The data and the dilemma

Sept. 19, 2017
Oil and gas in the era of regulations and renewable energy

Oil and gas in the era of regulations and renewable energy


IN THE NEXT 18 MONTHS, China expects to complete a new section of pipeline that stretches from Daquing, in the upper northeast region of the country, all the way to Mohe, which lies on the Russian border, some 600 miles north.

It's a massive project that will reportedly pump 15 million tons of crude oil into China each year, and as with any new pipeline initiative, there will undoubtedly be concern about environmental consequences, such as the emission of greenhouse gases and other pollutants.

China, like most of the world, has been moving toward more environmentally friendly endeavors for years. For instance, a Bloomberg New Energy Finance study found that China and India together represent a $4 trillion opportunity for the energy sector by 2040 with renewable energy attracting 73% of new investments in China alone over the next 23 years. About two-thirds of that spending, will go toward wind and solar energy combined, 18% to nuclear energy and just 10% each to coal and gas.

Regardless of a push toward renewable energy sources or a tough regulatory environment, oil and gas companies find themselves in a bit of a dilemma. While they certainly feel the market and regulatory pressure that has come their way, they are also arguably the most proactive safety organizations in the world. Oil and gas companies were early adopters of using analytics and emerging technologies to help keep workers safe and protect the environment, but that doesn't get nearly as much attention as it should.

The truth is that regulations generally take a long time before they can be implemented regardless of whatever the political climate is in any country at any given moment. In other words, even if a new government comes in and seeks changes on environmental issues that seem to move like a landslide, in reality, regulatory initiatives often move more languorously like a large stone being slowly dragged by incoming waves.

Oil and gas companies are realizing the importance of being proactive on environmental issues in particular to not only keep in compliance or stay ahead of potential regulations, but also to boost their bottom lines and improve their standing with customers and employees alike.

Beyond environmental considerations, workplace injuries can be costly-and sometimes deadly. In June for instance, three Brazilian workers died and one was injured after a boiler exploded on an offshore drilling rig. The accident is currently under investigation.

No workplace accident, especially one involving fatalities, is ever acceptable, but they happen way more often than they should. Workplace injuries and illnesses in the US cost companies nearly $60 billion in 2014 alone-the most recent year with statistically valid data available-according to the 2017 Liberty Mutual Workplace Safety Index. However, in the oil and gas industry, the number of incidents has actually trended downward.

As writer Ben Casselman detailed a couple of years ago in a FiveThirtyEight article, when he wanted to visit an oil rig in 2009, Chevron required him take a two-day safety course, which included a lesson in how to escape a sinking helicopter-a useful skill for an unlikely scenario. (Keep in mind that this took place a year before the Deepwater Horizon disaster that killed 11 people and spilled almost five million barrels of oil into the Gulf of Mexico.) He also explained how oil and gas companies, to help protect the environment, won't even let their workers flick their cigarettes off the side of a rig.

Oil and gas companies have taken a proactive approach to safety. According to the US Bureau of Safety and Environmental Enforcement, which is tasked with improving safety and environmental protections in the oil and gas industry, there were 151 injuries and 86 fires and explosions in 2016-by far the lowest total since the bureau started keeping stats in 2009-and two fatalities. The goal, of course, is zero incidents, but there are signs of progress.


Oil and gas companies are turning to data and analytics to help them stay up to or ahead of the curve in terms of environmental and safety-related regulations. Because of the nature of the oil and gas industry, there are inherent risks, and sophisticated technology is already being used to help companies deal with those risks.

Some oil and gas companies make their workers use H2S monitors to keep track of hydrogen sulfide levels, and not-so-futuristic wearables can provide real-time feedback for the environment in which oil and gas workers perform their duties. This type of technology would allow people monitoring those workers to access instant data to let them know if people are in any danger.

