Faculty of Law University of Copenhagen

1. Environmental Responsibility for Termination of Oil and Gas Activities from International Perspectives Faculty of Law University of Copenhagen

2. Life cycle of an oil and gas field 0 – 40+ years • Decommissioning – what are we talking about? • Disposal of installations at production’s end • In practice: remove facilities and clean up • – to the extent necessary, feasible and desirable

3. FACTS on Abandonment of Oil Platforms offshore • 6.500 oil platforms • In US Gulf of Mexico: > 4.000 Asia: 900; Middle East: 700 North Sea around 1000. • In the North Sea - many been producing oil and gas for > 40 years • Coming to the end of their lives. Production of oil and gas will stop. • Over the next couple of decades - a growing number • 90% of the world's platforms are in shallow waters - less than 75 m • Some 25 small steel structures in the North Sea have been decommissioned in the shallower waters (30-50 metres) • More experience in the US Gulf of Mexico - around 1,000 small structures removed. • 70% in waters less than 30 metres deep and only 3% in waters deeper than 75 metres. Water and weather conditions different to the North Sea where depths can reach up to 200 metres.

4. THE LAW • Distinction between removal and disposal of disused oil and gas installations • Interlinked, but come under different types of legislative frameworks • The legal requirements for removal are primarily concerned with safety of navigation and other users of the sea • The disposal of structures comes under the pollution prevention regulatory framework

5. THE LAW II • Onshore vs. Offshore decommissioning • Onshore – (mostly) national law • Offshore – international & national law (can be used as model) • Competing interests: • Balance competing demands (compliance vs cost) • Competitive setting for industry vs environmental protection • Implement standards • Other users: navigation & fishing • General state interest for upholding its environmental standards.

6. THE LAW III • Liability: - Allocation and Reallocation • International law - > National law • National law - > Parties • Parties - > Inter-party agreements

7. International Law on removal and disposal • 1958 Continental Shelf (Geneva) Convention art. 5(5) • Abandoned installations must beentirelyremoved • 1982 Law of the Sea Convention art. 60 (3) • Removal to ensure safety ofnavigationtakinginto account international standards… . Appropriatepublicity shall begiven…of any installations not entirely removed • IMO Guidelines and Standards for the Removal of offshore installations of 19/10 1989. • Abandoned installations…are required to be removed. • Except where non-removal or partial removal is consistent withthe following guidelines and standards. • General requirement = removalbut subject to reasonable justified exceptions • London Convention 1972 on dumping at sea (disposal) • OSPAR Convention 1992- For the Protection of the Marine Environment of the North-East Atlantic

8. International Law 1958-1992 (1) UN Convention on the Continental Shelf 1958 Art 2(1) grants states “sovereign rights for the purpose of exploring [the continental shelf] and exploiting its natural resources” Art 5(2) entitles them “to construct and maintain or operate…installations” to that end Art 5(5) requires that “[a]ny installations which are abandoned or disused must be entirely removed” 8

9. International Law 1958-1992 (2) UN Convention on the Law of the Sea 1982 (1) recognises “that developments since…1958…have accentuated the need for a new and generally acceptable Convention on the law of the sea” one such development was recognition of the difficulty of completely removing certain installations UN Convention on the Law of the Sea 1982 (2) “Any installations or structures which are abandoned or disused shall be removed to ensure safety of navigation, taking into account any generally accepted international standards established in this regard by the competent international organization.” Art 60 (3) 9

10. 1982 Convention Art. 60(3) • Discretion of the coastal state on a case by case basis by reference to (art. 2.1.): • Safety • Effect on other uses of the sea • Environmental effects • Risk of shift • Costs • Technical feasibility • Risks of injury to personal engaged in removal • New use • Other reasonable justification

11. International Maritime Organisation(IMO) Guidelines 1989 (1) GUIDELINES! -> Non-binding recommendations for parties to take into account when making decisions Case-by-case approach envisaged Where non- or partial removal proposed, account to be taken of: potential effects on navigation environmental effects costs technical feasibility risks to personnel any new use or other justification for leaving in place 11

12. IMO Guidelines and Standards (4) Total Removal Of installations standing in less than • Water depth: was -> 75m of water but more restrictive as from 1 January 1998 –>100 m • Weight: less than 4000 tonnes in air (art. 3.2) Except • It will serve a new use (eg enhancement of a living resource) • It can be left without causing unjustifiable interference with other users • It is not technically feasible • Would entail extreme costs • Unacceptable risk to persons • Unacceptable risk to marine environment (art. 3.5) BUT - Location in navigation routes (art. 3.7) AND - All new installation emplaced after 1 January 1998 must be designed so they can be totally removed (art. 3.13) • There are no international guidelines on the decommissioning of disused pipelines!

