Friday, 24 September, 2021

Asia eyes Australia blueprint as $100bn oil, gas clean-up looms

MELBOURNE: Australia has passed legislation that could set a precedent for who pays to clean up the fossil fuel industry in Asia, making former owners of oil and gas fields responsible for the costs of dismantling facilities if later owners fail.

The new law provides a blueprint for governments tussling with the oil and gas industry over the removal of hundreds of obsolete energy facilities, particularly as the world moves to a lower-carbon economy, report agencies.

The cost of decommissioning offshore facilities in Australia is expected to run to US$40 billion, with half of that in the next 10 years. For Asia-Pacific as a whole the clean-up bill is estimated at US$100 billion out to 2050, say consultants Wood Mackenzie.

Australia’s legislation steps up scrutiny of asset sales to ensure any new owner has the financial and technical capacity to handle decommissioning. Most controversially, it introduces trailing liability, modelled on the UK’s North Sea regime, holding former owners of assets liable for decommissioning if a current owner goes bust.

Selling mature oil and gas fields to niche players with low overheads who can prolong the lives of the fields profitably has been standard practice at ageing sites around the world, especially in the North Sea, U.S. Gulf of Mexico and off Australia.

However, Australia acted after being left to handle the decommissioning, estimated at up to AUS$1 billion (US$725 million), of the Laminaria-Corallina oil fields in the Timor Sea, abandoned by a small company when it collapsed in 2019.

Stricter criteria are expected to deter those kinds of sales in Australia at a time when several oil and gas fields are nearing the end of their lives off southeastern and Western Australia, to the chagrin of the industry.

“If you get everything else right, one would hope you would never find yourself in a position where trailing liability has to be exercised,” said Andrew McConville, chief executive of the Australian Petroleum Production and Exploration Association, the industry’s main lobby group.

Already, Exxon Mobil Corp and partner BHP Group pulled the sale of assets off southeastern Australia after a warning from government to be careful in choosing buyers. BHP last month agreed instead to merge its petroleum business with Australia’s top independent gas producer Woodside Petroleum.

Around Southeast Asia there are hundreds of platforms nearing the end of their lives, but countries like Indonesia, Malaysia, Thailand and Vietnam have no overarching decommissioning rules. Companies operate as contractors with production sharing contracts with the state.