By Malcolm Hutton
Over the last two decades the Oil &Gas industry has made huge efforts to improve process safety performance. A key driver for this focus has been the large number of major accidents around the world, both onshore and offshore. Another driver has been the response from governments to these events, with regulations introduced to address hazardous installations and major accidents. One challenge for operators with global portfolios is the uneven nature of these regulatory regimes, requiring different approaches to ensure compliance. In some locations compliance may not achieve any risk reduction at the relevant assets
Despite this intense focus on process safety, major accidents still occur and continue to exert significant reputational and financial impacts on operators. The reputational damage of such incidents can have an adverse response from financial stakeholders such as pension funds and other institutional investors; it can also lead to a company’s ”licence to operate” being eroded regionally or even globally.
This article explores an approach that may assist operators in achieving the elusive goal of a significant reduction in the risk of major accidents. It is to fully embed process safety management (PSM) into the company’s sustainability agenda. This would further elevate the issue and provide greater transparency around all the activities designed to manage and reduce risk across the company’s portfolio.
An additional benefit would be the need for more interaction between the engineering and process safety functions and those responsible for corporate sustainability. A resulting cross fertilisation of ideas may facilitate the identification of novel approaches to risk reduction. Public disclosure of the success or otherwise of these programmes in a company’s annual sustainability report will further raise the issue and be a useful source of information for stakeholders.p>
This is not to say that many leading companies in the Oil and Gas sector do not already feature process safety in their annual sustainability reports. For example BP and Shell, in their 2013 reports, and Chevron in its 2012 corporate responsibility report, all describe a range of activities designed to better manage process safety. These include an intensive review of engineering design standards; training; investment programmes into the upgrade of equipment and improving control systems such as the prediction of corrosion in pipelines. Both Chevron and Shell also describe a focus on learning from investigations of incidents. As an indication of the importance attached to this issue. Statoil in its 2013 sustainability report ranked safety and security as the most material issue that could significantly affect business performance and of greatest importance to stakeholders.
In addition to describing specific programmes, many leading companies also provide process safety metrics in their sustainability reports. The most common metrics reported are the number of process safety events or number of serious incidents on an annual basis. Another metric reported is the number and volume of hydrocarbon spills, although this is sometimes reported in the environmental section of the report, along with emissions of SOx/ NOx and CO2. Some companies have reported a consistent improvement in both incidents and spills over several years, but others do not.
The key issue here is that the process safety metrics being reported may be viewed as lagging indicators but are more realistically the undesired consequence of a failure in PSM. Focussing on incidents, oil spills or even primary loss of containment may be an indicator of the potential for a major accident However, given the low probability of such incidents, these metrics do not provide a reliable insight into the effectiveness of PSM This is in contrast to say the emissions of CO2 which is a lagging indicator and an inevitable consequence of an operation for which a company is likely to have a reduction target. Reporting on these emissions provides a good insight into the effectiveness of management control.
Instead of reporting on lagging indicators, companies should be encouraged to disclose leading indicators of PSM. Given the complexity of the interaction between equipment, people and systems, it is likely that a combination of measures which focus on controls of safety critical elements will be needed to produce a clear insight into the effectiveness of an asset’s PSM. These are measures which are already in place in many companies and are used to help manage day to day process safety performance. What is being proposed is to devise a leading KPI which would be an integrated composite of these various measures, creating a “risk index”. Examples of measures used to devise a risk index could include workforce and contractor training, inspection and maintenance regimes and reporting.
This composite KPI could then be disclosed in the annual sustainability report, either by asset or, more likely, as an integrated index over the whole portfolio. The construction of an integrated metric will not be a simple task but the outputs from a bow tie approach (for example) could form the basis for the construction of an appropriate KPI. In practice it may require two or three metrics to be reported.
The publication of such a KPI or KPIs will allow external stakeholders to gain a better insight into the overall risk profile of a company. In the future an agreed high level KPI, or set of KPIs could be adopted across the whole of the industry. This would allow stakeholders, governments, financial institutions and the public to make company by company comparisons of their risk profiles.
In the challenging exploration and production environment faced by the Oil & Gas sector, there are strong business reasons to embed a transparent PSM programme into a company’s sustainability agenda. Stakeholders will increasingly expect to see effective process safety demonstrated as an important element in a company’s overall business risk profile. Finding new ways to reduce that risk profile will provide another indication of a company’s commitment to sustainability.
Malcolm Hutton is ERM’s Risk Management Managing Partner, working with more than 200 risk practitioners worldwide. To discuss any of the issues raised in this article please email Malcolm Hutton.