Offshore Petroleum Safety Regulation

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byKym Bills and David AgostiniJune 2009Better practice and the effectiveness of theNational Offshore Petroleum Safety AuthorityBetter practice and the effectiveness of theNational Offshore Petroleum Safety AuthorityOffshore Petroleum Safety Regulation–Better practice and theeffectiveness of theNational Offshore PetroleumSafety AuthorityOffshore Petroleum Safety RegulationOffshore PetroleumSafety Regulation

Offshore PetroleumSafety RegulationBetter practice and theeffectiveness of theNational Offshore PetroleumSafety AuthoritybyKym Bills and David AgostiniJune 2009

Commonwealth of Australia 2009This work is copyright.Published by: Commonwealth Department of Resources, Energy and Tourism.Apart from any use as permitted under the Copyright Act 1968, no part may be reproducedby any process without prior written permission from the Commonwealth.Requests and inquiries concerning reproduction and rights should be addressed to:Commonwealth Copyright AdministrationAttorney General’s DepartmentRobert Garran Offices, National CircuitBarton ACT 2600www.ag.gov.au/ccaISBN: 978-1-921602-49-8June 2009ii

PrefaceOn 9 January 2009, the Commonwealth Minister for Resources andEnergy, the Hon Martin Ferguson AM MP and the Western AustralianMinister for Mines and Petroleum, the Hon Norman Moore MLC,formally invited us to form an expert panel to undertake an inquiryinto the occupational health and safety and integrity regulation forupstream petroleum operations with reference to the gas pipelinerupture and explosion on 3 June 2008 and, as an addendum, toinvestigate interfaces between regulatory agencies for offshorepetroleum marine operations.Supported by a team of experts and a secretariat, we have revieweddocumentation and information provided to us through consultationwith key Australian and international regulatory agencies for offshorepetroleum safety and integrity regulation and have also met with awide range of oil and gas companies in Australia and abroad. Thereport is based on information generously shared with us by keyagencies that we acknowledge with gratitude, with particular thanksto the Western Australian Department of Mines and Petroleum andthe National Offshore Petroleum Safety Authority.We would like to acknowledge the contributions of a number ofwidely-recognised experts in their fields – Mr Bruce Gemmell, MrDavid Lesslie, Mr Robin Stewart-Crompton and Professor AndrewHopkins – as well as those officers from the Australian TransportSafety Bureau who provided key no-blame safety investigationexpertise to this process. We would also like to thank members ofour Canberra and Perth secretariat – especially Juliet Lautenbachand Joanna Bunting for their tireless efforts and hard work –as well as David Hope who provided key publishing support toproduce several versions of reports during the process, mostly overweekends.As many of those interested in this inquiry have noted throughthe media, legal action in the Federal Court in Perth has alteredthe course of the inquiry and associated investigations on severaloccasions. It has been a hectic but unforgettable five months, andwe sincerely hope that the ensuing reports and recommendationswill contribute to improving safety and regulatory effectiveness inAustralia’s offshore oil and gas industry, and ensure that we move tothe forefront of world best practice.KYM BILLSPanel MemberiiiDAVID AGOSTINIPanel Member

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Table of contentsPrefaceAcronyms and abbreviationsTerms of referenceRecommendations and findingsIntroductionChapter 1: Regulatory framework and effectivenessChapter 2: Safety case regimeChapter 3: Regulatory discretion and compliance-based regulationChapter 4: Resourcing and staffing a best practice regulatorChapter 5: A better practice functional splitConclusionsAnnex 1: Legislative framework for offshore and island petroleum activitiesAnnex 2: Commonwealth/WA misunderstandings regarding internal watersAnnex 3: Interfaces between DOIR and DOCEP, and DOIR and NOPSAAnnex 4: NTSB and TSB investigation reports on gas pipeline explosions involvingexternal corrosion and CSB petroleum refinery reportsAnnex 5: Report of the Integrity Working Group of September 2007, and Reporton the consolidation of Offshore Petroleum Regulations of September 2007Annex 6: Guidance from ICAO on SMS, and the architecture of Australian aviationAnnex 7: Possible impacts of the national review into model OHS lawsAnnex 8: The effectiveness of regulation by NOPSA and DOCEPAnnex 9: Learning from major accidents: Cullen, McInerney and HopkinsAnnex 10: ATSB reports of relevance to Offshore Safety RegulationAnnex 11: Productivity Commission Upstream Petroleum Regulation ReviewAnnex 12: March 2008 review of NOPSA and precursor reports since 1996Annex 13: 2008 draft review of the effectiveness of NOPSA’s use of levy revenueAnnex 14: Leading and lagging indicators for the offshore petroleum sectorAnnex 15: Use of standards in the Australian safety case regime foroffshore petroleum regulationAnnex 16: Buncefield Inquiry in the UK, and Seveso I and II in EuropeAnnex 17: Relevant regulation and safety cases: US, UK, Netherlands, NorwayAnnex 18: Developments in, and lessons from, Victoria’s safety caselaw and practiceAnnex 19: Biographies of panel and inquiry membersAnnex 20: Submissions, visits and meetings 01

