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Proposed EU Regulation of Offshore Safety

Oil & Gas UK is extremely concerned by the European Commission’s proposals for EU Regulation of offshore safety. While we will always support proper moves to improve safety standards, this proposal to dismantle the UK’s world-class safety regime which is built on decades of experience and replace it with new centralised EU Regulation, is likely to have exactly the opposite effect. We are encouraged by the fact that the UK Government is of the same position and has signalled its intention to oppose the Regulation in the best interests of safety.

Use the links below to learn the reasons for Oil & Gas UK's concern over this issue.

Background

What has the European Commission (EC) proposed, and why?
On 27 October 2011, the EC published draft legislative proposals for offshore safety as it believes “the likelihood of a major offshore accident in European waters remains unacceptably high.” The EC seeks to centralise control of offshore health and safety and environmental protection in Europe, instead of the current situation where each national government is responsible for regulating offshore activities in their own waters. The Regulation would apply to all of the European Union’s (EU) 27 member states, as well as Norway, which is not a member of the EU.

Does the EC think that the North Sea is unsafe?
Quite the opposite. The EC regards the North Sea countries (UK, Denmark, Netherlands and Norway) as a region where the “risk-based regulatory framework is considered amongst the very best in the world.” The EC has stated that its aim is to bring the rest of Europe up to the standards already present in the North Sea. In drafting the Regulation, the EC actually “cherry picked” much of the North Sea states’ safety regimes – acknowledging them as gold standard. Much of what the EC has proposed is very closely based on the UK system; however it does not replicate the many important legislative changes made to implement key recommendations made by the Cullen Inquiry into Piper Alpha.

So is this Regulation needed?
No, it’s inappropriate and totally unnecessary. The UK and its North Sea neighbours, which the EC regards so highly, produce 90% of all the oil and gas in Europe and already have fit-for-purpose safety regimes.

What is Oil & Gas UK’s position on this?
Oil & Gas UK supports the EC’s goal to bring all members states’ offshore safety regimes up to the already world class regulatory systems of countries bordering the North Sea, but are ardent it has taken the wrong approach. We are strongly opposed to the draft Regulation in its current format because we believe that, despite its intention to improve safety, it would have exactly the opposite effect, undermining existing high standards of offshore safety in the UK. The Regulation’s poor drafting will create confusion concerning compliance through uncertainty of interpretation, and together with the lack of interpretative guidance, could hinder or even stop operations until reasonable certainty exists.

Impact on safety

How could offshore safety be jeopardised by something designed to improve it?
An effective legislative regime requires three fundamental elements:

  • a regulator that is powerful, well-resourced and competent;
  • regulations that set the right accountabilities and  drive the right behaviours;
  • and strong industry support/buy-in.

Weakness in any one of these undermines the others. In the UK, the offshore industry is controlled by strong, experienced and competent regulators in the HSE and DECC. Our current system has evolved over 20 years; experience has shown that it is  robust, flexible and adaptable; and that it is an effective driver of continuous improvement. Under EC proposals, this system would be dismantled and powers would be moved away from individual countries and over to Europe – where there is absolutely no specialist expertise or competence. By destabilising everything the UK and it’s North Sea neighbours have put in place to effectively manage major hazards offshore in the last 20 years, the Regulation presents a significant risk to health and safety.

Isn’t this just bureaucracy – with no real impact on day-to-day safety?
It is a bureaucratic exercise, but one which would heap such a huge burden on both operators and national regulators that there is a real risk of a knock-on effect to safety. For example:

