THE safety and environmental impact of the offshore oil and gas industry has, in past year or so, seen unprecedented scrutiny by the press and regulators.
The Deep Water Horizon blowout and, with a fraction of the impact but much closer to home, the Gannet pipeline leak remain fresh in the industry’s and the public’s memory.
The subsequent process of introspection and investigation by both governments and the industry has already produced various notable reports, initiatives and ideas on how to manage the risk of such events.
On October 27, following a period of consultation, the European Commission published its proposal for EU-wide regulation of the oil and gas industry active in its waters.
In reaching that proposal, the Commission considered five policy options ranging from preserving the status quo to establishing an EU Agency to institutionalise sweeping reforms and undertake inspection and investigations across the union.
The Commission has opted for something in between – an option that it claims can deliver a baseline reduction of risk of 50%, with associated savings of EUR103- 455milliona year, at a cumulative cost of EUR134-140million a year. Industry will bear most of that cost.
The proposed Regulation is, accordingly to the Commission, a solution to the disparities and fragmentation amongst Member States’ laws that apparently hamper achievable reductions in risk and effective emergency response.
The objectives of the Regulations are therefore to reduce the risks of a major accident in EU waters and to limit the consequences thereof.
The Commission also proposes to establish a new EU Offshore Authorities Group with representatives from each Member State’s competent authority, which in the UK will likely be the Health and Safety Executive (HSE), but maybe a combination of the HSE, Scottish Environment Protection Agency (SEPA), Environment Agency in England and Maritime and Coastguard Agency.
What does it mean for the UK North Sea?
o The proposed regulation creates duties for both Operators of offshore installations and regulatory authorities. The UK can already lay claim to a world-class health, safety and environmental regime.
o Not unexpectedly, the new duties largely reflect rather than depart from the UK’s current standards. Subjects covered in the proposed Regulation include the prevention of major accident hazards, risk-based preparation for operations, plus emergency preparedness and response.
o The UK regime is overarched by the Offshore Installations (Safety Case) Regulations 2005, which requires operators to submit thorough risk-assessments for their operations, and the Offshore Installations (Prevention of Fire, Explosion and Emergency Response) Regulations 1995. For the most part, the proposed regulation would not interfere with that regime.
o The most interesting provisions of the regulation are those that depart, however slightly, from the prevailing UK framework – and the entirely new provisions regarding Member State co-operation.
o Whistle-Blowing: The Regulation will require the competent authority of each member state to establish an anonymous whistle-blowing procedure that will enable workers to report concerns but remain anonymous throughout any subsequent investigation. That means that the HSE’s current procedure will need to be amended. While the intention is sound, it may lead to malicious reporting.
o EU transparency is also a major feature. While the UK industry is obliged to report hydrocarbon releases, for example, to the HSE and DECC, the proposed regulation will mean that data on loss of structural integrity, evacuation of non-essential personnel and information relating to unintended releases will be collated such that Member States’ and individual operator performance may be meaningfully compared across the EU.
o Major accident prevention & independent verification: already covered by the UK’s safety case regime, the proposed new regulation is perhaps more prescriptive regarding the requirements, in the way the way of independence and competence, of those third parties. It will also oblige operators to maintain a strong safety system which includes certain prescriptive measures, such as the rewarding and recognising of desired behaviours. This may conflict with the approach of some operators who regard safe behaviour as a minimum requirement, and not an “extra” to be rewarded.
o Application outside Europe? Contrary to earlier pronouncements, the proposed regulations will not apply to the operations of EU-headquartered companies outside of EU waters. However, there Regulation does include a requirement for licensees, operators and major contractors based in the union to “endeavour to conduct their offshore oil and gas operations in accordance with the principles set out in this regulation”. It is perhaps unclear quite how aspirational that provision is supposed to be,
o Extension of Environmental Liabilities: besides establishing a framework for risk reduction and emergency response, the Commission will amend existing European laws so that licensees will be fully liable for environmental damage caused to protected marine species and natural habitats and cover waters out to about 200 miles. That may mean bigger clean up costs if accidents do happen.
Whilst most EU offshore oil and gas production is currently from the UK and Norway, exploration and production licences have now been awarded in 13 Member (UK, the Netherlands, Denmark, Germany, Ireland, Italy, Spain, Greece, Romania, Bulgaria, Poland, Malta and Cyprus). By proposing a directly effective EU Regulation (which requires no ‘enabling’ legislation at Member State level) the intention is that Member States will be on a level playing field (although that will depend to a large extent on the effectiveness of local enforcement).
However, in the UK, the proposed regulation is unlikely to cause too much of a stir, being for the most part a reflection of current standards. Accordingly, the UK industry will not need to depart too far from ‘business as usual’ and the cost of compliance is therefore likely to be minimal.
In any case, the proposed regulation is not yet law until it is adopted by the European Council and Parliament. It is envisaged that it will come into force for existing installations by 2014, with a prior transitional period of one year for planned productions.
To the extent that the proposed Regulation brings all member states up to UK and Norway standards, the industry perhaps has little to fear and much to gain from it. Clearly, the industry will review the draft in detail to ensure that the Commission does not compromise effectiveness of the UK’s goal setting regime and watch for any unwanted amendments during the legislative process.