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Acronyms HSRIADCICAOIRTKPILTIFRLTIsAs low as reasonably practicableAustralian National Audit OfficeAustralian Pipeline Industry AssociationAir Traffic ControlAir Traffic ServicesAustralian Transport Safety BureauCivil Aviation Safety AuthorityChief Executive OfficerCouncil of Australian GovernmentsDesignated AuthorityDepartment of Industry, Tourism and ResourcesDepartment of Mines and Petroleum Resources (WA)Department of Consumer and Employment Protection (WA)Department of Energy (United Kingdom)Department of Industry and Resources (now WA DMP)Department of Primary Industries (Victoria)Director of Public ProsecutionsEuropean Aviation Safety AuthorityEnergy Safe VictoriaFormal safety assessmentHazard identificationHazard and operabilityHealth and Safety Executive (United Kingdom); or Health, Safetyand EnvironmentHealth and safety representativeInternational Association of Drilling ContractorsInternational Civil Aviation OrganizationIndependent Review TeamKey performance indicatorLost time injury frequency rateLost time injuriesvii

MSTSI ActWA PSLAWRMCMajor accident eventsMajor accident hazardMinisterial Council on Mineral and Petroleum ResourcesMajor hazard facilityMinerals Management Service (US)Commonwealth Petroleum (Submerged Lands) (Management ofSafety on Offshore Facilities) Regulations 1996National Offshore Petroleum RegulatorNational Offshore Petroleum Safety AuthorityOrganisation for Economic Co-operation and DevelopmentInternational Association of Oil and Gas ProducersOccupational health hazardOccupational Health and SafetyOffshore Petroleum Act 2006Offshore Petroleum and Greenhouse Gas Storage Act 2006Occupational Safety and Health Administration (United States)Productivity CommissionPipeline and Hazardous Materials Safety Authority (US)Department of Primary Industries and Resources of South AustraliaPipeline Management PlanPetroleum Safety Authority (Norway)Commonwealth Petroleum (Submerged Lands) Act 1967Pipeline Safety Management PlanQuantitative risk assessmentDepartment of Resources, Energy and Tourism (Commonwealth)Safety critical elementSo far as is reasonably practicableSafety Management SystemCommonwealth Transport Safety Investigation Act 2003Western Australian Petroleum (Submerged Lands) Act 1982Workplace Relations Ministers’ Councilviii

Terms of referenceIndependent inquiries into occupationalhealth and safety and integrity regulationof offshore petroleum operationsBackgroundOn 9 January 2009 the Commonwealth and Western AustralianGovernments through the Minister for Resources and Energy theHon Martin Ferguson AM MP and the Minister for Mines andPetroleum the Hon Norman Moore MLC announced a jointindependent Inquiry into the effectiveness of regulation for upstreampetroleum operations. The terms of reference included a focus onthe incident at Apache Energy Ltd’s facilities on Varanus Island.A two person expert Panel comprising Mr Kym Bills, ExecutiveDirector of the Australian Transport Safety Bureau nominated byMinister Ferguson and Mr David Agostini a former senior executivewith Woodside nominated by Minister Moore was appointed to leadthe Inquiry. The Commonwealth initially provided 1 million to coverthe costs of the Inquiry.Apache initiated action in the Federal Court to challenge the Panel’suse of documents provided by the Western Australian Departmentthat had been compulsorily obtained under section 63 of thePetroleum Pipelines Act 1969. On 22 May 2009 the Federal Courtheld that provision of the documents by officers of the State ofWestern Australia, to the Panel for the purposes of the Inquiry, wasnot for the purposes of the Act and regulations.In light of the Federal Court decision, Ministers have agreed that thePanel will prepare a report for the Minister for Resources and Energycovering better practice regulation and the role of the NationalOffshore Petroleum Safety Authority (NOPSA) with associatedrecommendations. A separate report, with recommendations,will also be provided to the Minister for Resources and Energy onimproving the interface between NOPSA and the Australian MaritimeSafety Authority in light of two incidents during Cyclone Billy. Bothreports will be finalised and provided by 30 June 2009.In addition, on 8 May 2009, the Minister for Mines and Petroleumannounced that Mr Bills and Mr Agostini had been appointed asinspectors under the Petroleum Pipelines Act 1969 and wouldcoordinate finalisation of the technical investigation into the VaranusIsland explosions on 3 June 2008. This separate independentix

