a. Australia’s transparency problem

i. Diagnosing the problem

As acknowledged by Australia’s Offshore Decommissioning Directorate (ODD), decommissioning is essential for preserving the environment and maintaining industry’s social licence to operate.1 Australia is grappling with a growing decommissioning bill and a lack of industry savings for that bill, with over A$60 billion (valued on an inflation-adjusted basis) of offshore petroleum decommissioning activities expected to occur over the next 30 to 50 years.2 Onshore decommissioning also poses significant costs, though the overall expense has yet to be quantified.

As the energy transition progresses and Australia’s aged oil and gas infrastructure must be retired, retirement costs will become a more pronounced issue. A lack of transparency means that risks will materialise more frequently, and at a point when it is too late for civil society and regulators to meaningfully intervene.

There are countless examples of opaque regulation compounding decommissioning disasters within Australian borders, and these are explored as case studies throughout the paper. Taken together, they show how a lack of collection and disclosure of decision-relevant information can lead governments to make flawed deals with private companies and poor decisions on late-life transfers to financially risky private buyers. In addition, investors
and other stakeholders can underestimate economic and financial risks, causing company devaluations.

“Australia is grappling with a growing decommissioning bill and a lack of industry savings for that bill.”

ii. Solving the problem

The solution is greater transparency over how long assets will continue to produce, what it will cost to decommission them and whether operators have the capacity to pay: in other words, disclosure of the productivity of existing assets, estimated decommissioning costs, financial security arrangements and operator financial capability assessments. Stakeholders, including regulators, civil society and investors, need to first understand the situation, before remedial action can be taken. You cannot manage what you do not measure.

Indeed, the Australian government recognises the importance of transparency, which is a stated priority of the federal decommissioning roadmap, a guide produced to “help businesses plan their investment decisions”.3 However, our analysis shows that this priority is far from being achieved.