Deepwater Horizon BP - Risk Analysis - Case Study Example

DEEPWATER HORIZON OIL SPILL Introduction A risk can refer to the probability of damage or loss or a negative occurrence that is caused by internal or external vulnerabilities but can be avoided through management actions. Risk management, on the other hand, refers to the continuous process of identifying, analyzing, evaluating and monitoring risk control (Haimes, Y.Y. ed., 2015). There are different types of risks in an organization such as financial risk, strategic risks, perimeter risks and operational risks. In general, accidental losses are unpredictable, but through risk management methods, the unforeseen events become predictable (McNeil, A.J., Frey, R. and Embrechts, P., 2015). This paper describes the incident of deepwater horizon oil spill commonly known as Gulf of Mexico oil spill of 2010. This incident occurred because risk management measures did not work. The Deepwater Horizon rig which was owned and operated by offshore-oil-drilling company Transocean and leased by BP was located in a continental shelf of Macondo oil prospect in Mississippi. In April 2010, a surge of natural gas blasted through a concrete core which had been installed so that the well could be used later (Reader, T.W., and O’Connor, P., 2014). Accident Overview The accident involved a good integrity failure followed by a loss of hydrostatic control of the well leading to the blasting of the natural gas through the concrete core. This was mainly because the core was too weak to withstand the pressure since it was made of a mixture of concrete that used Nitrogen Gas to accelerate curing. When the well went out of control, there was also a failure to control it with the BOP preventer equipment which allowed the release and subsequent ignition of the hydrocarbons. The BOP equipment failed to seal the well after the first explosion. The cause of this explosion is associated with a fracture in the core which then allowed the natural gas to travel up to the deepwater rig which then ignited and killed 11 workers and injuring 26 other. In addition to the loss of life, there was also environmental damage because of the extensive oil spillage. The company responded to the incident immediately where clean up mission was started following the directions of the federal government. The families who lost their loved ones were compensated. This accident made BP incur a lot of costs in the clean process. The company mobilized about 48000 people, 6500 vessels, and 2,500 miles boom to remove the oil from the ocean. Resources shows that by April 2014, BP had spent approximately 14 billion on the cleanup and in the case of any oil residual in the deepwater horizon, BP will be responsible (Reader, T.W., and O’Connor, P., 2014). Risk management failure BOP safe-mechanism was designed to close the channel through which the oil was drawn failed. A report from forensic analysis of the BOP failure indicates that the massive blades which were designed to slice through the pipe carrying oil malfunctioned because the pipe had bent due to the pressure of the rising gas and oil. This made the pipe be fractured and effort made to contain the leaking gas and oil was futile because of the buoyancy of gas nitrates. The natural gas mixed with the cold water to form gas molecules in an ice matrix. Initially, before BOP was installed into the rig, BP had attempted some risk management measures. First, drilling mud was employed into the bump to stanch the flow of the oil, but this also failed. When this failed, BP employed equipment known as Lower Marine Riser Package (LRMP) cap but this was loosely fitted, and it allowed some of the oil to escape. The company also practiced static kill where the mud was drilled and pumped into the well but also did not work because the mud could be injected at a much lower pressure due to the capping stack. The more permanent BOP was installed, and this was thought to provide a total and permanent seal to the leakage of the oil. This seal entailed pumping of cement through a channel known as a relief well which was parallel to the original well, but it intersected with it at the end. Another relief well was constructed so as to act as a backup but was not completed because it was announced that the well was completely sealed (Reader, T.W., and O’Connor, P., 2014). Risk identification Before the incident occurs, several research groups reported that several subsurface plumes of hydrocarbons had been detected, but these claims were dismissed by National Oceanic and Atmospheric Administration (NOAA) and BP. However, later about a month after the researchers reported the case, it was confirmed that the hydrocarbon plumes were indeed from Deepwater spill and the effect of the oil droplets on the ecosystem was unknown. Thick oil layers were also discovered and this lead to questioning of a statistical report on the rate of leakage. What BP and the NOAA did after researchers had reported a detection of hydrocarbons was inappropriate. Once a risk is identified an action of mitigation should be carried out immediately. The next step that could have been taken was to assess the level of risk and then implement a control measure to minimize the impact or the likelihood of the risk. Once a control action has been taken, BP management should have monitored the well closely for any changes that could be identified. If this was done, then the event could have been controlled from happening. It is un advisable to assume that a risk is well mitigated, and frequent evaluation is needed especially for a case such as that of Deepwater Horizon. In this case, they believed that the well was completely sealed and that no leakage could occur again. Also also that, they introduced bacteria into the water which was believed to naturally consume the oil (Reader, T.W., and O’Connor, P., 2014). Effects of failed risk management When an accident occurs, there are several negative impacts which are associated with it. There are several causes of risk management failure, and one of them is reckless risk taking. This occurs when a risk management measure is implemented but with less or no attention given to it. Usually, the management of a company does not monitor or check the measure. This is actually what happened to Deepwater Horizon BP. The oil spill was accompanied with several other damages on top of environmental crisis and loss of life. The incident affected the economic prospect of the Gulf coast as the