Maneuvering a drone, for example, over treacherous terrain to map out potential risks and hazards gives workers a literal bird's-eye view of what potential dangers are lurking before they proceed on foot or by vehicle. All the data also gets compiled and stored for future observational opportunities. And there's a financial benefit to all this data, too. According to a recent Deloitte oil and gas report, IoT applications have the potential to reduce production and lifting costs by more than $500 million for a large integrated oil and gas company with an annual production of 270 million barrels.

Additionally, mobile applications for risk assessment are becoming more readily available. This allows oil and gas workers to document risks on the spot. Instead of waiting to compile notes when they get back to a computer, workers can now document, dictate, and even photograph or take videos to compile environmental and safety risks and near-miss data.

Video is becoming more important in the risk-assessment realm for oil and gas companies. For example, under the recent EPA Refinery Flare Rule, the agency now allows companies to use video footage as evidence of an oil and gas company complying with opacity requirements.

All of that extra data can then be used to create predictive analytics, which has been a mainstay of the financial industry for decades (think FICO scores), but is a recent innovation in the area of risk mitigation.

To get the most out of predictive analytics, companies must encourage and train workers to create a risk-reporting culture. The more incidents and near-misses that workers document, the more information the software will have to predict areas at most risk for incident. Predictive analytics cannot tell you that next Tuesday at 3 p.m. there will be an oil leak in a particular section of pipeline, but it can tell you that a certain area is more vulnerable than others and it's time to investigate or take maintenance and repair actions.

It's up to oil and gas companies to promote a safety culture-where any worker can stop production if unsafe conditions are spotted-and then ensure that supervisors follow through on investigations based on analytic risk assessments. If one supervisor doesn't take risk seriously and doesn't perform an investigation in a timely manner, the data will show that. Learning that a worker is not being proactive in terms of safety helps an organization know there's a safety culture issue that needs to be addressed immediately.


Some regulations that have been simmering for years are now in effect or will be soon. Take Canada for example. Following the Deepwater Horizon tragedy, Canada took a renewed focus of its own pipeline regulations. Under the recent Pipeline Safety Act, the largest pipeline companies in Canada could be required to pay up to $1 billion in fines-regardless of fault-for any type of oil spill.

In California, the state's Occupational Safety and Health Standards Board recently approved heightened regulations for process safety management in the oil and gas industry. Included in the rules is a Hierarchy of Hazard Controls Analysis, which will add a level of complexity for companies that goes further than a typical Hazard and Operability (HAZOP) or Process Hazard Analysis (PHA) study.

Beyond regulations, there is a push to move from traditional fossil fuels to alternative sources of energy, such as wind and solar power. A recent survey from the Pew Research Center found that 65% of US adults believe that priority should be given to renewable energy sources, which is up 5 percentage points from 2015. On the other hand, only 27% of those surveyed said there should be expanded production of oil, coal, and natural gas, down 3 percentage points from 2015.

The truth of the matter is the oil and gas industry has been adapting to the political and ecological climate for years. In the process, it has continued to be the leading source of energy even in an era where electric vehicles are gaining ground to the tune of a 32% compound annual growth rate from 2013 to 2016, according to Forbes, and a 41% global increase to 777,497 vehicles last year.

It's essential for oil and gas companies to stay ahead of the curve in terms of environmental and workplace safety regulations, and that's why we see major oil companies like ExxonMobil, BP, and Royal Dutch Shell backing a carbon tax proposal from the Climate Leadership Council. Under the plan, all proceeds from the tax would go directly to US families in the form of dividend payments that could generate an estimated $2,000 for a family of four in its first year.

Such a proactive move is not surprising for the industry. The world is changing rapidly, and oil and gas companies will continue to lead the way in terms of new environmental and workplace safety initiatives thanks to the new analytic capabilities at their disposal-and the numbers back that up.


Jeff Ladner is Sphera's vice president of environmental performance. He has been helping corporations drive operational excellence and manage operational risk for 20 years. He leads the Sphera solution strategy, helping corporations enable management systems. Focus areas include environmental performance, personnel and process safety, product stewardship, supply chain management, risk assessment, and change management. Ladner holds a BS from Purdue University in chemical engineering and an MBA from the University of Delaware.