Adapting to EHS Pressures Facing Oil & Gas Manufacturers

Posted by | Research Team | on Fri, Nov 20, 2015 @ 11:05 AM

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It’s no secret that, in the oil & gas industry, employee safety has long been an important issue. Not only are oil & gas companies dealing with increasingly stringent regulatory requirements and customer demands, recent negative events have contributed to public scrutiny of health and safety standards across the industry. Linked to falling oil & gas revenues, these issues raise a substantial concern—and opportunity—for the sector.

Catastrophes in oil & gas are not new. They’ve been happening for decades. Of course 2010’s calamitous Deepwater Horizon oil spill, viewed as the largest marine oil spill in the industry’s history, jumps to mind. It is, by no means, the first or most severe petroleum accident to occur. Back in 1978 an oil tanker called Amoco Cadiz ran aground on the Portstall Rocks near France, releasing 1.6 million barrels of oil, and costing the company in loss and cleanup more than $136 million (adjusted for inflation). At that point in time, it was the worst oil spill on record. But it would be outdone a few years later.

Past Mistakes

In 1983 two massive spills took the crown of the most severe in history. Both the Castillo de Bellver oil spill and the Nowruz Oil Field impact resulted in, respectively, 1.8 and 1.9 million barrels of release. It is a big number, but it doesn’t even compare with the worst release recorded: 1991’s Kuwaiti Oil fires, which resulted in an astonishing 5.7 million barrels of oil released, and half-a-billion dollars in repair, and clean-up costs.

What differentiates many of these spills from 2010’s Deepwater Horizon spill is the nature of the times. Between today’s social media channels, 24-hour news cycle, and expanding government/regulatory demands on the industry, it is a lot more challenging for oil & gas manufacturers to evade the negative effects of negative events. The visibility of these events is immediate, and proliferates around the globe with traction. Consumers will respond, regulators will respond, and bottom-line dollars will be impacted.

This dynamic is reflected, to some extent, in the comprehensive environment, health, and safety (EHS) survey LNS Research recently launched. We surveyed more than 300 businesses across manufacturing industries on their most pressing issues in EHS management, a notable third of which came from the oil & gas sector.

 Oil & Gas Today

In the survey, companies in oil & gas were asked to name the most important trends impacting their business today, selecting three choices from a number of options. I have provided the results across oil & gas manufacturers in the graphic below.Paul_survey_oil_and_gas_blog.png

Given the nature of the climate of the industry this day in age, it is not surprising to see what respondents picked as their top choices. The demand among consumers, shareholders, and government regulators for improved sustainability performance and corporate responsibility clearly resonates with oil & gas companies. It comes in as the top trend impacting oil & gas companies. It is also not surprising that market pricing and volatility ranks as a close second. Oil prices, for example, have fluctuated drastically in recent months. Over the past year significant slips in oil prices have had devastating impacts on oil-producing companies in 2015, particularly across North America.

What’s notable is that safety is registering as a close third on the spectrum of considerations. Environmental considerations are evident across the oil & gas industries. What has long been lost in the noise are the impacts on individual worker health and safety. Much of the conversation around Deepwater was focused on the devastating releases the explosion resulted in. The impacts on the Gulf shoreline-economies (such as fishing), and the intensive cleanup efforts required in order to restore regional marine health.

However, too small a segment of the conversation was committed to the fate of the 11 oil rig workers who died in the explosion, as well as the resultant health effects on local populations. A combination of significant fines and fees (BP had to pay over $18.7 billion), industry-specific regulations, and a declining dollar value on oil & gas, has prompted the public to seek renewable sources of energy. This has awakened the industry to the new reality.

Also, where the industry too frequently lags is in implementing effective EHS software to support their health, safety, and environmental programs. For example, it is not uncommon to see an oil rig that still monitors health and safety programs with paper-based records. We’ll explore this in more depth in future posts. An EHS software system enables proactive EHS management, granting better visibility and insight into EHS performance and risk management.

The key takeaway for oil & gas manufacturers at this juncture is that, even besides there is greater public scrutiny and awareness of EHS performance, greater attention needs to be paid to environmental performance and worker health and safety. It is encouraging that sustainability and corporate responsibility reign as top priorities in the sector, but the impulse to improve safety also needs to be a key consideration in order to achieve ongoing success.

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Tags: Sustainability, Risk Management, Environment, Health and Safety (EHS)