accident affected many industries which the residents depended on for their daily bread. Fishing which is the main economic activity in the Gulf Coast states was affected because more than a third of the federal waters were closed and no fishing took place because of fears of contamination. All tourism was closed, and several people become jobless approximately 12000 people were unemployed, and BP was forced to compensate them with $20billion after a demand from Barrack Obama’s administration (Norazahar, N., Khan, F., Veitch, B. and MacKinnon, S., 2014). Risk analysis Risk analysis helps to identify problems that are likely to occur and ways of managing them. To analyze risks, the first identification of possible threats that are likely to face the company is important. Risk management is applied in many situations in a company. Some of the situations include: when deciding whether or not to proceed with a project, when planning projects to help anticipate and cancel possible problems and when improving safety and managing possible risks in a workplace among many other situations. The most appropriate situation for BP to carry out an analysis is to improve safety and managing possible risks in the company. Risk analysis process follows the following steps; The first step is the identification of threats which involve identification of the existing and possible threats that can occur in the company. In the case of Deepwater Horizon BP, the risks are those who deal with operational and procedural. Operational in this case involves failure of the operational systems such as Lower Marine Riser Package (LMRP). The procedural activities of the measures have failed in an attempt to solve the issue of oil leakage in BP Company. In BP, the risks are also structural because it relates to dangerous chemicals which can ignite if not handle properly. An approach that can be used to identify such threats could be identifying any vulnerability which is associated with them. In BP, one of the vulnerability is that the pipes used are at risk of bursting because of the pressure due to the fluids transported by the pipes. A tool such as Failure mode and Effects Analysis is useful in uncovering the threats (Park, J., Seager, 2013). The next step in the risk analysis after possible risks have been identified to estimate the risk. This estimation is done regarding the probability of occurrence and their possible impacts. One of the ways of estimating the cost is by calculating the amount of cost that will cost the company to reset things back to their original cost. It is calculated by multiplying the probability of risk event by the cost of the event. For BP, the cost is to clean the environment after the oil spill over the surface of the water and also compensating all affected parties. From statistical reports, BP has spent over $14 billion on clean-up practices only without adding any compensation to the affected persons. Once the value of the risk is estimated, the next thing is to come up with the ways of managing them. According to Pritchard, C.L., and PMP, P.R., (2014), there are some ways that can be used to respond to a risk. These are; contingency, acceptance, reduction, prevention and transference. Contingency involves planned actions that are set to meet the risk when it occurs. This is an effective method when the probability of a risk to occur is high. Reduction involves minimizing the impacts of the risk. This applies to cases where the cost of the risk is not that much. In large companies such as BP, the most appropriate method is to prevent the risk from occurring or removing its impacts. In controlling the risk, there are two actions that can be taken; preventive and detective actions. Prevention action includes training of the personnel on safety and health. The purpose of this action is to prevent high-risk from occurring. If Deepwater personnel had been trained on safety measure in case of an incident such as the one which occurred, then probably there could have been no deaths recorded. Detection action involves identifying the points in which something in the process could go wrong and then putting measures that could fix the problem just in case it occurs. This involves double checking or conducting a safety testing on a product before it is installed. Alternatively, sensors can be installed in order to monitor the product’s performance. This is what BP lacked in their company despite risk detected by some researchers (Pritchard, C.L. and PMP, P.R., 2014). Installation of BOP which was used to seal the well could have been first tested before it was installed fully in the well. This way BP could have experimented on the effectiveness of the equipment. Testing of the risk management mechanism of BOP could have been done elsewhere before being used by BP. The other thing which could have been observed in the company to prevent the event of oil spillage and explosion is to install censors in the well where BOP was installed so as to detect any sign of malfunction of the mechanism. Failure Mode and Effect Analysis (FMEA) This aims to prevent failure by anticipating where they occur. It is a step-by-step approach used to identify all possible failures in a product, service, manufacturing or a design (Woods, D., 2015). In this case, failures refer to errors or defects and their consequences. FMEA works by eliminating or reducing risks according to their risk priority. FMEA is used when analyzing failures of an existing product or service, before developing control plans for a modified or a new process, when applying an existing process or a new product just to mention some few. This tool contains a matrix where the data can be entered and the matrix will answer all the questions based on the information fed to it. It requires description of the product or a process including the target users and the untargeted user. Block diagram of the product is the given which indicates how the components are related. This analysis tool is useful to engineers who design products so that they design products which will not fail when used. When BOP was designed, the engineers did not analysis the probability of failure of the mechanism because it could have not failed. The tool is also important because it enables the designers to produce products which could not injure the users. This means that if BOP was evaluated, then it could not have been installed because the designer could have instructed the buyer on the effects associated with