schools and hospitals versus decommissioning tax relief, that becomes a much bigger story,” Whittaker said.
In the United Kingdom, Whittaker puts the industry’s potential offshore decommissioning bill at anywhere between £45 billion and £77 billion, or approximately $58 billion to $100 billion. “In the U.K. about 24 billion [pounds] of that will be funded by the taxpayer,” or roughly $31 billion, he said.
In a statement, Randall Luthi, president of the National Ocean Industries Association, said reports on uncovered liabilities for decommissioning costs “are speculative and may have reflected a snapshot approach that while, headline grabbing, does not reflect the reality of the economics of the Gulf of Mexico or the real decommissioning process.”
Not all Gulf of Mexico production will end at one time, he noted, and most companies have planned for decommissioning over the life of the lease and the funds are available to do so. Also, some reports have based costs on a prior time when rates for decommissioning equipment was at an all-time high, he said. There are a “small handful” of ready-to-be decommissioned facilities in the Gulf that do not have a financially viable operator connected to the lease who could cover costs, according to Luthi.
“To date, the cost of decommissioning has not fallen on taxpayers, and it is the goal of the offshore energy industry that it will not do so in the future,” Luthi said.
A February report published by analysts at Rystad Energy says that some 9,000 offshore wells worldwide are candidates for plugging and abandonment over the coming years. The exact timing of any rig removal is harder to pin down as it depends on the price of oil, which determines the economic viability of a project. The floating, fixed and subsea offshore infrastructure connecting these wells will need to come out, as well. The Rystad report estimates a total worldwide cost for industry of some $36 billion over the next three years, or an average of $12 billion per year (Energywire, Feb. 22).
Vasquez and Whittaker say costs will climb higher beyond the next decade as more complex structures must be pulled. To date, the U.S. oil and gas industry has mainly paid to remove shallow water offshore equipment, but the calculation changes entirely as larger, heavier deepwater platforms reach the end of their life spans, they explained.
The U.S. government has proposed easing the burden on companies through an expanded Rigs to Reefs program. That program allows for partial rig removal, with subsea infrastructure allowed to stay in place under the argument that it provides artificial reef habitat for fish.
Tom Baxter, a professor at Aberdeen University in Scotland and a vocal critic of using taxpayer funds to remove ocean oil equipment, suggested that authorities in Europe should pay attention to the U.S. Rigs to Reef program.
“From my perspective I think the U.K. can learn a lot from the U.S. Rigs to Reefs option,” he said in an email. “The Australians are doing some interesting Rigs to Reefs work.”
Vasquez said the rising taxpayer expense is pushing some governments to weigh their alternatives. “This is a sign that people are trying to think beyond removal,” she argued. “So I wouldn’t be surprised that in a few years we might see more flexible rules as to what can be left in place.”
In Malaysia there exists an abandoned offshore oil rig that’s been converted into a scuba diving resort. That’s obviously not a viable option for the North Sea, said Whittaker, and other proposals don’t hold up under more careful scrutiny.
“The applicable situations for those are miniscule, to be frank,” Whittaker said. “You may get some nice marketing, but if you were building a shiny new wind farm would you really want your electricity substation on top of a rusting, 45-year-old pile of steel that’s not quite the right size? Probably not.”