13. London Convention 1972 on dumping Annex I – dumping of wastes listed is prohibited (e.g. persistent toxins) Annex II – dumping of wastes listed requires a prior special permit (e.g. scrap metal) Annex III – no permit to be issued prior to careful consideration of factors listed (e.g. characteristics of material and site) Dumping of offshore installations (unless falling foul of Annex I) would require a permit 13

14. OSPAR Convention 1992 envisages non- or partial removal Annex III, Article 5 (1) “No disused offshore installation or disused offshore pipeline shall be dumped and no disused offshore installation shall be left wholly or partly in place in the maritime area without a permitissued by the competent authority of the relevant Contracting Party on a case-by-case basis.” 2. BUT -> No such permit shall be issued if the disused offshore installation or disused offshore pipeline contains substances which result or are likely to result in hazards to human health, harm to living resources and marine ecosystems, damage to amenities or interferencewith other legitimate uses of the sea. 3) where a Contracting Party intends to issue such a permit for dumping it “shall, through the medium of the [OSPAR] Commission, inform the other Contracting Parties of its reasons for accepting such dumping, in order to make consultation possible”. 14

15. A comprehensive legal regime? By mid-1990s, it appeared that a comprehensive legal regime was in place Robust in terms of environmental protection… …but also sensitive to practical constraints on decommissioning But this was about to be challenged! Brent Spar (1) Floating storage buoy Built 1976 14,500t; 140m, 50,000t capacity Operated by Shell UK Declared redundant in 1991 1995- British government announced its support for Shell's application for disposal in deep Atlantic waters at North Feni Ridge (250 km from the west coast of Scotland, at a depth of around 2.5 km). 15

16. Brent Spar (2) London and Oslo Convention obligations enacted in UK esp. in Petroleum Act 1987 Discussions with UK regulator, DTI, commenced 1992 Any disposal option required a licence and had to constitute the Best Practicable Environmental Option (BPEO) Regulatory process lasted until 1995 and involved rigorous consideration of a number of options Deepwater disposal favoured, licence sought & granted Oslo Convention contracting parties informed but raised no objection 16

17. Brent Spar (3) International and domestic legal obligations appeared fulfilled Greenpeace concerned about contamination from residue in tanks and about precedent set Occupied installation and sparked major international backlash and media campaign against Shell DTI and Govt held firm, but Shell abandoned plan for dumping Greenpeace v Shell 17

18. Brent Spar (4) Shell invited new ideas for disposal and commenced Stakeholder Dialogue process to run in parallel with engineering process Involved stakeholders in UK, Germany, Netherlands and Denmark DTI reluctantly became involved but insisted deep-water disposal remained an option Stakeholder Dialogue identified two options – deep-water disposal and reuse as a quay extension Neither regarded as making a significant environmental impact Separated by applying energy balance and waste hierarchy principles Quay extension chosen by Shell; and DTI granted licence 18

19. International Law after Brent Spar (1) 1996 Protocol to the London Convention All dumping now prohibited unlessincluded in Annex I Offshore installations listed in Annex I Position appears broadly similar… …but there will now have to be a demonstration that there are no environmentally preferable alternatives to dumping 19

20. International Law after Brent Spar (2) OSPAR Decision 98/3, 23 July 1998 Prohibits as a starting point the «dumping» and «leaving (…) in place» of «disused offshore installations» The coastal state may derogate due to significant reasons 20

21. Abandonment & Decommissioning of Oil and Gas Installations: • Increasingly important as fields are getting depleted • Legal issues: environmental protection, taxation, and ongoing liabilities • Technical challenges are greater than those associated with construction and installation • At moment of construction, decommissioning costs were not considered

22. Abandonment & Decommissioning of Oil and Gas Installations (2) • No specific EU legislation regarding decommissioning, but guidelines and international treaties • EU Commission position: complete removal and recycling and disposal on land is the preferred option • More flexible approach in 1998 – Communication on Removal and Disposal of Disused Offshore Oil and Gas Installations • Why EU intervention? lack of coherent approach across the EU leading to unequal treatment of competing industries and possible contradictory environmental protection measures. • Participation and ratification of OSPAR 1998.

