Tuesday, January 25, 2011

A Nuclear Model for Oil and Gas

The President’s Commission has issued its report on the Deepwater Horizon disaster.* The report reviews the history of the tragedy and makes recommendations based on lessons learned.  This post focuses on the report’s use of the nuclear industry, in particular the role played by INPO, as a model for an oil and gas industry safety institute and auditor.

The report provides an in-depth review of INPO’s role and methods and we will not repeat that review in this space.  We want to highlight the differences between the oil and gas and nuclear industries, some recognized in the report, that would challenge a new safety auditor. 

First, “The oil and gas industry is more fragmented and diversified in nature. . . .” (p. 240)  The industry includes vertically integrated giants, specialty niche firms and everything in-between.  Some are global in nature while others are regional firms.  In our view, it appears that oil and gas industry participants cooperate with each other in certain instances and compete with each other in different cases.  (In contrast, most [all?] U.S. nuclear plants are not in direct competition with other plants.)  Obtaining agreement to create a relatively powerful industry auditing entity will not be a simple matter.    

Second, “concerns about potential disclosure to business competitors of proprietary information might make it harder to establish an INPO-like entity in the oil and gas industry.” (p. 240)  Oil and gas firms regard technology as an important source of competitive advantage.  “[A]n INPO-like approach might run into problems if companies perceived the potential for inspections of offshore facilities to reveal ‘technical and proprietary and confidential information that companies may be reluctant to share with one another.’” (p. 241)  Not only will it be difficult to get a firm to share its proprietary technology if it may lose competitive advantage by doing so, but this will make it more difficult for the auditing organization to promote the industry-wide use of the most effective, safest technologies

Third, and this could be a potentially large problem, INPO operates in almost total secrecy.  “[INPO] assessment results are never revealed to anyone other than the utility CEOs and site managers, but INPO formally meets with the NRC four times a year to discuss trends and information of “mutual interest.” And if INPO has discovered serious problems associated with specific plants, it notifies the NRC.”  (p. 236)  INPO claims, probably realistically, that maintaining member confidentiality is key to obtaining full and willing cooperation in evaluations. 

However, this secrecy contributes zero to public understanding of and support for nuclear plant operations and owners.  At this point in its evolution, the oil and gas industry needs more transparency in its auditing and oversight functions, not less.  After all, and forgive the bluntness here, very few people have died at U.S. commercial nuclear power plants (and those were in non-nuclear incidents) while the oil and gas industry has suffered numerous fatalities.  We think a government auditor, whose evaluations of facilities and managements would be made public, is the better answer for the oil and gas industry at this time.

*  National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, “Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling,” Report to the President (Jan 2011).

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