Summary

In the Outer Continental Shelf Lands Act (OCSLA),1 Congress directs the Secretary of the Interior to regulate oil and gas development activities in federal waters. The act mandates that the Secretary2

shall require, on all new drilling and production operations and, wherever practicable, on existing operations, the use of the best available and safest technologies which the Secretary determines to be economically feasible, wherever failure of equipment would have a significant effect on safety, health, or the environment, except where the Secretary determines that the incremental benefits are clearly insufficient to justify the incremental costs of utilizing such technologies.

In the aftermath of the Macondo well blowout and Deepwater Horizon explosion in 2010, the Department of the Interior (DOI) sought to improve the approach it uses for implementing the mandate for best available and safest technologies (BAST).3 Accordingly, the director of the Bureau of Safety and Environmental Enforcement (BSEE)4 asked the National Academy of Engineering and the National Research Council to form a committee that would provide a range of options for improving the implementation of BAST. The committee was also asked to review options and issues that BSEE is already considering. However, the committee was not asked either to recommend a specific BAST implementation approach or to carry out an in-depth evaluation of BSEE’s past BAST approach. On the basis of conversations with the sponsor at its first meeting, the committee considered the specific options listed in its statement of task to be illustrative of the complexity of BAST implementation and not to define

________________

143 U.S.C. Sec. 1331 ff.

2The mandate, carried in amendments to the OCSLA enacted on September 18, 1978 (P.L. 95-372), is also directed to the secretary of the department in which the Coast Guard is operating.

3The Technology Assessment and Research Program was established by DOI in the 1970s to ensure that industry operations on the outer continental shelf incorporated the use of BAST.

4On October 1, 2011, BSEE became the federal entity within DOI responsible for safety and environmental oversight of internal processes of offshore oil and gas operations.



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Summary In the Outer Continental Shelf Lands Act (OCSLA),1 Congress directs the Secretary of the Interior to regulate oil and gas development activities in federal waters. The act mandates that the Secretary2 shall require, on all new drilling and production operations and, wherever practicable, on existing operations, the use of the best available and safest technologies which the Secretary determines to be economically feasible, wherever failure of equipment would have a significant effect on safety, health, or the environment, except where the Secretary determines that the incremental benefits are clearly insufficient to justify the incremental costs of utilizing such technologies. In the aftermath of the Macondo well blowout and Deepwater Horizon explosion in 2010, the Department of the Interior (DOI) sought to improve the approach it uses for implementing the mandate for best available and safest technologies (BAST).3 Accordingly, the director of the Bureau of Safety and Environmental Enforcement (BSEE)4 asked the National Academy of Engineer- ing and the National Research Council to form a committee that would provide a range of options for improving the implementation of BAST. The committee was also asked to review options and issues that BSEE is already considering. However, the committee was not asked either to recommend a specific BAST implementation approach or to carry out an in-depth evaluation of BSEE’s past BAST approach. On the basis of conversations with the sponsor at its first meet- ing, the committee considered the specific options listed in its statement of task to be illustrative of the complexity of BAST implementation and not to define 1 43 U.S.C. Sec. 1331 ff. 2 The mandate, carried in amendments to the OCSLA enacted on September 18, 1978 (P.L. 95-372), is also directed to the secretary of the department in which the Coast Guard is operating. 3 The Technology Assessment and Research Program was established by DOI in the 1970s to ensure that industry operations on the outer continental shelf incorporated the use of BAST. 4 On October 1, 2011, BSEE became the federal entity within DOI responsible for safety and environmental oversight of internal processes of offshore oil and gas opera- tions. 3

