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

1. Case Study in Successful Risk Management – The Oil and Gas Industry in Norway Somecriticalreflections Terje Aven Universityof Stavanger, Norway

2. Regulatory development – a thorny path or a freeway What regulative approach should we choose? Self regulation Command and control

3. The regulationsgive general requirementsrelated to • Risk assessments • Risk acceptance criteria • Risk reduction processes • ALARP: Risk shall be reduced to a level that is As Low As Reasonably Practicable

5. Challenge Industry risk perspective is rather narrow and compliance oriented The regulator has a broader perspective

6. ”Optimal decision” Risk analysis Cost-benefit analyses Risk acceptance criteria Tolerability limits

7. Science Management Decision Ethics, politics

8. ”The formula ” risk analysis

9. Risk description What is acceptable risk • ------ P =1 x 10-4 This approach should be used with care !

10. Risk acceptance criteria • ---------------- P < 0.1% • ---------------- P < 0.01%

11. Balance Development and protection Take risk Weight given to E Reduce the risks and uncertainties Cautionary-precautionary E[NPV], cost-benefit analyses Risk acceptance criteria E: Expected value

12. RISK is more thancomputedprobabilities

13. Challenge Industry risk perspective is rather narrow and compliance oriented The regulator has a broader perspective

14. Risk perspective Probability-based Historical data Knowledge dimension Surprises + + Industry practice

15. 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»

16. For Kahneman the risk was acceptable

17. I knew that the risk was 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 for survival.

19. Risk perspective + +

20. Petroleum SafetyAuthority Norway

21. Main problems withtheprobabilitybasedapproach

22. John offers you a game: throwing a die • ”1,2,3,4,5”: 6 • ”6”: -24 What is your risk?

23. Risk (C,P): • 6 5/6 • -24 1/6 Is based on an important assumption – the die is fair

24. “Background knowledge” Assumption 1: … Assumption 2: … Assumption 3: … Assumption 4: … … Assumption 50: The platform jacket structure will withstand a ship collision energy of 14 MJ Assumption 51: There will be no hot work on the platform Assumption 52: The work permit system is adhered to Assumption 53: The reliability of the blowdown system is p Assumption 54: There will be N crane lifts per year … Assumption 100: … … Model: A very crude gas dispersion model is applied

25. Risk perspective + +

26. 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

27. Black swans a) Unknownunknowns b) Unknownknowns c) Knownbut not believed to occurbecauseoflowjudgedprobability Extreme consequences

28. Aven (2014) Risk, surprises and blackswansRoutledge

29. Challenge Industry risk perspective is rather narrow and compliance oriented The regulator has a broader perspective Implications for theimplementation of the ALARP principle

30. ALARP • Risk shallbereducedto a levelthatis As Low As ReasonablyPracticable (ALARP) A risk reducing measure should be implemented provided it cannot be demonstrated that the costs are grossly disproportionate relative to the gains obtained Costs Benefits The burden of proof is reversed.

32. Balance Development and protection Take risk Weight given to E Reduce the risks and uncertainties ALARP Cautionary-precautionary E[NPV], cost-benefit analyses Risk acceptance criteria E: Expected value

33. Regulatory development – a thorny path or a freeway What regulative approach should we choose? Self regulation Command and control

34. Challenge Industry risk perspective is rather narrow and compliance oriented The regulator has a broader perspective

35. Preventing Major Accidents Transfer of experience, building knowledge and expertise Project Norwegian Oil and Gas Association: A newperspectiveonhow to understand, assess and manage risk and theunforeseen

36. Extra

37. Hansson and Aven (2014)

38. Risk description (A,C,U) (C,U) Q K C’ Q: Measure of uncertainty (e.g. P) K: Background knowledge C’: Specific consequences

39. Probability Consequence, impact Poor background knowledge Medium strong background knowledge Strong background knowledge

40. Cautionary principle Faced with risks and uncertainties caution shall be a ruling principle Not execute an activity Robustness Defence in depth Redundancy ALARP Precaution …

41. Precautionary principle If there is scientific uncertainty related to the consequences …

42. All agree Acceptable risk Risk analysis Risk picture Unacceptable risk

43. A surprise for some Not a surprise for others Unknown knowns

44. 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

45. 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 A C B D

46. How to confront the black swans Knowledge Risk assessments

47. 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.