its failure. In general, FMEA has some benefits such as improvement of the product reliability and quality because it enables designing of products which have less risk. The analysis tool also assists in early detection and prevention of potential failure of a product because it emphasizes problem prevention (Woods, D., 2015, November). Risk as a hazard Hazard refers to a condition which could be real or is potential of causing injury, death, damage to the property or environmental degradation. Hazard and operability study (HAZOP) is systematic and critical examination by a group of engineers to assess the hazards potential for mal-function or mal-operation of equipment or items with its consequences to the whole plant (Guiying, Y., 2013). This is not a prevention measure but a supplement to the existing methods in the safety locker. The reason why HAZOP study is carried out is because it identifies hazards and resolves those hazards. The correct timing for carrying out the study depends on the objectives of the study but it is normally effective when applied on already existing plant. During the study, representatives from the company are required such as managers, engineers operators, management and maintenance staff, control staff among many other people. Before the study is carried out, the chair should discuss the areas to be covered during the study, for example study of pipeline between instrument and piping. During the study, any chemical, pressure or pressure change is identified and each parameter is assessed using guide words. The purpose of this study is to note any risk associated with the changes identified and their possible consequences. Any deviation from the expected behaviour is believed to cause a crisis if not addressed. They measure the deviation of the parameter and they are categorized according to the level of harm. There are those which have not exceeded the expected level and there are those which are beyond the required lines. In the case of Deepwater oil spill, if a HAZOP study was carried out, may be the event could have been prevented. It is argued that increase in pressure of the gases and oil caused the incident at deepwater. Through HAZOP study, any change in pressure could have been noted. Through the study, first the cause of the pressure deviation could have been identified and then any consequences could have been considered. If the study showed that the pressure had crossed the expected level and the consequences were hazardous in nature, then a step could have been taken to prevent the event from occurring. The guide words of HAZOPs include NO, NOT, MORE or LESS. If a system or a plant fails completely, then the words such as not or no are used but if there is quantitative variation, then it is described by words such as more or less. The term AS WELL is used to describe any addition activity that may occur. Mainly, the guidewords are used to describe parameters such as temperature, pressure, flow and level. For example, the word NO can be used to describe that there was NO FLOW and the term More is used to indicated that there was HIGH PRESSURE. If a study was carried out in BHP, then the guideword used could be HIGH pressure (Guiying, Y., Bin, F., Yuanhong, L. and Branch, S.D.P., 2013). HAZOP analysis can also be carried out on new facilities or existing facilities and projects. Conducting the HAZOP analysis when the process design is fairy firm is necessary. This is because it is possible to change the design of the facility without incurring a lot of cost. The requirement of HAZOP analysis requires that a company where the study is carried must have a safety team which identifies the safety direction to be studied (Crawley, F. and Tyler, B., 2015). Future risk management From the effects of the failed risk management practice of the BP, review on the reason behind the cause of the crisis and other risk management failures in the business world concluded that, those people who are responsible for risk management focused on some aspects of risk management and did not focus on all matters (Bessis, J. and O'Kelly, B., 2015). In future, risk management team should abandon the narrow-analysis based on traditional risk management activity but should embrace strategic risk management practices. This strategic insight will be achieved through capable analytical skills and open communication in the organization. The other way of improving risk management process in the future is by prioritizing risks. In an organization, risks should be well defined and ranked from the highest to the lowest. Finally, the young generation from diverse backgrounds with great talents should be mobilized so that they can design products which are less vulnerable to failures. This is because the young generation approach risks from a different dimension and they can make use of technology to handle them (Kaplan, R.S. and Mikes, A., 2012). Conclusion Risk management is an impeccable area that needs to be addressed by every organization. A risk can refer to probability of damage or loss or a negative occurrence that is caused internal or external vulnerabilities but can be avoided through management actions. There are different types of risks in an organization such as financial risk, strategic risks, perimeter risks and operational risks (Dionne, G., 2013). In general, accidental losses are unpredictable, but through risk management methods, the unforeseen events become predictable. An accident in BP Deepwater occurred when a well integrity failed followed by a loss of hydrostatic control of the well. When the well went out of control, there was also a failure to control it with the BOP preventer equipment which allowed the release and subsequent ignition of the hydrocarbons. In future, risk management team should abandon the narrow-analysis based on traditional risk management activity and embrace strategic risk management practices to avoid cases such as that of BP. References Bessis, J. and O'Kelly, B., 2015. Risk management in banking. John Wiley & Sons. Crawley, F. and Tyler, B., 2015. HAZOP: Guide to best practice. Elsevier. Dionne, G., 2013. Risk management: history, definition, and critique. Risk Management and Insurance Review, 16(2), pp.147-166. Guiying, Y., Bin, F., Yuanhong, L. and Branch, S.D.P., 2013. The Application of HAZOP in the Risk Evaluation of Catalytic Reforming Device. Safety Health & Environment, 10, p.019. Haimes, Y.Y. ed., 2015. 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