Western Australian Inquiry will also address the role of Apache (asmajority owner and operator) and any regulatory issues involvingthe Western Australian regulators in the lead up to the incident withassociated recommendations. A draft report is to be completed by10 June with a final report to be provided to the Minister for Minesand Petroleum by 30 June 2009.Better practice offshore regulation and the role ofNOPSATerms of reference for the two member expert Panel comprisingMr Kym Bills and Mr David Agostini are now to: Review Commonwealth offshore petroleum safety regulatoryarrangements; Broadly outline better practice regulatory arrangementsincluding among international offshore regulators and relevantAustralian regulators; Consider the appropriateness for safety and integrity of theCommonwealth offshore duty of care/safety case co-regulatoryregime; Assess the effectiveness of the National Offshore PetroleumSafety Authority; Make any necessary recommendations to improve theregulatory regime and the safety and integrity of offshorepetroleum operations and facilities and the effectiveness ofNOPSA.The Panel’s report is to be delivered to the Minister for Resourcesand Energy by 30 June 2009.x

Executive summaryIn a complex, high hazard industry such as offshore oil and gas,society expects a robust regulatory regime in which operatorsmaintain safety to minimise the risk of a major accident event andregulators provide assurance that this is being done. The duty ofcare/safety case regime in Australian waters places the onus onoperators and provides them with flexibility in how best to managehazards and minimise risk. But regulatory competence, clarity andscope covering all relevant offshore operations is a fundamentalrequirement of the regime. It is best categorised as a systemof co-regulation. This Inquiry endorses an augmented duty ofcare/safety case regime as the appropriate means for regulatingAustralia’s offshore industry.Australia’s offshore industry has a good reputation but here, asoverseas, not all operators have a mature safety culture or seek tooperate at best practice safety levels. Regulators must deal withdifferences in motivation and culture among operators by targetingscarce regulatory resources to higher risk operators, facilities andactivities. Better practice co-regulatory regimes require balanceand integration between prescriptive elements and cooperativeelements and genuine dialogue, goodwill and pro-activity amongparticipants.Our examination of the regulatory regime has uncovereda confusing mishmash of jurisdictional, legal, process andregulatory interfaces upon which is overlaid poor relationshipsamong regulators. In such an environment, any serious operatorshortcomings are far less likely to be found and addressed toreduce the risk of a major accident event.From its creation on 1 January 2005 NOPSA has been engagedin a very major build phase. It has developed many creditablesystems, competencies and publications. We believe NOPSA hasthe basis for becoming a world class offshore petroleum regulatorwithin a duty of care/safety case co-regulatory regime and that thisregime should apply to safety and integrity for all offshore facilitiesand pipelines to minimise the type of unnecessary interfaces thatcan lead to safety issues falling between stools. However, NOPSAis seriously under-resourced, even to fully discharge its currentresponsibilities, and in our assessment needs more professionalstaff and broader competencies such as human and organisationalfactors as well as in offshore production and pipeline corrosion.xi

We also see NOPSA’s regulation within a duty of care/safety caseco-regulatory regime as overly hands-off and narrowly legalisticat the expense of better discharging its advisory and cooperationfunctions or utilising a risk matrix to classify operators andfacilities as a basis to target regulatory action. NOPSA works withinthe boundaries set by internal policy as well as legislation andsome of its policies do not enable it to flexibly maximise safetyassurance and outcomes in the same mature risk-based way asit expects operators to do. For example, we believe that greaterdialogue, input and guidance with individual operators during thedevelopment process for a safety case is an area for increasedfocus. Despite a MOU and sharing regulatory boundaries, NOPSA’slack of interaction with DOCEP is indicative of another area forimprovement. NOPSA also told us that it could not challenge safetyculture or weak leadership in a safety case because these were notspecified in the Commonwealth MOSOF regulations. Since theseareas are fundamental to future safety, the MOSOF regulationsshould be amended. NOPSA’s resource constraints have resultedin audits of insufficient depth particularly with respect to pipelinescarrying a large inventory of hydrocarbons under pressure in areaswhere a major accident event is possible.The legislative environment in WA is a contributing factor toregulatory ineffectiveness and needs to be simplified as soon aspossible. In our assessment, conferral of powers to NOPSA tomaximise integration of offshore petroleum safety and integrityregulation and a properly resourced regulator in an augmentedduty of care/safety case regime is the best option for future safety.We also strongly recommend the creation of a properly resourcednational independent no-blame offshore and petroleum pipelineinvestigation capacity that can investigate major accident eventsand near misses in the future with appropriate powers so thatlearning important safety lessons is not made hostage to legalaction.xii

