Cost Cutting’s Effect on Oil and Gas Safety

Aug. 6, 2018
Though about half of the respondents to DNV GL’s 2018 annual survey do not think an increased focus on profitability has hurt safety performance, some expressed concern. But lower oil prices have also put more focus on digitalization, which could help boost safety.

We are certainly all familiar with the safety moments that begin every industry event. At the process industry user group meetings, in particular, they make a point of noting how important safety is to every aspect of operations. Yet catastrophic events continue to occur in oil and gas and other industrial settings despite the safeguards. As part of its 2018 industry outlook, technical industry adviser DNV GL reports on The State of Safety, exploring the effects of some recent trends on safety in the oil and gas industry—not least of which include cost control in an increasingly competitive marketplace.

In its annual survey of senior oil and gas professionals, released earlier this year, DNV GL tried to get at the issue of whether the cost cutting that came as the result of lower oil prices beginning in 2014 might be placing industry at a higher safety risk. Though the perception is largely positive—49 percent of the respondents do not think that the focus on profitability in recent years has negatively impacted safety performance—the responses are mixed, with some expressing their concern to the contrary. That’s almost twice as true among engineers and technical specialists as it is among business leaders.

DNV GL’s safety report begins with the relating of an incident in November 2016 in which an explosion at an ExxonMobil refinery in Baton Rouge, La., was caused by the attempted operation of a 30-year-old valve. The survey attempts to get at some of the questions surrounding the underlying causes of this and other preventable accidents in the oil and gas industry—and whether enough is being done to further improve safety.

Safety has, in fact, steadily improved over the past couple decades, according to several statistics, including the safety performance indicators from the International Association of Oil & Gas Producers (IOGP), shown above for the upstream sector. And many respondents do not believe that any safety has been compromised based on economic pressures.

“I think there is still a tremendous focus on safety in the industry as a whole,” said Eirik Wærness, senior vice president and chief economist at Statoil, in his survey response. “We have not seen any kind of correlation between spending in any given year and the safety results.”

DNV GL argues, however, that it might be too soon to tell if there’s been an adverse effect because cost cutting can take time to have an impact. “The risk that we’ve got now, in the recovering market, is that companies can forget about the underinvestment that they made,” said Graham Bennett, vice president of DNV GL—Oil & Gas. “Ramping up operations to take new opportunities can result in a worrying picture if companies don't recognize the underinvestment made in the last few years. There is always a lag between periods of underinvestment and any associated safety impact.”

The results that DNV GL found from oil and gas executives did indicate a correlation between business success and investment in safety. The more optimistic respondents were about their organizations’ prospects and industry growth, the more likely they were to be increasing spending on safety. Overall, just 28 percent of respondents expect to increase spending on safety in 2018. More was expected from the downstream sector—41 percent said they would increase safety spending this year.

Downstream also expressed more concern about safety. Only 12 percent overall said that cost cutting over the past three years has increased health and safety risk, but that number rises to 23 percent in the downstream sector. It also rises among engineers and technical specialists, 28 percent of whom contend that a focus on profitability has had a negative impact on safety performance—compared with 15 percent of business leaders.

Digitalization’s impact on safety

Last year’s industry outlook survey from DNV GL noted how much oil and gas companies were willing to spend on their digitalization efforts despite still feeling pressure to tighten purse strings overall. According to survey responses, 39 percent expected their organization’s spending on digitalization to increase in 2017, with the same percentage actually attributing the increased focus on digitalization to the low oil and gas prices.

The numbers are even higher this year—54 percent of the respondents expect to increase spending on digitalization in 2018. Over the next five years, 76 percent will invest in digitalization.

That digitalization has improved safety over the past three years, even where cutbacks have been widespread, according to 40 percent of those surveyed. “Technology has helped us improve safety monitoring systems; data analytics helps us determine which processes, areas and equipment are more accident-prone; while we have wearable equipment to monitor workers in case they faint or fall,” noted one respondent, Lu Nianming, secretary-general of the China Chemical Safety Association (CCSA).

In the context of safety, digitalization can enable the integration and transparent communication of hundreds of key indicators from across an organization to help gain safety insights and make decisions to improve future outcomes. “For years, oil and gas companies have produced large volumes of data that has been crunched regularly to demonstrate compliance with safety regulations through quantitative and qualitative safety studies,”

said Koheila Molazemi, global service area leader for risk management advisory for DNV GL—Oil & Gas. “Digital technologies are now helping us to unlock the value of this data so that it can be used to go beyond reporting compliance and provide insight that helps industry professionals better understand hazards, make critical decisions and communicate risk across the lifecycle of a project.”

Not to be discounted, however, is the potential risk that digitalization can bring to the picture through an increased risk of cybersecurity attacks.

The long haul

As mentioned, safety in the oil and gas industry has continued to improve over time.But DNV GL urges caution nonetheless—pointing to lower investment in safety in recent years, relatively higher concerns identified in the downstream sector, and the concerns expressed by more junior and technical employees.

“We are in an industry that involves risks,” Statoil’s Wærness said. “Safety incidents will happen no matter how much we do, but we can work to get the rate of incidents as low

as possible. And to do that we must constantly focus on the need for improvements.”

The State of Safety is a report based on results from DNV GL’s 2018 industry outlook report. To get more insights, read Confidence and Control: The Outlook for the Oil and Gas Industry in 2018.

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