23. Abandonment & Decommissioning of Oil and Gas Installations (3) ISSUES: • Small players and (re)development of fields – problematic – lack of experience and/or funds => default on decommissioning obligations (insolvency or foreign assets) => need for policy to ensure adequate funds are in place and available • Residual liability – for installations left wholly/partly in situ – remains with the owners in perpetuity • Taxation – taxes are usually organized to recognize cost incurred in decommissioning – deductible.

24. Mature Province - the case of Denmark • If ”maturing” = ”declining” – Denmark reached that state • DK has been a net exporter of oil and gas from 1997-2014 • Forecast 2018: • No longer a net exporter of oil, exception 2024, oil production to decrease by 8% compared to 2017 forecast • Net exporter of gas until 2035 (excluding 2020 and 2021 due to rebuilding facilities) – gas production reduced by 5% compared to 2017 forecast • The DK’s revenue from oil and gas is still considerable • State revenue aggregated about DKK 404 billion in 2014 prices in the period 1973-2014. Total state revenue for 2014 has been calculated at DKK 18.8 bill • There will be a change and it is indeed coming closer

25. Declining Production

26. Implications: Revitalization • Mature fields: • Valuable global resource • Expanding reserve levels comes at (relatively) low risk • Low production costs (but high extending costs) • Challenges: • Old infrastructure => requires re-technologization -> need for investments (additional costs) • Methods – new/additional technology, improve drilling and completions, more effective work and business processes -> know-how and experience • Solution: sell/invest/bring partners (farm out)/expand

27. Implications: Environmental Risk and Decommissioning • Old infrastructure & aged equipment – higher safety and environmental issues • Most facilities built before any environmental measures were implemented: risk for oil spills, explosions, etc. • Upon discontinued operations -> decommissioning • Challenges: • Extensive international and national regulation • High estimated costs • Technological challenges • Allocation of liabilities

28. Decommissioning in Denmark Section 32 A of Danish Subsoil Act + Model Licence + JOA + other regulations As of 7th August 2018 – DEA Guidelines on decommissioning plans for offshore oil and gas facilities and installations Economic aspects: estimates of costs (regularly updated) + security (present and future liabilities) + triggering mechanism + joint and severable liability Parties responsible – licensees Assignment – assignor party has secondary financial liability towards the Danish state

29. Whatshallhappen to the installations?Danish Subsoil Act • In licences granted under this Act shall be laid down detailed rules concerning steps to be taken in regard to installations established by the licensee when the licence expires, is relinquished, lapses, is revoked together with the handling of installations which previously have fulfilled their purpose.

30. Continued use or winding up plan (ML Sec. 37 -1997 ->) If the Licence terminates…, • the State shall be entitled to take over .. without consideration, all or part of any facilities, equipment and installations intended for long-term use … • In AP-Møller-Concession this right is against payment • 2 years before the termination of the Licence or disuse of installations, the Licensee shall submit a plan for discontinuing the use of allinstallations (winding-up plan) • Subject to approval of the Danish Energy Agency (DEA)

31. Content of the winding plan (ML Sec. 37) • Set out the procedure for removing the installations • Include an assessment of the environmental impact and safety aspects • a time schedule for its implementation • DEA may lay down detailed guidelines for the content

32. Other Interventions by DEA (ML Sec 37) • DEA may require the Licensee to remove all or part of any installations according to a time schedule fixed by DEA • DEA may require the Licensee to take any other necessary measures in order to prevent the installations, from posing any risk or inconvenience. • And can take necessary measures on the Licensee's account and risk in every respect. • The Licensee shall indemnify the State against any third-party claims for damages from the State resulting from such removal or taking of preventive measures

33. Pipelines • Pipelines are also decommissioned. • The vast majority of the more than 1,800 km of pipelines in the Danish sector are buried in the seabed. • The appropriateness of retaining some of the North Sea installations is considered, as they could be used for the future import of gas into Denmark. • Alternative uses of installations, e.g. in connection with CO2 storage in underground formations, is under assessment

34. DecommissioningFactors to be taken into account • A major engineering challenge. • Highly expensive, • decommissioning a 'small' Southern North Sea structure ~ DKR 300 mill • medium sized ~ DKR 1 mia • larger heavy concrete or steel structures ~ £1.5 - 2 mia • Long procedure • Must be carried out with great care to protect the environment Relevance/weight of these factors differ due to: Geography, water depth, Shipping lanes, fishing areas, Environmental sensitivity, Type of installation Thenthere is the joker – public acceptability