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Preventing major offshore accidents in Europe

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Since the tragic Deepwater Horizon accident, offshore safety has been high on the agenda of the European Union. After intensive negotiations lasting more than a year, the EU has published new legislation on the safety of offshore oil and gas operations. “Our aim is to reduce the risk of major accidents and their environmental consequences throughout the entire lifecycle of offshore exploration and production,” says Eero Ailio, Deputy Head of Unit Retail Markets, Coal and Oil at the European Commission. He has been instrumental in the process towards the new directive

Why did the EU find the need for a new directive on offshore safety?
The Deepwater Horizon explosion in 2010 was a wakeup call for the industry, the regulators and society at large on the mismatch between the reality and ambitions of the offshore industry (perhaps also of some regulators) on the one hand and the state of preparedness, risk awareness and management on the other. Statistics from the UK and Norway showed a plateauing of risk reductions relating to major hazards, and both the UK Health & Safety Executive and the Norwegian Petroleum Safety Authority reported that the industry was not meeting its safety targets. Meanwhile smaller companies were and are taking over mature assets and new exploration in the traditional regions. The majors are heading increasingly for frontierareas, be it in the northern Atlantic or the Mediterranean, where there is little cumulative operational experience, including for emergency response to a major accident. At the same time, societal tolerance for environmental damage reached an all-time low.

The need for a coherent EU-wide legal framework based on global best practices was the result of an impact assessment complemented by public consultation and hearings with a large number of stakeholders. In the EU, offshore activities are framed by highly divergent national solutions of varying levels of stringency based on an EU drilling safety directive from 1991 applying to all minerals and on- and offshore. In addition, the directive (92/91/EEC) does not reflect current best regulatory practices for major accident prevention, nor does it address environmental consequences of a major accident. The Seveso Directive, which does integrate safety and environmental consequences, is directed at onshore sites holding threshold quantities of dangerous substances. This patchwork approach is no longer considered adequate to manage risks of cross-border pollution in a globally mobile industry. 

What was the process towards the final directive? 

Following the consultations and impact assessments led by the Commission, a proposal for a Regulation was adopted in October 2011. As a regulation, it would apply consistently and equally to all Member States and directly upon the industry. This proposalthen fell subject to the ordinary EU legislative procedure whereby the Council of the Member States and the European Parliament act as co-legislators. The Council debated the proposal and the Cypriot Presidency drafted a directive form of the legislation. The work was completed under the Irish Presidency. The Parliament worked through its Committees, with the lead given to the Industry Transport and Energy Committee. The Parliament and Council came together to negotiate the final stages in December 2012. Following formal adoption in both Parliament and Council, it was signed in Strasbourg on 12 June 2013. Directive 2013/30/EU entered into force on 18 July 2013.

Why was this made as a directive and not as a regulation? What does this mean in practice for the individual Member State?

The key Member States and the European Parliament committees preferred to turn the proposal from a directly applicable regulation into a directive. In practice, this transfers the burden to the Member State to table national legislation or other adequate legal measures to implement the EU law. In particular, the directive only applies to Member States – it has no bearing on industry until transposed into national law by the Member State. It also changes the administrative burden between individual Member States. This means that land-locked Member States such as Austria will have to transpose into national legislation, measures in the directive that apply to overseas operators that are or may in the future be domiciled in their jurisdictions. This also applies to non-active coastal Member States such as Sweden, as well as requiring such Member States to transpose duties to cooperate with offshore-active neighbours in emergency response planning.

What is the implementation timeframe?

Member States need to transpose into national law by 19 July 2015, while industry needs to adapt to the new standards by July 2016 for planned operations and July 2018 for existing operations.

To what extent has the new directive been built on existing regulations from other major oil and gas countries?

The approach has been to level up standards to industry and regulators’ global best practices for the prevention of major offshore accidents. There is no intention to experiment with new, untested approaches. The directive advocates the goal-setting regulatory philosophy adopted first by the North Sea countries. As regards the contents, they build on existing best practices at times improved by the latest recommendations supported by a general stakeholder consensus. Often these derive from the North Sea practices; however, there are elements from other countries such as Italy.

How has the directive been received in the EU?

Apart from changing the legal form to a directive, the substance of the original proposal was largely unchanged by the negotiations between the co-legislators, and the changes have been mostly to clarify or strengthen the original drafting. The need for the EU to act and the substance of the law has been well received by the Member States and most stakeholders, including from the global trade associations. The main industry associations focused their energy on legal issues during negotiations in 2012, notably for a directive. In contrast, individual oil and gas companies and the IADC have supported us e.g. in promoting the goal-setting approach (via the safety case) and promoting greater transparency of industry performance. During the process, the trade unions became more positively engaged on issues such as workforce consultation, while the NGOs were perhaps the most ambitious in terms of their expectations from the proposal.