  • Backlog of work: The safety cases (comprehensive documents operators must submit to HSE demonstrating arrangements for managing health and safety and for controlling major accidents) for 300 UK offshore installations would have to be revised and replaced by a new Major Hazard Report (MHR). These would then have to be submitted back to the competent authority (DECC/HSE), assessed and accepted. There is, however, a transition period of two years – an optimistic timetable. (It took seven years to implement the new regulation which came from Lord Cullen’s recommendations post Piper Alpha). There would be an inevitable backlog of submissions for the regulator to deal with and anything which even remotely threatens to divert their attentions would be of concern to the industry. Rewriting safety cases to add in the level of detail being required by EC would divert important resource from frontline safety. Naturally industry could draft in consultants and safety specialists to assist; however one thing that industry learned from experience with the first UK safety cases was that outsourcing the preparation of cases resulted in a lack of ownership within the company and their management systems. The outcome was a rather rocky start for the new regime in the UK in 1992 and a negative impact on safety lasting for several years. It is therefore essential that in-house knowledge and expertise is used for MHR. This polishing and perfecting of a MHR for acceptance will therefore divert attention and resource from current key safety programmes, for example those involved with workforce engagement, human factors, and behaviours. A well honed MHR will not ensure safety in practice; it is people that prevent accidents, and people are our primary focus.
  • Regulatory challenge: The proposals (in respect of the Major Hazard Reports) and tight transitional time scales involved, would tie up considerable if not the majority of Regulator inspector resource. The result would be that DECC/HSE inspectors would be moved to desk-bound review and assessment, and away from the active intervention approach that has been adopted for the last 6-7 years. The challenge provided by inspectors visiting platforms and asking difficult questions is a key element in the effectiveness of the UK regime; an element that the proposals would virtually remove for several years.
  • Poorly drafted: The wording of the Regulation is poorly drafted and clumsy. While elements have been cherry picked from the UK regime, the wording is sometimes different, so the precise meaning and intent are unclear or ambiguous. In some cases, sections of existing North Sea health and safety regulation have simply been copied and pasted – but then arbitrarily applied to the environment. This shows a total lack of understanding of offshore safety at EU level, which is itself a serious concern.
  • Lack of interpretative guidance: There is no accompanying guidance to help operators meet the new requirements – a fundamental omission on the part of the EC. The Regulation’s ambiguous and unclear wording will lead to widespread confusion and uncertainty over non-compliance. After Piper Alpha, the industry and HSE together developed guidance to accompany the new regulatory regime to ensure shared understanding – before the new regulations came into force.
  • No place for safety representatives: The Regulation fails to fully recognise the importance of involving the workforce in safety, in particular the role of safety representatives. 

Wider ramifications

If the EC holds the North Sea in high regard, was it justified in its action?
No. The EC used an impact assessment, incorporating a cost benefit analysis, as justification for its proposals. However, Oil & Gas UK commissioned GL Noble Denton to provide an independent review of the EC’s impact assessment which found it contained glaringly inaccurate assumptions on the types and flowrates of wells drilled in the North Sea and the potential costs of a major well control incident and oil spill. Nevertheless we do support the EC desire to bring the whole of EU up to the exemplary standards applied by the countries around the North Sea. These errors render their impact assessment invalid and highlight a fundamental flaw at the heart of the EC’s proposals. The EC’s errors, highlighted in our review, include false assumptions that:

  • All wells are exploratory, like Macondo (In fact, most new drilling is for production wells which have much reduced consequences if blown out).
  • All wells are capable of polluting the marine environment at the same rate as Macondo (In fact, half of UK wells need artificial stimulus to flow at all).
  • Regulation would achieve a 50% reduction in incident costs (In fact, 90% of oil and gas in Europe is produced by just three member states and Norway. These countries are already regarded as among “the very best in the world” therefore it is difficult to see where this benefit will come from).
  • A 50% reduction in incident costs would achieve financial savings of €63.5m (In fact, the Regulation would cost governments over €130m to implement – far outweighing any potential benefits).

What happens in the longer term, if the Regulation goes ahead?
The nature of an EU Regulation means that it can, in future, be changed or amended without consulting either individual governments or industry. Not only does this prescriptive intervention run contrary to Lord Cullen’s recommendations, it also runs contrary to the Lisbon Treaty – which enshrines the right for countries to manage their own resources.