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4 Best Available & Safest Technologies for Offshore Oil & Gas Operations the set of topics to be considered in its report. Therefore, the committee used its discretion within the parameters of its scope of work to focus on the set of op- tions to be discussed fully and analyzed within its report. The committee princi- pally focused on developing options with regard to BSEE’s plans for an inde- pendent Ocean Energy Safety Institute (OESI), which would provide technical support for BAST implementation (see discussion later in the text). General plans for OESI were outlined by BSEE officials at the committee’s first meet- ing. In the summary, the committee provides several recommendations for BSEE to consider in developing a basis for effective BAST implementation re- gardless of how it decides to carry out its mandate. They are amplified and ex- panded in the chapters. IDENTIFICATION OF TECHNOLOGIES Candidate technologies5 for BAST can come from many sources, the ma- jor one being the offshore oil and gas industry. Discoveries of deepwater hydro- carbon reservoirs, favorable economics of high-producing deepwater wells, and the advancement of field-ready deepwater-capable technologies help drive ex- ploration and development activities in deepwater basins. The offshore drilling and production environment poses technical challenges, which become more demanding as activities move into deep water or formations involving high pres- sures or high temperatures or into harsh environments such as the Arctic. As technologies mature, industry competition drives novel technology into use, creating an inherent “push” dynamic of new candidate technologies, including those enhancing mechanical integrity and consequently improving safety. Thus, many of the innovations eventually providing BAST candidates are inevitably motivated by R&D efforts in pursuit of improved mechanical integrity and productivity gains. Other factors that can give rise to BAST candidates include a robust safety reporting system that documents incidents (near misses) as well as accidents, the identification of the potential impacts of human error, and risk assessments. Such factors provide “technology pull” by highlighting areas where candidate technologies would materially improve safety in outer continental shelf opera- tions. Given the variety of factors, the committee believes that a portfolio of efforts is needed by BSEE to find and solicit advances in candidate technologies and to provide leadership and support for safety-related research within industry. 5 The committee interpreted “technology” broadly to encompass not only equipment directly involved in drilling and operating wells but also support systems (e.g., marine systems), safety systems (e.g., explosive gas detectors and blind shear rams), control and display systems (e.g., real-time operations centers), and human factors considerations.

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Summary 5 EVALUATION OF TECHNOLOGIES BSEE’s evaluation of BAST candidates will need to consider the overall complexity of the entire engineered system in which the technologies will be used and the interactions of system components, humans, and the geologic envi- ronment in which the engineered system operates. The behavior of complex systems is generally harder to predict than is that of an individual component before it is integrated into the system. Altering one or more components of a complex system can have unintended consequences that result in reduced relia- bility or failures elsewhere. Although many engineering reliability and risk analysis methods have been developed to help anticipate and reduce failure risks in technological systems, none completely overcomes the complexity and uncer- tainty inherent in managing new technology risks in oil and gas exploration and production. In addition, current technology cannot fully or accurately predict all geologic aspects. Therefore, important uncertainties will inevitably remain in characterizing the offshore environment and the performance of technologies deployed in that environment. ECONOMIC ANALYSES Assessments of the economic impacts of implementing BAST necessarily consider costs associated with candidate technology acquisition and sustainment (operations and maintenance) and the potential costs of disruptions to drilling and production operations that may be caused by the introduction of immature technologies or technologies not fit for their intended purpose. The latter con- cern is raised often by industry. Although the BAST mandate does not require quantitative benefit–cost as- sessments, the Secretary of the Interior may choose to undertake such an as- sessment to compare the incremental benefits with the incremental cost of im- plementing the technology. Benefits may include reduced accident probabilities, improved accident impact mitigation, and any ancillary benefits associated with the new technology (such as a reduction in unplanned outages). The committee notes the extreme difficulty of constructing quantitative estimates of reductions in the likelihood of an offshore accident or likely reductions in their severity as the result of a safer technology installation. The scarcity of data with regard to low-probability and high-impact offshore accidents makes it exceptionally diffi- cult to quantify risks and thereby ascribe dollar values to safety technologies. TECHNOLOGY DEVELOPMENT AND MATURATION In funding new offshore technology research, the federal government in- vests on behalf of the public, and industry invests on behalf of its shareholders. While federal funding comes from many sources, the total has been, and proba- bly will continue to be, limited in comparison with that of industry. These budg-

