A cost benefit analysis of decommissioning offshore installations
As offshore installations in the North Sea near the end of their economically viable life they will be decommissioned. There is limited experience of decommissioning the structures in the Northern North Sea. When decommissioning is being considered studies are undertaken to assess each option on such criteria as: environmental impact, technical feasibility, cost, health and safety and public acceptability. This thesis aims to explore the contribution that economics can make to the debate surrounding decommissioning with the introduction of a cost benefit analysis framework within which to compare each decommissioning option. Cost Benefit Analysis (CBA) considers the economic costs and benefits from any change in resource allocation within an economy. This would provide a structured assessment of all the impacts of decommissioning in monetary terms. CBA also allows social desirability to be considered. The CBA framework involves valuing costs and benefits. Whilst estimating costs raises important questions, the identification, measurement and valuation of (dis)benefits represents one the greatest challenges facing economists. This thesis will focus on how economics can be applied to this problem to obtain monetary valuations of the benefits of decommissioning. Two methods of valuing the (dis)benefits of decommissioning are considered - Contingent Valuation Method (CVM) and Discrete Choice Experiments (DCE). These are applied to valuing of one impact of decommissioning (drill cuttings) and the value of alternative decommissioning policies. As well as addressing the issue of decommissioning, these experiments also consider methodological issues in the application of CVM (dealing with Don't Know and Protest responses) and DCE (testing for compensatory decision making). Following this the costs of decommissioning are estimated using an existing financial simulation model developed for oil industry use. Recommendations are made for policy and future methodological work.