The promise of benefits, but also of risk
There is a plethora of articles, seminars and workshops available which discuss the digitisation (i.e. the process of converting information from a physical format into a digital one) of the oil, gas and petrochemicals sectors. There are many views on the benefits and how companies need to embrace the coming changes or be left behind. Some cite that the adoption of digitisation and associated technologies will release billions or trillions of dollars in efficiencies and new opportunities1, which, if this does occur, will be truly transformative for the sector.
Will the oil and gas industry lose out? According to the World Economic Forum, digitalisation (i.e. the process of leveraging digitisation to improve business processes) in the oil and gas sector could be worth between US$1.6 to US$2.5 trillion for the industry, its customers and wider society over the next decade2. As such, CEOs, CFOs and other senior management of operating companies are concerned that their organisations will either be excluded from, or not equipped to embrace the coming changes quickly enough to realise these benefits3. Furthermore, it appears that there is also a belief that a significant portion of the benefits will be from first-mover advantage. Hence, there is a desire to not only adopt the new technologies but to do so quickly.
Little debate on risks From all the discussion about the emerging digitisation technologies, there has been precious little discussion and debate about the potential risks to business by adoption of these digital enhancements. This may seem strange, as along with the quoted financial and efficiency benefits there are also statements that offer great hope in terms of improved health, safety and environment, not only for the workforce but also for local communities. This would indeed be a great outcome. How sure can we be that the industry is prepared? Loss record indicates grounds for improvement This is a point that is aptly demonstrated by the recent industry loss record. As shown in the market update section of this publication (Part 3), the sector is still experiencing high loss levels from operating facilities operating under current technology implementation levels. This would seem to suggest that the industry is not yet ready, or sufficiently mature, to take on new technologies without potential further increases, both in the size and number of loss events. Some would say that by implementing digital or autonomous systems the loss experience will improve; but again, how can this view be accepted when the risks have not been properly assessed?
Operating risk assessment: more attention and investments required So what are some of the risks that digitisation may bring to the process industries from an operational perspective? Some risks will be augmentations of currently well understood risks but there will also be completely new risks that have not yet appeared. In this article we will demonstrate, through some reflection of past experiences and postulation of potential future concerns, that more attention and investment is required to help identify and understand these risks before the industry is too far down the implementation path.
The oil and gas industry has always been a keen adopter of technology and innovations to further profitability and safety in the workplace, irrespective of sector (upstream, oil refining or petrochemicals). We have seen the introduction of:
The challenges remain All these innovations have improved the performance and profitability of facilities by their implementations. However, all have presented challenges in the implementation process which have taken time to iron out and embed.
The industry has a track record of adoption but also of somewhat “challenging” implementations. Therefore, caution needs to be taken when considering these new innovations, and given the potentially larger impact to the sector in comparison to those technologies listed above, the potential downside could be equally large.
Building on these past enhancements, the industry is now looking to a new set of technological innovations that will usher in increased profitability and efficiencies. These include:
The potential benefit of these and other changes have been discussed at length in other industry articles and will not be covered here. Suffice to say that the potential financial benefits signify a step-change that will assist operators remain profitable in an increasingly competitive environment.
A more interesting aspect of the new innovations, compared against past technologies, is that they fundamentally change the dynamic between people and the operating assets, moving them “further away” from the day-to-day operations. Many would say that removing humans from the chain of operational decisions and operational environment is a good thing, as it reduces their exposure to dangerous environments or reduces the potential for inefficient decisions being made. And in many cases they would be correct.
However, reducing the interaction of people with the operating assets has several consequences that need to be clearly understood as part of adoption programmes, such as:
These are interesting questions that need answering and each in their own way illustrate a fundamental change in the industry risk landscape that needs to be better understood. For example, will the development and use of process control simulators be undertaken with the same level of intensity as the associated new technology implementations?
Traditional risks such as fires, explosions, machinery breakdowns and toxic releases will still be present in the sector as adoption of new technologies takes hold. As has been indicated, many of these new technologies will actually improve risk profiles. However, there are some real heightened risks that will develop as well, such as:
Risk #1 - speed of adoption The desire to move quickly on new technology adoption is a key concern given the complexity within the industry and high potential impact if things go wrong. There are well established industry procedures such and Management of Change (MoC) that have been designed to consider changes and the risks these changes can introduce. However, these procedures are time-consuming and could be viewed as a barrier to early adoption. This view could be considered alarmist, but there is some precedent for this concern.