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6 Best Available & Safest Technologies for Offshore Oil & Gas Operations et levels lend themselves more to basic research, where the costs are modest compared with those required to mature engineered systems for deployment, and there can be great leverage in funding early and basic technology development. In carrying out its BAST responsibilities, BSEE should consider the acquisition and maintenance of an in-depth understanding of existing in- dustry and government capabilities for development, evaluation, and test- ing of technologies to be a priority (Recommendation 1). Resources in indus- try, government, and academia as well as joint and international facilities need to be assessed. A census of these capabilities will include what exists, who has access to it, what organizations and people have the knowledge and skills to carry out testing and development activities, and where the gaps are. BSEE could then knowledgeably set priorities between basic and applied research and steer funding toward BAST research that can have the greatest impact. The Secretary of the Interior will make the final determination that a spe- cific technology meets the requirements for BAST and mandate its use. Howev- er, a strong business case for the adoption of new safety technologies could re- sult in a greater industry focus on technologies for BAST and shorten their development and deployment times. Although industry may develop a busi- ness case for potential technologies, including those considered for BAST, BSEE should consider using legislative or regulatory incentives (see Chap- ter 3) to speed the deployment of new safety technologies (Recommendation 2). PERSONNEL SKILLS AND EXPERIENCE Building new and necessary competencies within BSEE will be an enor- mous challenge. Historically, BSEE has relied heavily on operating and service companies to perform the bulk of the technical work associated with the devel- opment of new offshore exploration and production capabilities. As BSEE’s approach to BAST implementation evolves, it will need access to staff and oth- ers with knowledge of and experience with the specific systems and technolo- gies being developed, as well as a working knowledge of how they are incorpo- rated into the complex systems used offshore. For both the technology assessments and the economic analyses, BSEE will need to obtain senior staff with the requisite skills for understanding the complexities and uncertainties and the ability to communicate them effectively to senior DOI officials. BSEE has embarked on an aggressive hiring and training campaign in the past 2 years, but it cannot realistically be expected to match industry in technical depth or breadth. Compensation limits imposed by the federal government will make it difficult to compete with industry for the best graduates and experienced staff. However, BSEE can take advantage of industry expertise in many alterna- tive ways (see Chapter 4). In view of the challenges associated with technolo- gy assessments and economic analyses and of the role played by expert judgments, BSEE should seek access to the requisite expertise, including a

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Summary 7 multidisciplinary group of individuals with economic, engineering, and sci- entific skills; access to experts with unique technical skills; and the ability to request independent reviews (Recommendation 3). OCEAN ENERGY SAFETY INSTITUTE In May 2013, BSEE announced a competitive request-for-proposal pro- cess to establish an independent OESI to enhance safe and responsible opera- tions across the offshore oil and gas industry. OESI is intended to be used to support technology assessment and facilitate BSEE’s implementation of BAST. The committee considers OESI to be a suitable vehicle for supporting BSEE by identifying, evaluating, and maturing new technologies that would materially improve offshore operations safety. If properly organized, staffed, and supported, OESI could go a long way toward solving problems associated with a government agency competing with industry for top talent and expertise. While the direction proposed in the BSEE announcement of OESI is good, the scale and structure of the institute identified in the solicitation will need to be significantly expanded to address fully the challenges posed offshore. With in- dustry spending several billion dollars per year on drilling, development, and production activities, technology moves ahead constantly. OESI could be an important adjunct to BSEE, providing knowledgeable, independent assessments of safety-related technology maturity, suitability (fitness for purpose), and cost. OESI could serve BSEE as a competent, trusted, conflict-free agent if it is given the appropriate resources. Alternative Structures Structural options used at the federal level to perform functions not dissimi- lar to OESI are the federally funded research and development center (FFRDC), the university-affiliated research center (UARC), and grants. An FFRDC can re- cruit personnel whose skills and commensurate market value place them out of reach of the civil service pay structure. It also provides long-term technical conti- nuity for the agency. The primary disadvantage of an FFRDC is that it requires some degree of annual funding stability. A UARC is a government research center that operates similarly to an FFRDC, but with management provided by a univer- sity. A UARC has education as an important part of its charter. The advantages of a UARC are essentially the same as those of an FFRDC. Its most significant dis- advantage is the potential conflict between educational interests and the near-term needs of the sponsoring federal agency. Grants provide a means for an organiza- tion to have requested services performed over a set time period. Grantees are usu- ally selected as a result of a competitive bidding process in response to a grantor’s proposal solicitation. A university, a nonprofit organization, or a commercial enti- ty can receive a grant.

