atkearney-predicting catastrophic incidents

7/31/2019 ATKearney-Predicting Catastrophic Incidents

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FUEL

A Hart Energy Publication September 2011

The Global Business of Fuels

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Transportation Finance & Investment Sustainability Public Policy TechnoRefining

BioRefineries

Growing Up orFalling Short?

nRare Earth ElementsGlobal search for new supply

nReducing GHGs at SeaProgress toward fuel efficiency

nPetrochem ResurgenceU.S. "shale gale" drives expansion

PECIALECTIONS

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Predicting and

Mitigating the Risk ofCatastrophic Incidents

>>Crude oil has once again sur-passed US$100/bbl, and so theindustry must determine how to

meet the worlds growing appetite for petroleum products,as solutions are sought to correct the short supply picture.Despite a strong focus on personnel safety and an

increasing focus on process safety, serious safety incidentscontinue to occur in oil and gas, petrochemicals and otherasset intensive industries. Headline-grabbing examplesfrom the past couple of years include:n the Kleen Energy explosion killed six workers and

injured 50 in February 2010 in Middletown, Conn.Occupational Safety and Health Administration (OSHA)issued its third-largest fine ever to the three constructioncompanies building the plant for 371 safety violations,totaling $16.6 million in penalties.

n the primary upgrader at Canadian Natural ResourcesLtd.s Horizon site at Fort MacKay, Alberta, Canada, suf-fered an explosion in January 2011, injuring five workers.The Horizon site also experienced fatalities in 2007 and2008.

n the Upper Big Branch mine explosion involving 29fatalities;

n the Macondo well explosion that killed 11 before trig-gering the largest offshore oil spill in U.S. history; and

n the Tesoro Anacortes Refinery explosion and fire thatfatally injured seven workers.

In fact, major incidents are occurr ing with increasingfrequency. As a recent report by Marshs Energy Practicehighlights, more than one-third of the 100 most costlyproperty losses of the past four decades have occurredwithin the past nine years (see figure, page 62). This trendof increased major incident frequency has severe impli-cations, as the cost of a single catastrophic event canreach upwards of $1 billion in damage and opportunity

costs, with significant environmental impacts, seriousinjuries and loss of life.

Our analysis of data from selected companies in therefining and petrochemicals industry found that whilemost companies do not suffer catastrophic events, loss ofcontainment (LOC) incidents could account for morethan half of a production sites total capacity or opportu-nity loss. In other words, LOC-related process safety inci-dents, whether catastrophic or not, can result in morecapacity or opportunity losses than planned and unplanneddowntime from all other sources combined.

By Neal Waltersand Brent Ross

A.T. Kearney

By understanding and assessing underlying risk factors and predictors of

catastrophic incidents, refinery and chemical plant operators can better plan,

develop and prioritize appropriate mitigation plans.

Finance &

Investment


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In response,many oil, gas and

chemical companies areimplementing rigorous

Process Safety Management(PSM) programs that seek to

significantly reduce the probability ofcatastrophic events by instituting long-term sustainableimprovements in fundamental operating discipline. Someare even going beyond PSM and implementing holistic riskmanagement systems (e.g. ExxonMobils OperationsIntegrity Management system). These are appropriate andcommendable actions and have led to dramatic improve-ments in process safety performance in many cases.

However, many companies faceimmediate risks of majoror catastrophic incidents and,

consequently, need to aug-ment their longer-term PSM programswith specific short-term actions to iden-tify and mitigatethe highest immediaterisk exposures. Doingthis effectively involvesfirst understanding andassessing underlying risk factors and predictors of cat-astrophic incidents, then quickly identifying areas

where immediate mitigating actions are required,and developing and prioritizing appropriate miti-gation plans.

Measuring immediate risk exposure

Our experience working with both highly reliableand high-risk sites has led to a conclusion that anunderstanding of the immediate risk of a majorincident at a given operating site can be obtainedby evaluating four critical dimensions:n work practice maturity in a limited number of

critical areas related to fundamental operating dis-cipline;

n key quantitative risk predictors that are highlycorrelated with elevated process safety risk;

n recent LOC incident frequency, including anassessment of recurring themes across incidentsand of how effectively current processes identifytrue root causes; and

n the rigor of LOC incident follow-up.

Work practice maturityAn effective PSM program covers a wide range. Ourexperience reveals that process maturity in a critical

few areas (that are correlated with fundamental operat-ing discipline) are a strong predictor of immediate majoror catastrophic incident risk. Concern areas includeMaintenance and Integrity Management, People Man-

agement and Site Leadership.In our experience, capturing a true picture of work

practice maturity in critical areas requires an experiencedteam (with a mixture of site and off-site personnel) con-ducting cross-functional interviews coupled with valida-tion in the field.