Case Study #1: introduction of electronic PTW system During the process of introducing a new electronic Permit to Work (PTW) system, a petrochemical company had set a tight deadline to complete implementations in all their facilities. As such, individual facilities were given the basic system that covered the hot and cold permits but did not include associated certificates. Furthermore, there was very little support provided to the operations personnel following the two-week introduction period as the project team needed to move to the next location. This resulted in shift personnel unsure of how to implement specific tasks and various metrics such as approvals and closures were not being appropriately controlled and recorded. The industry must make sure that due time and consideration is given to risk development. Pauses in implementations are required to thoroughly identify and evaluate risks, emerging or otherwise, and should be seen as a benefit to the overall implementation and system resilience, not a barrier. Furthermore, sufficient time needs to be allocated for full implementation of new systems.
Risk #2 - transition control and management Like any change activities, the control and management of the transition period from existing to future operating state is a key area where risks to operations can develop. So it is critical that this aspect of a change process is managed closely, to ensure that risks are identified and controlled before they become damaging. Again, the MoC procedure is an effective means of understanding and evaluating potential risks prior to implementing changes. However, sometimes companies forget to use their own governance process while implementing change.
Case Study #2: organizational changes A company introduced several organisational changes that significantly changed the number of employees and introduced some structural organisational adjustment changes at their facility (key factors when implementing digitisation technology). There was a comprehensive management of changes (MoC) procedure that included a section that covered organisational and personnel changes. However, they did not use this procedure and as such were not in full control over their transition risks. When senior management became aware of this, the process was halted and appropriate MoCs were implemented.
Risk #3 - personnel skills and knowledge Personnel roles and responsibilities are interlinked to technology innovations in two main ways. Digital technology implementations will either replace some of the tasks currently being performed by people, thereby adjusting facility job roles and numbers; or it will fill a gap where organisations cannot find suitably skilled personnel. Either way, through “Future of Work” (FoW) initiatives, which have had as much press as digitisation, employee roles may be re-structured. In the operations arena, changes in roles and responsibilities are an important aspect of the overall risk environment. Currently there are well-established job functions in operating facilities along with a high level of awareness as to what responsibilities these roles have. In making changes that are suggested by FoW to take advantage of digitisation, many of these well-established roles will change significantly. If this change is not handled carefully, with significant time and resources employed in re-training, then errors will occur and will likely lead to increases in loss events. Case Study #3: new organisational structure A company introduced a new organisational structure within their operating facilities to take advantage of new technology and reduce costs. This process removed the need for a senior layer of the operational shift team. However, the risks from the move were not fully understood, and the changes led to an increase in accidents. The change was then reversed.
Cyber Many of the risks that will emerge from industry digitisation are currently unknown but one that is very much in the minds of senior management is cyber. This risk has emerged in the form of non-damage impacts to operating facilities, alongside situations where cyber threats trigger more traditional industry hazards (e.g. fire and explosion). It is still early days, as significant work still needs to be carried out to identify credible paths of how both these risk types lead to operational impacts. Once these paths have been identified, the industry can then consider suitable preventive and mitigation measures. Until this happens, increasing the level of digitisation beyond current levels seems somewhat premature. Error detection Another risk that may not be an immediate concern, but given the direction of travel will become more important as automation increases, is error detection and the intervention procedure to apply the appropriate corrective actions. There are cases from other industry sectors where automation implementation is somewhat more advanced, where the lack of error detection resulted in major loss events. These include financial markets where underlying algorithms of automated trading platforms have reacted in unintentional ways to data input, resulting in significant financial losses. Also, in the commercial airlines business there are autopilot systems that have not recognised faulty instrument measurements, resulting in incorrect course corrections and accidents. It is acknowledged that these type of events are not common which illustrates that the automated systems can work well most of the time, but when they go wrong they do so in a big way, much like what is possible in the Oil, Gas & Petrochemical (OG&P) sector. Furthermore, the examples are from well-established systems from many years of development.
Accountability Finally, with increased automation, who will be accountable for the safe running of facilities? Will it be the operating company or the company that supplies the algorithm/system? These are potentially challenging questions to answer but they really need to be answered before fully automated systems become the norm. There is of course time for this to happen, but it could well be important to tackle the questions sooner than later, as the outcome could heavily influence how automated systems are implemented. From a risk engineering perspective, Willis Towers Watson is keenly reviewing this situation on a regular basis so we are able to identify, understand and assess these risks from digitisation as it takes hold, providing relevant insight to insureds and insurers.
Alan McShane is Head of Engineering at Willis Towers Watson Natural Resources GB in London.
1 World Economic Forum – Digitisation in the Oil and Gas Industry, January 2017. (http://reports.weforum.org/digital-transformation/oil-and-gas-on-the-cusp-of-a-digitally-fuelled-new-era/) 2 http://reports.weforum.org/digital-transformation/oil-and-gas-on-the-cusp-of-a-digitally-fuelled-new-era/ 3 WTW Natural Resources Risk Index – A view from the Boardroom, 2016 (https://www.willistowerswatson.com/en-GB/insights/2016/06/natural-resources-risk-index-2016)