The Economics of Disposal Methods for North Sea Oil and Gas Fields: A Study in Comparative Advantage

Abstract

Fishman, David, SPE, ERC Energy Resource Consultants Ltd. Summary One of the major development problems of new North Sea fields is the transportation of oil or gas to a landfall (the disposal method). Oil can be disposed of by offshore loading or by pipeline. While offshore loading may be cheaper, it leads to reduced operational efficiency and may not be permitted by regulatory bodies because of perceived safety or environmental hazards. A dedicated pipeline to shore may be too costly for small-to medium-sized fields, but sharing a pipeline system or tying in to an existing pipeline for a tariff are viable alternatives. The development of gas fields and the production of associated gas from oil fields has been hampered by the lack of pipeline systems for disposal. With no fallback position of offshore loading, gas fields cannot be developed unless there is an economic disposal method by pipeline. When a tariff is negotiated that results in the development of a field, all parties stand to benefit economically. The tariff negotiation would thus be expected to result in a mutually beneficial solution. This paper develops economic models of the disposal alternatives to derive the relative benefit of each with respect to the cost-of-disposal, tariff-structure, and reserve-throughput parameters. Introduction It is well known that the development of North Sea fields promoted technological advances in platform design and production techniques. Similar advances have been made in transportation or disposal techniques that range from improved pipe-loving techniques to the design of offshore loading systems. Currently, there are large networks of pipeline systems for the collection of oil and gas that connect most of the North Sea fields. These are a mixture of dedicated pipelines that serve only one field, pipelines that serve primarily one field but accept production from other fields on a tariff basis, and pipelines that are jointly owned by more than one field. In the early years of the development of the North Sea oil province, the choice of disposal method was fairly straightforward-most of the fields that were developed were large enough that the disposal method could be optimized with confidence that the development would be completed. At the current stage of maturity of the North Sea, most particularly in the U.K. sector, this is not the case. Discoveries are generally smaller in size and face a more difficult economic background. Many of the existing oil and gas discoveries await commercial-development plans. To proceed with these developments, efficient and optimal solutions to the disposal problem must be found. This paper addresses these problems by focusing on the economics of the disposal method to analyze the technical forces at work in the choice of disposal method and the market forces that come into play in the process of negotiating shared access to pipeline systems. The analysis presented is based on realistic cost data of disposal methods for typical North Sea fields. Obviously, there is a wealth of detailed data available that must be analyzed to select a disposal method for a particular field. For instance, some of the large North Sea oil fields (notably Statfjord and Beryl) use offshore loading systems, even though the analysis here would suggest that a pipeline system would be favored. One important factor to consider is that these fields use concrete platforms with built-in storage capacity, thus favoring offshore loading. This indicates that a more detailed analysis of offshore loading systems that includes such factors as platform type should be considered. General cost curves for the various disposal methods are abstracted to isolate and to analyze the disposal option. The analysis presented here is in terms of the relative costs of disposal and has particular applicability to North Sea fields, but the methodology should be applied to all offshore provinces, as well as to onshore fields where there are distinct disposal methods that can be considered. Economic Modeling Estimates of capital and operating costs were made for a dedicated pipeline to shore, for tying in to an existing pipeline to shore by way of a short pipeline link, and for offshore loading of the single-buoy-mooring-system type. Cost estimates were made with regard to peak throughput and location. The oil and gas fields considered in the central or northern North Sea were assumed to be situated some 200 miles [322 km] from shore or 30 miles [48 km] from an existing pipeline. Gas fields in the southern North Sea were assumed to lie some 100 miles [161 km] from shore or 15 miles [24 km] from an existing pipeline. The cost of a shore terminal is included in the case of a dedicated pipeline to shore. The estimates of capital and operating costs for each case are presented in Tables 1 through 3. JPT P. 570^