How to turn environmental compliance into a competitive edge
For oil and gas companies, any failure to meet environmental rules can bring massive costs. That's why preparation has such a high ROI.
Regulatory compliance can be a dry topic — that is, until an oil spill spurs a state of emergency, as it did in Santa Barbara County in May. When a ruptured 24-inch pipeline spilled some 105,000 gallons of crude, blackening the pristine waters of the Refugio State Beach and inciting a class-action lawsuit, the economic consequences of environmental catastrophes came to the fore once again.
The leak that caused the oil slick was from corroded infrastructure owned by Plains All American Pipeline, which has incurred 175 federal safety and maintenance violations since 2006 and property damages totaling at least $23 million to date.
Plains is hardly alone. Following its 2010 Kalamazoo River oil spill in Michigan, Enbridge must spend at least $62 million to resolve natural resource damages caused by failures in pipeline integrity as well as the inadequate facility response and training of personnel.
The high price of environmental consequences of compliance and safety failures highlight the value of improving environmental, health and safety (EHS) performance. If mitigating risk in an era of increasing complexity is a challenge, then exploring new technologies to achieve operational excellence is the next frontier.
Automating those processes was the leading topic at the Sustainable Performance Forum Houston 2015 conference, hosted by Enablon, a leader in sustainability, EHS and risk software. I moderated a panel conversation that illuminated the challenges, the opportunities and the path to superior performance for companies in oil and gas and other sectors.
“Ten years ago, you could ask nearly anyone if they had a management system and they would point to a set of binders on a shelf in their office,” said Trey Shaffer, senior partner at Environmental Resources Management. “But we’ve seen a renaissance over the past several years across the oil and gas sector as companies have struggled to keep up with compliance management, incident management and management of change.”
Bracing for 'the silver tsunami'
The oil and gas sector faces significant challenges as it struggles to normalize the cost of operations against the $50 to $70 cost per barrel of oil. The current market reality drives dramatic changes as most companies shift and adapt. The sector is also projected to lose about 50 percent of its leadership over the next decade.
“We are seeing a greying of the workforce or ‘silver tsunami,’” said Shaffer, explaining that companies are looking to EHS platforms to capture knowledge embedded in employees before intellectual capital is lost as older workers retire.
EHS management systems also enable companies to fulfill expectations concerning data transparency. In a recent study by PwC, institutional investors were asked how satisfied they were with information on sustainability and 82 percent were dissatisfied with how risks and opportunities are reported.
Companies that remain hesitant to automate EHS processes might look at both risk mitigation and escalating compliance requirements to justify the investment. The EPA, for example, initiated its “Next Generation Compliance” program, summed up by Assistant Administrator Cynthia Giles in a memo to legal and enforcement directors at the EPA earlier this year.
Preserving the license to operate also prompts companies to innovate. “One of the biggest innovators at the moment is the EPA,” said Shaffer, explaining that the key elements of the agency’s emerging “innovative enforcement” scheme are emissions detection technology, third-party verification of settlements, electronic reporting and transparency. "I don’t think the regulated community can deliver compliance under this scheme without a well-designed system leveraging the right tools.”
The transformative power of emerging technologies
In the energy industry, unmanned aircraft gather information on exploration and production activities and the status of pipelines, which reduces resource needs and the risk of putting people in the field.
The EHS parallel uses IT tools and software to gather data on operations and compliance status, then to relay that information to operations and EHS managers, and create useful, “actionable” information, explained Jill Barson Gilbert, president and CEO of Lexicon Systems.
“Automating EHS business processes reduces the risks of data duplication, data entry errors, e-discovery, and missing compliance targets,” added Gilbert.
Among the hot technologies in 2015 she noted are the cloud, the Internet of Things, content management systems, mobile technology and social and collaboration tools. More organizations are moving their EHS applications to the cloud (PDF). Companies should take advantage of these emerging technologies, as well as some of the more proven IT tools.
With low oil and gas prices, the energy industry is making budget and staff cuts. There is lots of hand-wringing in upstream energy, following a record year in 2014 — the best in four decades, said Gilbert.
At the same time, the chemical industry is having one of its best years in four decades. New plants and projects are being built. Low oil and gas prices also provide opportunities in the automotive, pipeline, transportation and logistics sectors. But some companies still fail to see the big picture.
“There is a short-term perspective in the U.S., with a focus on this quarter’s profits,” said Gilbert. Companies need to evaluate risks and opportunities (PDF), as well as the long-term impacts and business benefits, “including the risk of doing nothing,” she said.
“With the recent downturn in the oil and gas market, we find ourselves faced with resource constraints,” said Lisa Cruz, an advisor in health, safety and environmental IT at Apache Corporation. “Having a centralized system enables Apache to manage resources more effectively where we are forced to maintain status quo, and in many cases do more, with less.”
“In our industry,” said Cruz, “the most frequent injuries are related to transportation incidents. So Apache implemented technology to monitor our fleet on speeding, seatbelt use, harsh braking and idling.” The company has seen a decrease in these KPIs across the board, most notably a significant decrease in speeding events — about 80 percent on average — within six months of making drivers aware of their scorecards.
“This has not only changed the culture of our drivers, but has also reduced our risk for injuries and/or fatalities related to vehicle accidents,” said Cruz.
From mitigating risk to managing growth
Companies continuously wrestle with change management, and rapid growth can motivate them to embrace new technologies to manage increasing complexity. The rail industry has seen considerable growth over the last several years.
According to Matt Graham, director of environmental project controls and real estate at BNSF, this year BNSF plans to invest $6 billion in capital improvement projects, following several years of similar investment.
“All this construction and development involves a tremendous amount of compliance and permitting work and added responsibility,” said Graham. “We are managing enormous growth with limited resources, which requires sound business processes and consistent system controls.”
One approach the company took was to better leverage facility personnel through encouraging its stake in environmental compliance. The EHS system helps the company by ensuring compliance tasks are completed at the facility level, thus creating new, ad hoc members of its compliance team without adding to head count. So this ultimately changes behavior throughout the work force.
In addition, BNSF must manage the loss of institutional knowledge through retirements in the last several years. The company must ensure all employees, new and seasoned, understand goals and operate from the same playbook.
“With management encouraging us to standardize business processes, it made sense to implement an EHS system that could capture and retain institutional knowledge while automating some of the work. Having multiple departments responsible for EHS motivated us to implement a transformational tool and also helped sell the concept to our management team,” said Graham.
Setting the stage for ROI from EHS
Gilbert said that when companies look to information systems to automate and improve their EHS business processes, they face at least four challenges:
1. Identifying what stakeholders need and setting evaluation criteria before evaluating solutions.
2. Securing executive sponsorship and support rather than starting a grassroots initiative.
3. Aligning (or converging) with corporate and IT strategies.
4. Focusing the big picture of total cost and business risks/benefits over the lifetime of the system.
“Poor requirements are responsible for high IT project failure rates,” Gilbert said, “so companies should invest time up front to understand what stakeholders need. Since companies lack unlimited time and resources, they must prioritize their needs, and then let those priorities set the stage for the EHS IT initiative.”
EHS software can be a large investment, and its justification must consider business risks and benefits (PDF). The cost of ownership over the lifetime of the software is important, and decision makers must look beyond license/subscription and implementation fees. At the same time, said Gilbert, “The payoff of doing this right can be three to 10 times or more.”