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Global oil and gas: an evolving regulatory picture

18 February 2016

The oil and gas industry and its regulatory regimes are evolving. As operations break into new frontier territories, the challenge is to keep pace with trends, and tackle the demands of ultra-deep, more remote, harsher and environmentally sensitive areas. Such pioneering activity introduces new risks that need to be understood and managed. Regulations can help in ensuring that due attention is given to health, safety and environmental (HSE) performance.

In this article, Graham Bennett of DNV GL looks at safety regimes worldwide and how they are likely to evolve in future, with specific reference to a report from the group published in the last quarter of 2015.

Industry and regulatory safety regimes have seen significant improvements over the last three decades. Analysis of data from companies’ annual and sustainability reports show a ten-fold reduction in reportable incidents per 200,000 man hours when lost-time injuries are excluded1. This demonstrates real progress in occupational safety which has been achieved through systematic efforts throughout the industry. There is further potential for improvements in this area, but even more so in major accidents.

A DNV GL report: ‘Regulatory Outlook: The way forward for offshore regulatory safety regimes’, found that regulatory safety regimes, in the context of social, political and economic frameworks, vary considerably across regions and may also evolve in different directions. The report showcases high-level case studies for Angola, Australia, Brazil, the EU and Mexico as well as the Arctic, from both an international regulatory perspective and nationally for Alaska (USA), Canada, Greenland, Norway and Russia.

An ongoing challenge

While occupational safety metrics have improved dramatically, major accidents still occur at too high a frequency. Occupational safety focuses on preventing workplace-related accidents that might affect individuals. It is monitored using common industry metrics, is included in company annual reports, it is easily understood, and receives board level attention.

Conversely, process safety aims to prevent major accident hazards (MAH) that would affect many people and put whole offshore facilities at risk. These may potentially have a large number of casualties and/or result in large uncontrolled hydrocarbon spills to the environment. These incidents and their precursors are less well understood at board level.

It is a sad truth, that despite advances in technology and increased focus on safety standards and regulations, major accidents, such as Alexander Kielland (1980), Piper Alpha (1988), Deepwater Horizon (2010), and Cidade de São Mateus (2015), still happen offshore. There are also the near-misses, which often go unreported. Earlier this year, and within a six-week period, there were three major incidents offshore Mexico culminating in the loss of a number of workers, huge oil spills and contamination of a number of coastal zones.

It is difficult to source clear records for major accident hazards (MAH).  However, analysis of the European Union (EU) major accident report system (MARS)2 and the US Environmental Protection Agency Risk Management Plan-Star (RMP-Star)3 databases shows a steady number of major accident events with essentially no reduction in the level of severity. Similarly, insurance broker Marsh4 examined insurance claims for property damage losses in the hydrocarbon industry between 1974 and 2013, and found no clear improvement since 1994. Notably, Marsh excludes incidents where no insurance claim was made, and thus under-reports major hazards events.

Statistics from the Country Performance Project of the International Regulator’s Forum (IRF) for Global Offshore Safety also supports this picture. The project’s aim was to measure and compare offshore safety performance of IRF participants through the collection of incident data based on a common set of criteria. Despite a relatively short reporting period, from 2008 to 2012, fatalities per million hours worked did not show a unified trend towards global improved performance.

Against this backdrop of industry data, DNV GL’s Regulatory Outlook report, describes the history and future outlook for regulation around the world, the governmental and industry roles within the framework of each region, and what an enhanced risk management regime should look like.

Global-local challenge

Current trends suggest that industry and regulators must work more closely together to improve safety performance. Oil and gas companies operating globally must therefore, not only increase oversight where requirements are less developed, but also proactively align global operating standards and procedures towards unique local regulatory changes. This is particularly true for those operators based in EU countries who are now required to produce a Major Accident Prevention Policy (MAPP), which the EU deems to be applicable to their global operation, not just those operations within the EU.

In its Regulatory Outlook report, DNV GL has generated broad, high-level case studies for Angola, Australia, Brazil, the EU and Mexico. Cases also include the Arctic, from both an international regulatory perspective and nationally for Alaska (USA), Canada, Greenland, Norway and Russia.

It has identified and discussed drivers and trends to form scenarios outlining possible regulatory developments. The company mapped these scenarios to its safety model5 to identify key factors that could help improve MAH performance. The scenarios and safety model were then applied to each region.

The DNV GL safety model incorporates six interconnecting performance levers and dependencies which, if recognized, should lessen the probability of a major accident occurring. In no particular sequence, these are:

1.  Existence of performance-based regulations and independent verification

2.  Clear roles and responsibilities for safety, including ensuring that stakeholders share common goals

3.  Information sharing from monitoring safety performance

4.  Advanced barrier management that includes mitigating as well as preventive barriers

5.  Stakeholder access to a tool that records up-to-date risk identification and provides a complete view of risk exposures for an asset, asset cluster, project or company

6.  Interaction between people, technology and the organisation

Gauging the path of regulation

The case studies presented in the report are regional high-level summaries of offshore oil and gas activities, with a particular focus on regulatory safety regime status and possible developments. Each case study is divided into two parts: a background and an outlook. The background summarizes historic developments up to present day and was assembled mainly through research of publicly-available information. The outlook suggests possible future evolution and was produced through a combination of research, workshops and internal interviews with DNV GL experts and customers around the world.