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8 Best Available & Safest Technologies for Offshore Oil & Gas Operations The committee is supportive of the initial formation of OESI through a grant process. However, the initial funding is limited and will severely restrict what can be accomplished in the near term. As initially described, OESI does not allow for the creation and growth of the institutional knowledge and memory that will be required to steer and promote the necessary BAST development. A technical core within OESI will be needed that follows industry developments over many years and is able to recognize and respond to trends and develop- ments in a timely manner. The regular recompeting of OESI would make this difficult, since it conflicts with the objective of growing a stable core of tech- nical and managerial expertise. BSEE should consider expanding OESI’s charter to allow it to evolve into an FFRDC or a UARC, since such a struc- ture would provide a more stable approach and foundation for long-term operation (Recommendation 4). With any of these options, a governance board will likely be not only desirable but also necessary, and the quality of the board will likely determine the organization’s effectiveness, regardless of structure. Inclusion of representation from BSEE and other parts of DOI, industry, aca- demia, and standards organizations would be important for the board. The board would be responsible for identifying opportunities for testing and research and for setting priorities and recommending funding levels associated with the activ- ities of the institute. In addition to the governing board, a research committee, chaired by the lead scientist or engineer of OESI, could be an important vehicle for steering the technical resources of the institute and maintaining relationships with industry and other government agencies (see Chapter 4). Funding Levels BSEE indicated in its proposal announcement that up to $5 million will be made available over 5 years to launch OESI. The committee believes that this funding level is not adequate for producing meaningful BAST results other than planning and that it could limit the ability to attract and retain key personnel. BSEE should consider OESI structures that facilitate the retention of knowledge and experience (Recommendation 5). On the basis of consideration of similar past efforts with regard to technology identification and assessment (as evidenced by existing FFRDCs and UARCs), OESI will face key challenges that are typical at the start-up of this type of organization. It will need a funding commitment that is consistently in the range of several million dollars per year to attract and grow the skills and competencies required, to monitor and keep pace with industry technology developments, and to shape and support as neces- sary the research programs to assess and mature beneficial technologies. Location A body of knowledge and experience is available to a nascent OESI, largely developed within the oil and gas industry and nurtured within the tech-

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Summary 9 nical departments of operating companies, service companies, and equipment manufacturers. The geographic center of this industry is in the greater Hou- ston area along the Texas Gulf Coast. BSEE should consider locating OESI in that area to encourage the free flow of technology from industry to the institute and to afford access to the large pool of industry retirees, who could form a cadre of institute employees and consultants (Recommendation 6). This would also facilitate temporary assignment of industry personnel to OESI (and vice versa) for technology transfer purposes and the growth of broad OESI capabilities, including those necessary to aid BSEE in implementation of BAST. TESTING FACILITIES Because of the size and complexity of many systems that would incorpo- rate BAST, facilities for testing BAST before deployment offshore tend to be large and costly. Hence, the efficient and effective use of existing capabilities is important to industry in minimizing the costs of proving that a BAST candidate is ready to be deployed offshore. BSEE should consider creating and main- taining a compendium of worldwide test facilities for determining where best to test introductions into the BAST family (Recommendation 7). Such a compendium can be created effectively through international cooperation and agreement on how these facilities can be used. It would need to include such items as capabilities, potential effectiveness, location, and availability and to be periodically updated. The effort could begin by creating the U.S. portion of the compendium for use by U.S. industry, and BSEE could take the lead in promot- ing the implied international cooperation. The compendium process should pro- actively seek and discuss industry test plans to exploit opportunities for using these facilities more effectively for BAST introduction. This approach could also identify alternative courses of action with regard to the effective use of ex- isting facilities in the United States or overseas and the development of industry- or government-sponsored facilities and complement the current company-centric approach. Any such review of suitable facilities should identify the staff with the expertise to use them. CHIEF ENGINEER Complementary to the establishment of OESI, BSEE should consider hiring a highly reputable chief engineer or chief scientist with technical ex- pertise in offshore drilling, exploration, and production to work within the bureau (Recommendation 8). BSEE currently has limited technical staff sepa- rate from those with regulatory and oversight responsibilities. BSEE needs to have a small number of technical staff, supervised by a trained and experienced engineer of the caliber of the chief engineer within an operating or service com- pany, who can interface with OESI, understand technologies and their applica-

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10 Best Available & Safest Technologies for Offshore Oil & Gas Operations tions, interface with his or her counterparts within industry, and provide critical judgment of industry plans and activities to senior and management staff within BSEE and DOI. PARTICIPATION OF STAKEHOLDERS In BAST implementation, many challenges will arise in creating the struc- tures and conditions that will reliably bring the best technologies to the attention of both operators and the regulator and allow the regulator to assess fully the net benefits of applying these technologies in offshore operations. To make in- formed decisions, BSEE needs to understand the concerns of a range of organi- zations and individuals with regard to the decisions being made. BSEE should foster the meaningful involvement of all stakeholders, including industry, environmental organizations, and members of the gen- eral public, in providing input to OESI management on long- and short- term areas of focus of its initiatives (Recommendation 9).