Case Study in Successful Risk Management – The Oil and Gas Industry
in Norway
Some critical reflections
Terje Aven
University of Stavanger, Norway
Regulatory development – a thorny path or a freeway
What regulative approach should we choose?
Command and control
Self regulation
The regulations give general
requirements related to
• Risk assessments
• Risk acceptance criteria
• Risk reduction processes
o ALARP: Risk shall be reduced to a level that is As Low As Reasonably
Practicable
Challenge
Industry risk perspective is rather narrow and
compliance oriented
The regulator has a broader perspective
”Optimal
decision”
Risk analysis
Cost-benefit analyses
Risk acceptance criteria
Tolerability limits
Science
Management
Decision
Ethics, politics
”The formula ” risk
analysis
Risk description
• ------ P =1 x 10-4
What is acceptable
risk
This
approach
should be
used with
care !
Risk acceptance criteria
• ---------------- P < 0.1%
• ---------------- P < 0.01%
Balance
Development and protection
Take risk
Weight given to E
E[NPV], cost-benefit analyses
Reduce the risks
and uncertainties
Cautionary-precautionary
Risk acceptance criteria
E: Expected value
• RISK is more than computed probabilities
Challenge
Industry risk perspective is rather narrow and
compliance oriented
The regulator has a broader perspective
Risk perspective
Probability-based
Historical data
Industry
practice
+
Knowledge
dimension
+
Surprises
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»
For
Kahneman the
risk was
acceptable
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.
Risk perspective
+
+
Petroleum Safety Authority Norway
Main problems with the probability
based approach
John offers you a game:
throwing a die
• ”1,2,3,4,5”:
• ”6”:
6
-24
What is your risk?
(C,P):
• 6 5/6
• -24 1/6
Is based on an important
assumption – the die is fair
“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
Risk perspective
+
+
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
Black swans
a) Unknown
unknowns
b) Unknown
knowns
c) Known but not
believed to occur
because of low
judged probability
Extreme consequences
Aven (2014) Risk, surprises and black swans
Routledge
Challenge
Industry risk perspective is rather narrow and
compliance oriented
The regulator has a broader perspective
Implications for the implementation of the ALARP
principle
ALARP
• Risk shall be reduced to a level that is As Low As
Reasonably Practicable (ALARP)
Costs
Benefits
The burden of proof is
reversed.
A risk reducing
measure should be
implemented
provided it cannot
be demonstrated
that the costs are
grossly
disproportionate
relative to the gains
obtained
Balance
Development and protection
Take risk
Weight given to E
E[NPV], cost-benefit analyses
Reduce the risks
and uncertainties
ALARP
Cautionary-precautionary
Risk acceptance criteria
E: Expected value
Regulatory development – a thorny path or a freeway
What regulative approach should we choose?
Command and control
Self regulation
Challenge
Industry risk perspective is rather narrow and
compliance oriented
The regulator has a broader perspective
Project Norwegian Oil and Gas Association:
Preventing Major Accidents
Transfer of experience, building knowledge and expertise
A new perspective on how to understand,
assess and manage risk and the unforeseen
35
• Extra
Hansson and Aven (2014)
Risk description
Q
(A,C,U)
(C,U)
K
C’
Q: Measure of uncertainty (e.g. P)
K: Background knowledge
C’: Specific consequences
Probability
Consequence,
impact
Poor background knowledge
Medium strong background knowledge
Strong background knowledge
Cautionary principle
Faced with risks and uncertainties
caution shall be a ruling principle
Not execute an activity
Robustness
Defence in depth
Redundancy
ALARP
Precaution
…
Precautionary principle
If there is scientific uncertainty
related to the consequences …
All agree
Acceptable
risk
Risk analysis
Risk picture
Unacceptable
risk
A surprise for
some
Unknown
knowns
Not a
surprise
for
others
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-vurderingerog-anbefalinger-for-norsk-petroleumsvirksomhet-article788924.html
Disasters
• We experience combinations of conditions and
events which collectively result in a major
accident
A
B
C
D
• 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
45
How to confront the black swans
Knowledge
Risk assessments
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.