For experienced oil and gas countries such as the UK and Denmark; how will this impact their existing regulation?

The foundations will remain (risk-based, goal-setting philosophy) but there are changes in the small print. For instance, the ‘safety case’ in the UK and Denmark (the formal demonstration that all major accident risks for a particular installation are adequately controlled) will need to address containing a blow-out on an evacuated installation, such as on Elgin last year. Also, both countries need to establish a single competent authority for safety and the environment protected from conflicts of interest that could arise if its staff were to engage both in safety and in licensing or economic promotion of offshore oil and gas activities. In the Netherlands, the regulator will have to formally ‘accept’ the safety case (in the directive referred to as a report on major hazards (RoMH). A further change (to all Member States) is the adoption of a common accident reporting format to allow comparing data between the Member States. This has been an unrequited ambition of both the North Sea Offshore Authorities Forum and International Regulators Forum, which are prominent but informal groups of offshore safety regulators.

Norwegian authorities have stated the directive does not affect them. What is the Commission’s view on this?

The EU has adopted this directive as being EEA relevant. This issue will be discussed and hopefully a solution found in the EEA governing bodies in due course. The approach in the directive has a lot in common at least with its Norwegian counterpart. This is perhaps not surprising since Norway has participated in the process from its early days.

The directive requires the application of independent verification. How will the Commission ensure that verifiers are both sufficiently competent and independent of design and operations?

The directive does indeed foresee independent verification as a necessary assurance system for the operator. The responsibility for ensuring the independence lies with the operator, whose actions are overseen by national regulators. As a goalsetting instrument, the directive lays out the necessary tests of independence and the fundamental features of the schemes for verification of safety and environmentally critical elements and for well design. There will be no statutory lists of verifiers that, provided they meet the independence criteria, could be 2nd or 3rd party entities. The question of what is the most suitable verification scheme needs to be tackled installation by installation.

The Commission has been increasingly involved in offshore safety. After the launch of the directive, what other initiatives will the Commission carry out to assist or enhance safety in the industry?

The directive foresees a number of areas for further work and for reporting back to Member States and Parliament at various times during the next two years. These include the effectiveness of existing civil liability mechanisms and whether they can be broadened or enhanced; the availability of financial security instruments and compensation schemes; whether to make certain breaches of duty relating to environmental damage a criminal offence; the development of common reporting formats(in effect adding details to the provisions in the directive); the state of ‘best practice’ by Member States following transposition of the directive into national law; and the means for making sufficient technical capacity available to Member States for carrying out their functions under the directive. It is too early to say what will be the deliverables – if any – on these topics.

Could you expand upon the definition of a nonproduction facility as outlined in the directive? Which types of units are covered by this definition?

This will be addressed by Member States during transposition. However, it could probably be said that they are installations that do not produce (‘win and save’) hydrocarbons. Member States could, in their national law, take the approach of the most robust regulators such as Norway and the UK. One could envisage such facilities being interpreted as those stationed for the purposes of conducting well operations, providing accommodation, and so on. Member States could also want to give early clarity to such things as ‘connected infrastructure’ (defined in the directive) when looking at multi-installation complexes, where accommodation and production functions are on separate installations.

How will operators demonstrate they have sufficient financial capacity to cover any potential remediation?

There is no standard reply to these questions since the individual cases vary widely. The Deepwater Horizon disaster demonstrated that few companies could cover the ultimate losses of an extreme major accident, and that the market does not provide such levels of cover. In addition, the directive is consistently a goal-setting instrument and the financial capacity aspects need to be assessed in the light of the risks of the project under consideration. What the directive does is to ensure that the matter is dealt with robustly at the licensing stages, that the full cost of emergency response and environmental remediation is considered, and that sufficient capacity is available throughout the lifecycle of the operations. Member States are also asked to facilitate the deployment of sustainable financial instruments in their jurisdictions and to promptly handle compensation claims for economic losses. As said above, the Commission is being asked to report back to the EU with some further thinking on the financial liability and security aspects.

The directive places expectations on operators to apply the MAPP requirements to their operations outside Europe. How will this be monitored?

The Major Accident Prevention Policy is indeed a pre-condition for operations in an EU Member State. The provision of a MAPP allows Member States to scrutinise the operator’s commitment to apply a single standard to all its operations worldwide. In the EU, this will be monitored by the competent authority in each Member State, the ones who meet each other in the recently established EU Offshore Authorities Group. Outside the EU, these regulations will, as a minimum, be based on self-regulation and the watchful eye of society. However, it is to be expected that operators and rig owners will take this transparent statement of their global policy extremely seriously. Where it might be claimed that some aspects of the policy cannot be applied in some non-EU jurisdictions, the directive requires this to be made clear in the policy statement.