Arctic offers test bed for cost-cutting global regulation

Regulatory regimes around the world should be aligned to reduce unnecessary cost and uncertainty for oil operators and help their suppliers comply with rules, according to a report by global certification company DNV GL.

The world's largest oil exploration firms are bringing different regulatory approaches to the Arctic. (Image credit: Leonello)

Related Articles

A global regime should combine prescriptive requirements, which set out minimum standards that must be met in all jurisdictions, with risk-based rules that take into account regional hazards, DNV GL said. 

The Norway-based company helps to develop rules, standards and guidelines for industrial risk management.

DNV GL argues that the Artic may be a natural next step for the harmonised international safety regime being implemented in the European Union, and notes that the offshore risk management systems in the North Sea Basin have been held up as best practices.

“The important thing is not to overburden the industry with competing and confusing regulations,” Graham Bennett, the vice president of DNV GL, told Upstream Intelligence.

“It’s critical to us that operators’ plans are aligned with the correct level of risk and that they’re not putting in protection systems or shut-down systems or barriers where they don't need to,” he said.

The impact of low prices on production margins has accelerated the need to avoid unnecessary equipment costs, for new fields and operational assets.

Source: International Association of Oil and Gas Producers

Best case

The EU has moved closer to harmonising regulation across states with its Offshore Safety Directive which was introduced to implement North Sea best practice across Europe. It follows the UK North Sea Safety Case Regulations which is to a great degree already in practice on mature shelves in the North Sea but has implications for less mature offshore operations further south, notably smaller producers like Romania, Croatia and Bulgaria.

The new directive includes requirements such as greater focus on environmental protection, additional public consultations under the Aarhus Convention, Major Hazard Reports for well operations, mandatory independent well examinations before start of operations and extended independent verification to cover both safety and environmentally critical elements.

One change is that for EU-headquartered operators the directive is also mandatory for projects outside EU waters.

According to Bennett, the minimum standards for globally adopted regulations do not all have to be drawn from European rules.

“There's a tendency to think that Europe has the best of everything, but what we're seeing across the world is good examples of regimes that could be merged to produce a more consistent environment that would promote safety,” he said.

One issue for European fields is the tendency towards excessive prescriptive regulation in response to disasters such as the Deepwater Horizon explosion in 2010.

“After that incident, understandably, the industry put a whole lot of new regulations in place: the EU for example wanted to put a lot of restrictions on BOP requirements in the UK North Sea, even though a lot of wells are actually on gas lift, so if you were to have to blowout, they would not flow naturally,” Bennett said.

“Nevertheless, the regulator had pressure from the public and the politicians to do something, and the knee-jerk reaction was to say that we want everybody to have this type of BOP – but that adds a huge amount of cost, and for an operation in late life it could force those assets into decommissioning early,” he added.

According to Kevin Lacy, a former senior vice president of BP and now executive vice president of the Petroskills training association, the Gulf of Mexico’s safety and environmental management framework, which was imposed after the Deepwater Horizon explosion, provided a minimal framework that all companies ought to be able to meet.

While the regulatory changes were overdue, some firms did not comply in the best way, Lacy told Upstream Intelligence.

“People have now started putting two BOP systems on their rigs because they’re concerned that they don’t work 100% of the time. And in many case people have not truly understood where to put their time and money,” he said.

If regulatory regimes are to converge, Lacy would favour the regulatory approach taken in Norway, but with a more rigorous framework and effective implementation.

“You need a hard edge to the conversations between regulator and companies and a sense of poacher and gamekeeper. Ultimately you can have a good framework, a highly evolved common culture and a well-resourced and competent regulator but you still rely on the company and its leadership in making the rules effective.”

Arctic explorers

One area where companies have had to rely on their own best practice rules is the Arctic,
where Shell, Statoil and Rosneft have begun exploratory drilling.

Bennett said the dangers of the Arctic would be an order of magnitude greater than the North Sea, itself a harsh environment.

“We have to work out how you evacuate a platform when it’s surrounded by ice and fog or low cloud means that it’s very difficult to get to there with a helicopter. And you’ve got very wide ranges of temperatures. You've got hydrocarbon fluids coming out of the ground that are hot and are coming through pipelines to the topside [where the temperature might be –30C°],” he said.

At present there is no unified regime in place in the Arctic, and in the case of Russian regulation, DNV GL’s report notes an over reliance on ad hoc “Project Specific Technical Specifications”.

Companies can apply these technical specifications based on foreign standards, following a review from Russian authorities.

To accelerate the process of establishing a common regulatory environment, DNV GL worked with Russian and Norwegian groups to produce the Barents 2020 report, which was a study of the best practices that could be conducted in the region.

Bennett points out that the need to produce standards in the Arctic remains urgent, even though the low oil price has slowed the pace of Arctic exploration.

“Shell are up there drilling and if they make a find they are going to say to the fabrication community, right, this is what we want – and there is a dearth of information available to a shipyard in China or Korea about how you build for Arctic conditions, so Shell and its drilling partners have to work out how they set the standards for the design and fabrication of the facilities that come in the production phase.”

Arctic regulation is complicated by the fact that a decision on how to calculate risk-based rules requires empirical evidence, which can only be gained after work has begun, Bennett added.

“It's a bit of a chicken and egg situation: we can sit in our offices and speculate about the difficulties of operating and we can try some standards and codes of practice, but until we start to develop some activity we'll never really know.”

Several nations with a stake in the Arctic region are working to improve their regulation:

• The US’ Alaskan industry, still reverberating from the Macondo disaster, is focused on advanced barrier management, and is continuing to recruit inspectors before implementing a goal-based regime.
Canada has the specific challenge of meeting the concerns of the Inuit population.
DNV GL’s report also says the “deficiency of infrastructure, price levels, a lack of regional and local interest, and uncertainties regarding the future political framework must be taken into account.”
Norway is looking to exploit its leading role in subsea technology, both to reduce its notoriously high cost base and to ease the regulatory burden.
Russia is a newcomer to offshore work, and its regulatory framework is fleshed out using “project specific technical specifications”– ad hoc rules that are based on foreign standards. DNV GL says Russian companies and regulators see the need for a more transparent and predictable regime, however the process of international cooperation is made problematic by the present sanctions regime.