Key quantitative risk predictorsA high risk of a major incident is typically correlated withweaker performance in fundamental operating discipline.

Therefore, while lagging indicators such asrecent incident history (both occurrence

and severity) are clear predictors

of elevated risk, leadingindicators associated with

fundamental operatingdiscipline are also effective.Among the most relevantleading indicators include:n procedure discipline

critical operating proce-dures out of date;n equipment inspectiondiscipline the numberof equipment inspections

overdue;n safety system management disci-pline alarms disabled or inhibited, and

safety information systems bypassed withoutan approved management of change (MOC);

n LOC and MOC follow-up discipline (i.e. com-pletion/overdue status); and

n HR management discipline competency (expe-rience and depth in critical positions) and loading(overtime and other overload measures).The categories above include a combination of

both direct and indirect measures of r isk. Operat-ing procedure discipline is an example of a direct

measure if procedures are not updated and followed,there is clearly a higher risk of a major incident.However, it is important to balance these direct meas-ures with indirect measures of the degree of processsafety rigor and risk-taking at a site.

Examples of indirect measures include the rigorand discipline regarding equipment inspection sched-

ules and safety system adherence. Poor performance inthese areas is often indicative of a broader laxness infundamental operating discipline and, as a result, higherincident risk.


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Recent LOC incident frequency and

underlying root causesThe recent incident history at a site is certainly an impor-tant predictor of major incidents, but the effectiveness ofincident investigations is also a critical factor. Ineffectiveinvestigations often suffer from common flaws, such astreating incidents independently, and can miss recurringthemes across incidents. There is often a bias toward tech-nical root causes and solutions, and superficial root causeidentification. Another incident investigation issue is too

many follow-up actions, which can cause the critical fewissues to be lost among many trivial actions.

LOC incident follow-upThe effectiveness of a site in implementing mitigatingactions is critical to preventing recurrence. A large andgrowing number of open action items suggest that thereis often a laxness in operating discipline, an absence of asingle-point of accountability for incident follow-up andweak management and IT systems that are difficult to useat the operator or mechanic level.

Predicting elevated risk of major operating incidentscan be enhanced through implementation of a relatively

simple, straightforward risk scorecard that tracks key pre-dictors across four critical elements: work practice matu-rity in areas critical to fundamental operating discipline,key quantitative predictors of elevated risk, recent incidenthistory and the robustness of incident follow-up.

Mitigating risk exposureThe combination of qualitative and quantitative measuresincluded in the risk scorecard not only identifies areas ofsignificant risk, but also points to specific areas whereimmediate action is warranted to reduce that risk. These

actions should compliment ratherthan replace existing PSM systemsthat are critical to obtaining a sta-ble, manageable risk profile in thelonger-term.

Successful change begins with

the appropriate engagement modelfor assessment and implementationIn our experience, this includes thefollowing four critical aspects.n Assessment independence. Hav-ing parties external to the site (butnot necessarily external to the com-pany) participate in the assessmenttypically results in greater assurancethat true root causes are beingidentified and eliminates the poten-tial for sites to be overly reliant onlagging measures and therefore

declaring victory too early.n Assessment validation. Validating

findings regularly (particularly in the areas of practicematurity and incident root causes) may be contentiousbut it can greatly improve the accuracy of findings andsite buy-in.

n Collaborative solution development. In order to beeffective, solution development should be collaborativewith the receiving site and, while the objectives can bemandated top down, specific actions and changes aremore effective if they are developed collaboratively.

n Line ownership of implementation. To be effective

accountability for implementation must be through theline organization (i.e. by the site, not for the site). Inaddition, the organizations capacity to assimilate the rec-ommended change should be assessed regularly.Effective implementation must take the form of a con-

solidated program rather than a series of independentactions. The program must focus on the critical few anddrive to completion, while avoiding early declaration ofvictory. While site accountability to execute and sustainimprovement is crucial, guidance and tracking external tothe site is necessary.

A call to action

Measuring and addressing the risk of catastrophic incidentsis more important than ever. The immediate level of riskcan be measured with a limited number of qualitative andquantitative indicators. These can be summarized in sim-ple dashboards that enhance visibility, support and accel-erate existing PSM programs, and clearly identify priorityareas for immediate action. n

Neal Walters is a partner in A.T. Kearneys energy and process indus-

tries practice. Brent Ross is a principal in A.T. Kearneys energy and

process industries practice.

Finance & Investment>>

Losses Due to Property Damage (1972-2009)

Chart courtesy of A.T. Kearney, sourcing Marsh Global Energy Practice, 100 largest losses (1972-2009)

Copyright, Hart Energy, 1616 S. Voss, Ste. 1000, Houston, TX 77057 USA (713) 260-6400, Fax (713) 840-8585

atkearney-predicting catastrophic incidents

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