Cleanup cost could easily wipe out any benefits developing countries see from oil projects

Cleanup cost could easily wipe out any benefits developing countries see from oil projects – Commonwealth adviser

Jan 16, 2023 News

By Renay Sambach

Commonwealth Secretariat Economic Adviser, Naadira Ogeer, has cautioned developing countries like Guyana that the price tag attached to decommissioning could easily wipe out any benefits the country sees from oil project.

Commonwealth Secretariat Economic Adviser, Naadira Ogeer

The process of restoring the ocean’s floor when an oil and gas project has come to an end is called ‘Decommissioning.’ Kaieteur News had reported that decommissioning is a complex and costly process at the end of the economic life of an individual oil and gas project. It involves the safe plugging and abandoning of oil wells, removal of structures and restoration of the surrounding areas.

The Commonwealth Secretariat, last week released a new practical guide titled, “Oil and Gas Decommissioning Toolkit,” which aims at helping its member countries, including Guyana who are in the oil and gas industry to manage costly oil and gas decommissioning activities.

For her part, Commonwealth Economic Adviser, Ogeer, who led the development of the toolkit, explained that, decommissioning is another dimension to the just energy transition. It goes without saying that companies who have benefitted from these fossil fuels should pay for all clean up and restoration activities.

Ogeer stated too, “It would be unreasonable for developing countries with low capacitated regulators and weak legal requirements to shoulder the significant financial, environmental and social costs. This would easily wipe away any benefits seen from a project.” As such, she added that the international community must be extremely vigilant and united to ensure that the ‘polluter pays’ principle is adhered to.”

Kaieteur News had reported that the Secretariat is urging its member countries to secure money to restore the ocean’s floor at the end of the economic life of oil and gas projects, in order to avoid taxpayers having to foot the bill.

Added to this, it was highlighted too of the uncertainty of decommissioning costs, which can result in the price tag easily moving from US-millions to US-billions. The Secretariat stated that given the uncertainty of decommissioning cost, “it is critical that there are mechanisms in place to ensure that there are sufficient funds available to carry out the decommissioning activities.”

Notably, if poorly executed, decommissioning can also have disastrous consequences for the environment and communities.

It was stated that in the instance of an oil company failing to clean-up the ocean’s floor, “If such a situation arises, Governments will likely have to undertake and pay for decommissioning, because it is in the public interest and/or because it is required to meet the country’s international obligations.”

In this regard, the Secretariat urged Governments to secure financial assurance and implement appropriate assurance mechanisms to avoid taxpayers having to foot the bill for decommissioning costs. There are different types of financial assurance mechanisms, which range from letters of credit, insurance and bonds to cash being held as dedicated funds for decommissioning purposes, it was highlighted. Notably, Guyana has been a member of the Commonwealth since 1970.

In Guyana’s instance, American oil giant, ExxonMobil’s affiliate, Esso Exploration and Production Guyana Limited (EEPGL) has been taking out money from Guyana’s oil production for decommissioning which is being kept in their pocket. Under a signed deal – the Production Sharing Agreement (PSA) – Exxon is allowed to take out money to set aside as a decommissioning fee.

While the revenue should be set aside in a special account, and held by the Government – the Exxon PSA jumps off the precipice of international best practice, and into a bottomless pit of abnormality on this front. ExxonMobil and its partners which include Hess Corporation and CNOOC Petroleum Guyana Limited are able to benefit from a lopsided system that allows them to keep decommissioning funds in their pockets. As such, Guyana must now hope, pray, and trust that when the time comes, Exxon will hand over the sums needed.

Moreover, the Commonwealth explained that Governments should have policies and regulations in place that require oil and gas companies to estimate decommissioning costs and update them regularly.

According to the Secretariat, Commonwealth countries are endowed with immense and precious natural resources. These include millions of square kilometres of ocean space, significant renewable (wind, solar) and non-renewable resources (oil, gas, minerals). It was underscored that when managed equitably and sustainably, the exploitation of natural resources bolsters national resilience to economic and social crises, improving prosperity for all citizens. As such the decommissioning toolkit was developed as part of the Commonwealth Secretariat’s Natural Resources Programme, which aims to support Governments in managing the risks from decommissioning, containing several key elements like: an overview of the key issues and implications for governments, practical recommendations to effectively manage decommissioning, a checklist to identify areas for strengthening the existing legal requirements and model decommissioning provisions that can be adapted to countries circumstances.