Recommendations andfindingsR1R2R3R4R5We recommend that powers should be conferred on NOPSA toenable it to effectively regulate safety and integrity for all facilitiesand pipelines in the water and the WA islands which export gas bypipeline. NOPSA’s authority should extend to the nearest valve onthe mainland above the shore crossing. (p. 17)We recommend that MCMPR continue to support a duty of caresafety case regime for best practice offshore petroleum industryregulation augmented to include regulation of integrity. Since thesafety case is at the centre of the duty of care co-regulatory regime,we consider that the requirement for the implementation of thesafety case at facilities involved in the exploitation of petroleumresources should be provided for within the OPGGSA itself. (p. 19)We recommend in relation to safety case development andcompliance overall, that NOPSA revise its approach to interactingwith operators prior to the safety case assessment process andsubsequently and direct more resources into its advisory functions.We further recommend that NOPSA develop and implement a formalplan for supporting and guiding each operator prior to safety caseacceptance, as well as for ongoing compliance with that safetycase, recognising the unique experience, capabilities and assessedrisk of that operator. Each plan needs to include advice, educationand liaison meetings with the operators. The plan needs to becontinuously reviewed and reassessed based on latest information,including the interaction with the operator. Implementation shouldbe reviewed at a senior level within NOPSA. (p 38)We recommend that NOPSA review the risk assessment of pipelines.NOPSA should focus, in particular, on the efficacy of anti-corrosionsystems, and recognise potential interference effects and MAEescalation risks associated with adjacent pipelines and unlicencedpipes even if they fall outside its direct regulatory responsibilities.(p. 39)We recommend that NOPSA develop a robust risk assessment matrixfor use in assessing and responding to the changing risk associatedwith each facility and the operator. Further, we recommend thatNOPSA increase auditing frequency and duration to audit eachmanned facility on average twice per year (covering each staffswing), but more often if the risk matrix indicates this is necessary;xiii

R6R7R8R9R 10and that audits should average several days actually on majorfacilities. (p. 54)We recommend that the OPGGSA and its subsidiary regulations beamended to enable NOPSA to have a broader range of graduatedcompliance tools including the ability to impose a civil fine onan operator per day of non compliance with an improvement orprohibition notice. Legislation should also be considered that wouldenable NOPSA to make public, with appropriate safeguards, specificinformation concerning its enforcement actions including the nameof the operator, the breach, and the enforcement action requiredincluding potential penalties. (p. 61)We recommend that the MOSOF regulations be amended to explicitlyenable assessment of safety culture, leadership, and considerationof operator past history, motivation and current capacity in approvalsof safety cases. NOPSA should be able to audit against these criteriaand challenge operators on these issues. (p. 69)We recommend that NOPSA critically review its regulatory manninglevels based on its current workload and the recommendationsfor additional areas of focus and increased auditing presented inthis Report. To meet these requirements, we estimate that NOPSArequires up to 50 inspectors in total plus associated support staff tobring overall staffing from about 55 to 75. RET should help facilitatethe necessary ongoing levy funding in consultation with industry.(p. 73)We recommend that MCMPR liaise with Ministers with environmentaland planning responsibilities, and if necessary COAG, to ensure thatenvironmental requirements for oil and gas projects are not imposedsubsequent to safety assessments and do not increase the risk ofmajor accident events. (p. 76)We recommend that the Commonwealth and States/NorthernTerritory legislate to establish a properly resourced and

OHH Occupational health hazard OHS Occupational Health and Safety OPA Offshore Petroleum Act 2006 OPGGSA Offshore Petroleum and Greenhouse Gas Storage Act 2006 OSHA Occupational Safety and Health Administration (United States) PC Productivity Commission PHMSA Pipeline and Hazardous Materials Safety Authority (US)

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