Value is more than sums

Safety does not always get taken into account in mathematical calculations – because how do you put a price on a high level of safety? And what is avoiding a major accident worth?

It might be reasonable to suppose that the PSA’s 2018 main issue – valuing safety choices – deals first and foremost with the cost/benefit aspect.

"And that is naturally one part of this. But the subject covers so much more", emphasises Sigve Knudsen, the PSA’s director of legal and regulatory affairs.

"That’s because not all value can be expressed in numbers and calculated. Traditional economic methods don’t stretch to complex relationships with challenging uncertainties – like managing major accident risk."

He accepts that financial assessments of costs and benefits are important in a decision process, but stresses that it is also necessary to be aware of the limitations of such analyses.

"Several types of analyses – covering financial aspects and risk, for example – are often conducted to establish a robust decision basis,” he points out. “Their results help to establish this, but don’t comprise the whole of it."

Petroleum operations are a high-risk activity where major accidents can occur, causing the loss of many lives, great environmental damage and extensive financial losses.

"Experience from such incidents has clearly shown the risk associated with petroleum activities. So preventing the chance of major accidents will always be our top priority."

Events such as the sinking of Alexander L Kielland on the NCS in 1980 and the destruction of Britain’s Piper Alpha in 1988 demonstrate the dramatic consequences such disasters can have.

The latest accident with a high body count in Norway’s petroleum sector was the helicopter crash off Turøy near Bergen in 2016, which claimed 16 lives.

This fell within the ambit of the Norwegian Civil Aviation Authority. But incidents with the potential for multiple fatalities and big environmental damage have also occurred during recent years in the PSA’s area of authority.

Apart from the human side, a major accident will also have big consequences for society. Reducing the risk of such incidents is therefore a key justification for regulating HSE.

"The losses experienced by those involved in an accident will normally be much greater than those which appear in the socio-economic assessment," observes Knudsen. "You can’t express the value of an individual in cash".

"A basic presumption in Norway is that the safety of people and the environment will take precedence over economic considerations".

"Nevertheless, socio-economic and commercial considerations must also be incorporated in the assessments made when we take safety decisions in the petroleum industry."

Together with a number of other agencies, the PSA has contributed to creating a set of guidelines for analysing the socio-economic impact of government measures in the petroleum sector.

This document will provide an explanation of how such analyses can be structured, and how they can help to improve evaluations of the consequences of these actions.

"Socio-economic analyses can help to strike a balance between resource management and safety requirements, but they’re not primarily intended to assess the value of safe operation. The purpose of safety activities is to avoid accidents and damage, and it’s difficult to measure that and put a value on it."

Headed by the Ministry of Petroleum and Energy, work on the sector guidelines has involved other ministries responsible for administering Norway’s oil industry as well as executive agencies.

"Socio-economic analyses can help to strike a balance between resource management and safety requirements," observes Knudsen. "But it’s important to realise that they’re not primarily intended to assess the value of safe operation".

"The purpose of safety activities is to avoid accidents and damage, and it’s difficult to measure that and put a value on it."

Major accidents involving many deaths, extensive environmental damage and big financial losses are often The probability of the incident was also low, while its consequences were substantial. Another feature is great uncertainty about both probability and outcomes.

"A key place in safety regulation is occupied by the cautionary principle, particularly where uncertainty is high," says Knudsen.

"The same applies to the precautionary principle, which is incorporated in Norway’s regulatory requirements on risk reduction.

"These require players to analyse their own operations in detail to determine how hazards can arise and develop, and the possible consequences of the various scenarios."

Safety and emergency preparedness have to be proportionate to risk in each activity. The greater the risk, the more the reduction measures adopted and the more extensive they must be.