Case Study in Successful Risk Management – The Oil and Gas Industry in Norway Some critical...

Case Study in Successful Risk Management – The Oil and Gas Industry in Norway

Some critical reflections

Terje AvenUniversity of Stavanger, Norway

Regulatory development – a thorny path or a freeway

Command and control Self regulation

What regulative approach should we choose?

The regulations give general

requirements related to

• Risk assessments

• Risk acceptance criteria

• Risk reduction processes o ALARP: Risk shall be reduced to a level that is As Low As Reasonably

Practicable

Challenge

Industry risk perspective is rather narrow and compliance oriented

The regulator has a broader perspective

”Optimal decision”

Risk analysisCost-benefit analyses Risk acceptance criteriaTolerability limits

Decision

ScienceManagement

Ethics, politics

”The formula ” risk analysis

• ------ P =1 x 10-4

Risk description What is acceptable risk

This approach should be used with care !

Risk acceptance criteria

• ---------------- P < 0.1%

• ---------------- P < 0.01%

Take riskWeight given to E

Reduce the risks and uncertainties

Cautionary-precautionary E[NPV], cost-benefit analyses

Balance

Development and protection

Risk acceptance criteria

E: Expected value

• RISK is more than computed probabilities

Challenge

Industry risk perspective is rather narrow and compliance oriented

The regulator has a broader perspective

Probability-based

Historical data

Knowledge dimension +

+

Surprises

Risk perspective

Industry practice

Kahneman asserts that we have a basic lack of ability to treat small risks: we either ignore them completely or give them too much weight. The main thesis put forward is that we grossly over-estimate small risks.

Kahneman’s book «Thinking fast and slow»

For Kahneman the risk was acceptable

I knew that the riskwas truly negligible, and that any effect at all on my actions would assign an inordinately high “decision weight” to a minuscule probability.

In fact, I was more likely to be injured in a driving accident than by stopping near a bus. But my avoidance of buses was not motivated by a rational concern forsurvival.

+

+

Risk perspective

Petroleum Safety Authority Norway

Main problems with the probability based approach

John offers you a game: throwing a die

• ”1,2,3,4,5”: 6• ”6”: -24

What is your risk?

(C,P):• 6 5/6 • -24 1/6

Is based on an important assumption – the die is fair

Assumption 1: …Assumption 2: …Assumption 3: …Assumption 4: ……Assumption 50: The platform jacket structure will withstand

a ship collision energy of 14 MJAssumption 51: There will be no hot work on the platformAssumption 52: The work permit system is adhered toAssumption 53: The reliability of the blowdown system is pAssumption 54: There will be N crane lifts per year…Assumption 100: ……

“Background knowledge”

Model: A very crude gas dispersion model is applied

+

+

Risk perspective

Black Swan

A surprising, extreme event relative to the present knowledge/beliefs

Aven (2013) On the meaning of a black swan in a risk context. Safety Science, 57, 44-51

Black swans

Extreme consequences

a) Unknown unknowns

b) Unknown knowns

c) Known but not believed to occur because of low

judged probability

Aven (2014) Risk, surprises and black swans Routledge

Challenge

Industry risk perspective is rather narrow and compliance oriented

The regulator has a broader perspective

Implications for the implementation of the ALARP principle

• Risk shall be reduced to a level that is As Low As Reasonably Practicable (ALARP)

Costs Benefits

A risk reducing measure should be implemented provided it cannot be demonstrated that the costs are grossly disproportionate relative to the gains obtained

The burden of proof is reversed.

ALARP

Take riskWeight given to E

Reduce the risks and uncertainties

Cautionary-precautionary E[NPV], cost-benefit analyses

Balance

Development and protection

Risk acceptance criteria

E: Expected value

ALARP

Regulatory development – a thorny path or a freeway

Command and control Self regulation

What regulative approach should we choose?

Challenge

Industry risk perspective is rather narrow and compliance oriented

The regulator has a broader perspective

35

A new perspective on how to understand, assess and manage risk

and the unforeseen

Project Norwegian Oil and Gas Association:

Preventing Major AccidentsTransfer of experience, building knowledge and expertise

• Extra

Hansson and Aven (2014)

Risk description

(A,C,U)

Q: Measure of uncertainty (e.g. P)

K: Background knowledge

C’: Specific consequences

(C,U)

C’

Q

K

Probability

Consequence, impact

Poor background knowledge

Strong background knowledge

Medium strong background knowledge

Cautionary principle

Faced with risks and uncertainties caution shall be a ruling principle

Not execute an activity Robustness

Defence in depth Redundancy

ALARPPrecaution

…

Precautionary principle

If there is scientific uncertainty related to the consequences …

Risk analysis Risk picture

Acceptable risk

Unacceptable risk

All agree

A surprise for some

Not a surprise for

othersUnknown knowns

The Deepwater Horizon

accident

Erroneous assessments of pressure test results

Failure to identify formation fluid penetrating the well despite log data showing that this was happening

The diverter system was unable to divert gas The cutting valve (blind shear ram – BSR) in

the BOP failed to seal the well

http://www.ptil.no/nyheter/deepwater-horizon-ulykken-vurderinger-og-anbefalinger-for-norsk-petroleumsvirksomhet-article7889-24.html

Disasters

• We experience combinations of conditions and events which collectively result in a major accident

• We do not normally identify such combinations of conditions and events in risk assessments – and, if we did, they would typically be disregarded because of negligible probability 45

A B C D

How to confront the black swans

Knowledge

Risk assessments

Modified procedure for using RAC

• If risk is found acceptable according to probability with large margins, the risk is judged as acceptable unless the strength of knowledge is weak (in this case the probability-based approach should not be given much weight).

• If risk is found acceptable according to probability, and the strength of knowledge is strong, the risk is judged as acceptable.

• If risk is found acceptable according to probability with moderate or small margins, and the strength of knowledge is not strong, the risk is judged as unacceptable and measures are required to reduce risk.

• If risk is found unacceptable according to probability, the risk is judged as unacceptable and measures are required to reduce risk.