The report discusses possible scenarios for regulatory developments in these jurisdictions. The company mapped these scenarios to its safety model5 to identify key factors that could help reduce major accident hazards (MAHs) in each region. Four fundamental scenarios for the development of regulatory regimes are analysed in the report. These are:

New moral imperative: Governments recognize society's unwillingness to tolerate major accidents, so operators' responsibility for safety is increased

Global safety: Each major accident in the industry is reviewed and learned globally by both industry players and regulators

Operators rule: Governments are reluctant to improve their regulatory capability, and rely on operators’ global experience

Local safety: Regulators focus on improving their own safety regimes

These scenarios correspond to varying degrees with current regulatory regimes and are not intended as accurate illustrations of the future. However, they are a useful starting point for discussing how safety regimes should develop, particularly when used in conjunction with DNV GL’s safety model.

A global safety scenario, where each major accident is reviewed and lessons learned by all regulators and industry players, includes many elements of DNV GL’s preferred approach.

The way forward

Understanding the complexity of major accident risk is a far more comprehensive and challenging task than managing the risk of occupational accidents. Fortunately, major accidents are rare, and the lack of regular exposure to the risk might lead to an erroneous perception of low risk. One challenge for the industry is to maintain a long-term view on risk management related to major accidents, while also dealing with the ongoing and near-term challenges and operational needs.

The Regulatory Outlook report demonstrates that the most effective offshore safety regime deploys performance-based regulation requiring major hazard reports, including risk assessments and independent verification, and is supplemented by required or recommended specific prescriptive regulation for selected areas. This view is supported by the European Union Offshore Safety Directive (Directive 2013/30/EU)6 which came into force in July 2015.  This Directive, in part initiated by the Deepwater Horizon event7, was introduced to implement ‘North Sea’ best practice across Europe and closely follows the UK North Sea Safety Case Regulations.

The Directive requires identification of major environmental incidents (MEIs) and the associated safety and environmental critical elements (SECEs)8. However, to date there has not been a common approach within the industry to determine what SECEs and environmental critical elements (ECEs) are, or for developing their corresponding performance standards. DNV GL has therefore published a new Recommended Practice (RP) to address this issue.

The DNVGL RP-G104 “Identification and management of environmental barriers” is based on the barrier management concepts, which applies to knowledge, communication and management of major accidents. It provides guidelines and recommendations for the processes required to identify MEIs, SECEs and ECEs for offshore installations and operations. It establishes related performance standards in line with regulations, industry practice for managing safety hazards, and barrier management best practices. The RP also provides guidance to implement assurance and verification processes to demonstrate that the required level of performance of the SECEs and ECEs is being achieved.

A collective approach

The importance of sharing lessons learned locally and globally should be further emphasised. In this respect, the International Regulators Forum, along with industry bodies such as NOROG, API, IADC and the Classification Societies, take an active role in sharing information and trends that in turn help improve global safety. The new OGP 456 Recommended Practice on process safety is another recent example of such collaborative efforts. There should be improved harmonisation of HSE regimes to reduce compliance costs and administration, and more thorough implementation of risk management tools and cultures that ensure the safety of the industry’s workforce. This should be considered across regulatory regimes as well as across companies’ practices.

It is clear that while occupational safety has improved in general, major accidents and near-misses still happen, and the rate at which they occur is not significantly improving. More could be done to reduce the risk of these occurring. The industry should not just study failures, it should learn more from its successes. Whilst the focus must of course be on the safety and environmental impact of such risks, one should not underestimate, or ignore, the business risk impact of such major accident events. Actively managing safety and environmental risk, is an investment which is clearly beneficial to the health of the business overall. Ultimately, it must also be recognised that the management of major accident risk makes sound business sense, and provides companies with the social licence to operate that they need.

References

1  DNV GL internal study on occupational HSE performance, data based on the annual reports and sustainability reports of key companies, 2014

2  ‘Offshore major accident safety: Is SEMS enough?’, Pitblado R and Bjerager P; DNV GL. OTC-130TC-P-412-OCT, 2013

3  ‘Accident epidemiology and the RMP rule: Learning from a decade of accident history data for the US chemical industry’, Kleindorfer PR; Lowe RA; Rosenthal I; University of Pennsylvania, Wharton Business School, Final report for cooperative agreement; R-83033301, 2007

4   ‘The 100 Largest Losses – 1974-2013, 23rd edition’, Marsh & McLennan Companies, 2014

5   ‘Enhancing offshore safety and environmental performance’, DNV GL, 2013. An updated version of the DNV GL safety model in this publication is being published in 2015 in the DNV GL report ‘Offshore safety – initiatives to improve major accident hazard performance’

6   EU Directive 2013/30/EU on safety of offshore oil and gas operations

7   There have been over 20 major inquiries following the Macondo event. The findings from these inquiries are compiled and summarized in a DNV GL report “Summary of Macondo inquiries”. Download from: dnvgl.com/macondo

8   National regulation and best practice may also require identification of MEIs which have no associated safety hazard, and their environmental critical elements (ECE)

 


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