Advancing Understanding of Offshore Oil and Gas Systemic Risk in the U.S. Gulf of Mexico Current State and Safety Reforms Since the Macondo Well–Deepwater Horizon Blowout (2023) / Chapter Skim
Currently Skimming:
5 Incentives of the Offshore Oil and Gas Industry Regulatory Structure
5 Incentives of the Offshore Oil and Gas Industry Regulatory Structure
Pages 139-152
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From page 139... ...
In the third section, we offer conclusions about how the incentives for systemic safety risk management that these different types of regulations provide affect systemic risk, and how these incentives sometimes conflict. REGULATORY FRAMEWORK Many discussions about regulations and how they motivate regulatory and private industry behavior use the dichotomy of "prescriptive" versus "performance" regulation to distinguish types, but the authors of the Designing Safety Regulations report show that there is considerable 139
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From page 140... ...
The 2018 TRB report also points out that the regulatory structure of most hazardous industries includes multiple types of regulations, which can give industries different and sometimes conflicting incentives, as described later (NASEM, 2018)
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From page 141... ...
Regarding micro-means design and specification standards, BSEE regulations incorporate more than 125 standards developed by standards organizations such as the American National Standards Institute, the American Petroleum Institute, and others that cover topics as diverse as design of fixed and floating platforms; component piping design; inspection, maintenance, and testing; and so forth.2 Many of these are micro-means regulations. On its face, the requirement in the Outer Continental Shelf Lands Act (OCSLA)
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From page 142... ...
. There are also a number of micro-ends regulations that require components or designs to meet more general requirements, such as platforms and related structures that must be designed to ensure structural integrity for the specific environmental conditions where the structures will be used.4 Other examples include welding that must be done to ensure resistance to sulfide cracking5 and provisions in the WCR that require casing and cementing programs to use "adequate centralization." Macro-means SEMS would be the primary example of this regulatory type in the United States, as described above.
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From page 143... ...
For regulators who perceive their responsibility as one of strictly enforcing prescriptive regulations and penalizing operators who do not fully comply, such regulations provide precise requirements that will stand up in court. Similarly, for companies that approach safety with a compliance mentality, prescriptive regulations give them specific guidance, although this is mostly limited to equipment and certain operating and testing procedures.
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From page 144... ...
Thus, micro-means regulations TABLE 5-2 Micro-means ("Prescriptive") Regulations Advantages Disadvantages • Establish minimum standards for • Standards difficult and cumbersome to preventing equipment failures and revise as knowledge improves; unsafe practices; • Suffer from "least common • Preferred by those companies that want denominator" problem in consensus to be told what to do to comply and/or standards; lack resources for more complex process • Do not give companies flexibility to safety assessments; achieve equal or higher level of safety at • Suited to industries made up of equal or lower cost; companies of similar scale and • May discourage or interfere with resources; innovation; • Lend themselves to efficient inspections • Promote a "compliance mentality" on with clear demarcation between the part of both operators and regulators compliance and noncompliance; who can equate compliance with safety; • Enforceable by current inspector • Legalistic preference for simple standards workforce; and rules can deter efforts to manage • Provide clear boundaries in establishing safety beyond minimum requirements; liability; • Not well suited to situations where • Work well when risks are well known, risks vary or are not well known and unchanging, and subject to technical technologies are evolving fairly fast; mitigation.
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From page 145... ...
TABLE 5-3 Micro-ends ("Performance") Regulations Advantages Disadvantages • Potentially closer to goal of public concern • Specific levels or goals to be obtained for safety; can be difficult to establish; • Provide flexibility and cost-efficiency in • Can be difficult and costly to monitor; achieving ultimate goal; available metrics may be insufficiently • Work well for components to ensure that reliable or too distant from the source their operation stays within design limits; of risk; • May encourage technological innovation to • Metrics inappropriately chosen may achieve results more cost-effectively.
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From page 146... ...
among documents before implementation (as in operators to reduce safety risks; the North Sea) can impose large burden on • Suited to systemic risks associated regulator, but lack of review by regulator with complex interactions of hazards, (as in the United States)
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From page 147... ...
. As the 2021 NASEM report on BSEE's inspection program notes, BSEE has expressed aspirations to reorient its inspection activities to be more capable and more focused on enhancing safety through SEMS and other means, but, to date, "BSEE has shown limited ability to adapt its personnel and resource deployments" to this task (NASEM, 2021, p.
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From page 148... ...
Moreover, given the rarity of major disasters, some top executives may believe that liability caps in federal legislation, insurance, or bankruptcy are sufficient corporate hedging strategies should a disaster occur, thereby blunting the otherwise TABLE 5-5 Macro-ends (General Duty or Liability) Regulations Advantages Disadvantages • Focus directly on ultimate ends; • Operators may underestimate rare • Can incentivize firms to address catastrophic risks or mistakenly hazards in the most systematic and believe that liability caps, insurance, or cost-effective manner and facilitate bankruptcy provide reasonable options innovation given absence of specific for corporate survival in case of disaster; requirements.
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From page 149... ...
In principle, if industry and BSEE together implement SEMS as intended, the incentives should foster greater at tention to identifying and managing systemic risks. Conclusion 5-3: The regulatory structure that applies offshore includes all four types of regulations, which do not always align and sometimes conflict.
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From page 150... ...
BSEE, by operating through SafeOCS, has gone to great lengths to protect companies during the legal discovery process from being identified as the source of near-miss data. Nonetheless, although a few major companies representing 90 percent of offshore production now participate in the SafeOCS ISD program, it has required more than a decade to achieve this level of participation, and the results are only just beginning to be useful for systemic risk management.
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From page 151... ...
For operators with a culture of safety, this process could motivate continual improvement. Whether BSEE can be perceived by operators as a trusted partner in this process depends in part on how much BSEE is perceived as characterized by its policing and compliance role and by how much it is perceived as being insightful and capable of assisting in effectively managing systemic risk.
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From page 152... ...
2012. TRB Special Report 309: Evaluating the Ef fectiveness of Offshore Safety and Environmental Management Systems.
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