What would happen if operators fail to meet the requirements within the proposed timetable?
We believe the timescales are so unrealistic that it would effectively lead to a de facto moratorium on offshore operations, while a backlog in MHR acceptance by the Regulators and compliance uncertainty because of lack of clarity would result in  delayed projects or even suspended operations. Again, we believe this runs contrary to the Lisbon Treaty.

How much would a suspension of operations cost?
It’s impossible to speculate how much it would cost individual operators as it depends on their own specific circumstances. However, any suspension would also impact financially on governments, which could see smaller tax returns, loss of jobs and weakened energy security.

Going forward

What does Oil & Gas UK want?
We believe the EC would best achieve its goal through a properly worded Directive, instead of Regulation. Oil & Gas UK is willing to work closely with the EC to drive the North Sea’s high standards across Europe and encourage greater information sharing and collaboration between governments. Indeed it is our view that thorough and fundamental revision of the Extractive Industries Directive would be appropriate. It would be possible through consultation and dialogue to ensure that a revised Extractive Industries Directive incorporates all the best that has been implemented in the North Sea countries, without the bureaucracy involved in the current proposals.

Why does Oil & Gas UK prefer a Directive to Regulation?
A properly worded Directive would encourage member states which do not currently achieve the recognised high standards present in the North Sea, to do so in a way which blends with their established legislation. This would protect the existing strong safety regime in the UK, minimise disruption to operators and regulators and eliminate the additional risk that the Regulation presents.

What happens next?
Oil & Gas UK is encouraged by the fact that the UK Government is of the same position and has signalled its intention to oppose the Regulation in the best interests of safety. The draft legislation will now pass through the EU legislative process and will be voted on by both the European Council and European Parliament.

Critique of the European Commission Impact Assessment

In response to the European Commission’s impact assessment accompanying the proposal for a Regulation on offshore safety, industry (through Oil & Gas UK and the Norwegian Trade Association, OLF) commissioned two independent expert studies into the work undertaken. This work was carried out by GL Noble Denton and DNV respectively. Both the GL Noble Denton report and DNV report were strongly critical of the methodology, assumptions and data used by the Commission.

On 28 March and 2 May 2012 representatives from Oil & Gas UK and OLF (accompanied by representatives from GL Noble Denton and DNV) met with the Commission to discuss the differences between the three studies. Unfortunately, the peer review process failed to produce any explicit conclusions about the overall validity of the Commission, GL Noble Denton and DNV studies. Importantly however, it also did not conclusively refute or disprove any of the claims or conclusions made within the two independent studies presented by DNV and GL Noble Denton.

Both these studies conclude that the Commission Impact Assessment is fundamentally flawed and that it does not therefore support the justification for an EU wide Regulation. Indeed the studies also demonstrate (through the use of more advanced methodology and more appropriate data) that the costs of implementation of an EU-wide Regulation would disproportionately outweigh the benefits. This remains both Oil & Gas UK's and OLF's view  following the peer review process.

The full summary report of the peer review process is available by clicking here. The report reflects the views put across by the Commission, GL Noble Denton and DNV.  However, industry still believes that insufficient explanation or justification has been presented by the Commission on a number of aspects of their Impact Assessment. These aspects include, but are not limited to:

  • The Commission claim that the risk factor of a blowout would be reduced by 50 % upon implementation of the proposed new Regulation – this despite the fact that 90 % of European offshore oil and gas activity occurs in the North Sea, an area which is acknowledged by the Commission as having “amongst the best regulatory regimes in the world”;
  • The Commission’s assumption that the consequences of blowouts in the EC Impact Assessment are based on high flow, 50+ day events, similar to that of the Macondo incident. However, a survey of UKCS operators carried out in 2011 showed that of the current oil production wells only 54% flow naturally and only 22% flow naturally at a rate of more than 1000 barrels of oil per day (bopd), i.e. 2% of the Deepwater Horizon flow rate.
  • The use by the Commission (based on the Macondo incident) of a €30,000 million upper bound for the costs of a longer duration blowout event. This figure is considerably higher than what could be considered a representative cost for a longer duration blowout event in Europe.
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