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Industry junk piling up
in
U.S. Gulf
Sea junk
belonging to the oil and gas industry is
piling up in the Gulf of Mexico to a point where the U.S.
Minerals Management Service (MMS) is again urging exploration
and production companies to clean up their act. The last
official tally evidently was conducted in 2003, when 1,227
structures of various sizes and shapes were reported
“idle,” representing an astonishing one-third of
all man-made structures that four years ago resided in the
U.S. Gulf. One can only imagine what today’s idle
count would be given the rush of drilling activity in recent
years.
MMS attempts to quantify and explain
this problem in
a new report entitled “Idle Iron in the Gulf of
Mexico.” We all know that offshore structures are installed
to
produce hydrocarbons and that there comes a time during the
life
cycle of a producing field when the cost to operate an
offshore
facility, such as oil and gas platforms, exceeds the income
from
production. At that point the platform or other structure
exists
as a liability instead of an asset.
Federal regulations do require that an offshore
oil and gas lease be cleared of all structures within one year
after production on the lease ceases. And in recent
years, MMS says it has
encouraged operators to remove structures on producing leases
that are no longer “economically viable.”
But
this is the problem: the majority of idle structures
reportedly exist on active leases, and therefore federal
regulations allow the structures to be maintained as long as
the
lease is producing. The challenge is determining which idle
structures are serving a useful economic purpose. In
fact,
only 329 structures in the U.S. Gulf were idle on inactive leases at
year-end 2003, but MMS asserts that “this
inventory of dead steel will be removed in a timely manner as
specified by regulation.”
Operators have incentives to remove their idle
structures
in a timely manner, in particular to avoid environmental and
operational hazards, as well as to reduce inspection and
maintenance requirements, insurance premiums and liability,
and to
maintain good working relations with government
regulators.
On the other hand, operators also have a strong economic
incentive
to maintain structures offshore, to defer the cost of removal,
to
increase the opportunity for resale, to reduce the risk and
expense of storing platforms in a fabrication yard, to
maintain a
hedge against future development opportunities, and to reduce
the
overall cost of decommissioning through economies of scale,
scheduling and shared mobilization.
The objective of the MMS project was to examine
the main
issues associated with idle iron, scrap, and reuse in the Gulf
of
Mexico. The topics examined include identifying how much idle iron is
in the GoM, why it exists, and who owns it; what economic and
environmental tradeoffs are involved in onshore versus
offshore
storage; where scrap metal goes after decommissioning and to
what
extent it is being reused; what factors determine reuse
decisions;
what the likely impacts are of policies that require the
removal
of idle iron; and the general trends of the scrap, reuse, and
recycle markets in the in the U.S. Gulf.
The report is available only in compact disc
format from the MMS Gulf of Mexico OCS Region at a charge of
$15, by referencing OCS Study MMS 2007-031. The
report may be downloaded from the MMS website at www.mms.gov through the
Environmental Studies Program Information System (ESPIS).
The report also can be obtained from the National Technical
Information Service in the near future.
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