Energy firms tap new technology to assess risks

Years after the Deepwater Horizon disaster brought risk management and safety on energy operations to public attention, energy companies of all types are using emerging technologies to assess and mitigate risks to both third parties and their personnel.

Visual intelligence technology such as drones is increasingly being used to identify and monitor the safety of energy operations, including oil pipelines and power lines, while telematics is used to compile and evaluate data to address distracted driving and fatigue risks.

The April 2010 explosion and fire on the offshore drilling rig Deepwater Horizon killed 11 workers, injured 17 others and caused a massive oil spill into the Gulf of Mexico that many experts deemed the largest environmental disaster in history.

In mid-January, London-based energy major BP P.L.C. announced it was nearing the end of the Deepwater Horizon compensation process, culminating in a total payout of about $65 billion from the disaster.

Safety improvement efforts in the energy sector have focused to some extent on technologies such as blowout preventers — the failure of which contributed to the BP disaster.

“A lot of technology has gone into trying to not have another Deepwater Horizon,” said Thomas Wilson, a Houston-based partner in the labor and employment practice of Vinson & Elkins L.L.P. “Obviously, that’s more offshore than onshore, but I think there are a lot of lessons learned. Both onshore and offshore are recognizing that a major failure, fire, explosion, is something they have to engineer to make sure that doesn’t happen.”

Energy companies are interested in using emerging technologies to identify and mitigate risks, experts say. For example, unmanned aerial vehicles, more commonly known as drones, are increasingly being deployed to conduct inspections of energy operations and minimize the risks to personnel, experts say.

“Energy companies are always at the cutting edge of a lot of technology,” said Julia Palmer, Houston-based partner with Holland & Knight L.L.P. who specializes in energy litigation. “But the landscape of safety, at least in the oil patch, has changed a bit as we move from so much offshore development to onshore development after Deepwater Horizon occurred.”

However, drones are being used for offshore operations such as inspecting oil rigs rather than immediately putting employees in harnesses to conduct inspections, she said. While employees perform needed repairs, routine inspections for issues such as corrosion or post-hurricane damage can be conducted without putting personnel at risk, Ms. Palmer said.

“Drones in the oil and gas industry cross all sectors,” she said. “You have a need for drones if you’re trying to do an inspection of a flare stack. You may need a drone if you’re looking at servicing pipelines or even in the refining aspect. It’s a matter of can you get personnel there safely? Can you do a better job with a drone? When you send a drone up, you’re not putting anyone at risk and you also typically end up with pretty good footage and the opportunity and the luxury of being able to sit down afterwards and study that footage and see what’s going on. You may be able to get a drone into places where it’s just not feasible to get a person into.”

Drones are also being used to mitigate risks in other types of energy operations, such as inspections of wind turbines, Ms. Palmer said.

In January 2017, the White Plains, New York-based New York Power Authority partnered with Canadian utility Ontario Power Generation on what NYPA called the first-ever inspection by a drone of the ice boom between Lake Erie and the Niagara River to make quicker, safer, less expensive and more environmentally friendly repairs. The drones performed a task previously performed by helicopter or boat.

“Drones are really being stepped up in use right now, not only to check pipelines, but they’re now doing a number of power line inspections,” said Steven Behrens, risk consultant, property risk engineering/ global asset protection services for XL Group Ltd., which does business as XL Catlin, based in Hartford, Connecticut. “The use of a drone is far less expensive than using a helicopter. A whole lot of people were jumping on the bandwagon.” But the risks for drone usage are “probably not fully identified yet,” he said.

A 2011 Halloween nor’easter storm that plunged much of the state of Connecticut into darkness highlighted the challenges that trees present to transmission and distribution lines, he said.

“Power companies always look to maximize money they spend on this tree trimming problem, and I think they can do that and be more effective by using these drones,” Mr. Behrens said.

The use of visual technologies to identify risks goes beyond drones to include satellite technologies and indoor survey tools such as Google Glass, said Beverley Adams, head of visual intelligence strategy for Marsh & McLennan Cos. Inc. in London.

“Some are more developed than others,” she said. “The satellite piece … is fairly well established in things like modeling. Things like drone technologies, we’re seeing quite a split in terms of uptake within different market players. Some companies invested two years ago in their own drone programs and are using it for inspection purposes. Others are very much evaluating to see the feasibility of it. It’s that buy or build it debate.”

Companies are using the various technologies to improve risk management in the areas of safety, efficiency and general cost savings, Ms. Adams said.

“There’s a whole separate piece which is ‘tell me something I didn’t know,’” she said. “For example, after an event like Hurricane Harvey, we were very busy deploying aircraft, satellites to quickly image what had happened and seeing early on the impact on their facilities. We don’t have a good way of measuring that benefit. We just know that from a risk management standpoint they didn’t know what had happened until they saw the footage.”

“I think this comes back to some of the work that’s going to need to be done by the industry, which is solid stats around the benefits and the improvements, because a lot of businesses are saying ‘help me make the business case for doing this,’” Ms. Adams continued. “Everybody has been saying the word drones for a few years now, but the reality is that some forward-thinking businesses have been prepared to put the money upfront. Other businesses are still asking the same questions … what are the efficiency savings, how do I prove this out?”

Eliminating risky driving

Oil and gas firms are also using telematics, which merges telecommunications and informatics via devices such as GPS, to reduce risks. For example, telematics can monitor for driving behaviors such as hard braking or deviations from planned routes, said Jessica Dekermanji, Boston-based chief underwriting officer for national insurance specialty energy with Liberty Mutual Insurance Co.

“Route planning is really important because you might be able to eliminate dangerous intersections or reduce the number of turns that are being made,” she said. “If you can monitor the telematics and make sure people are following the set route, that can help to make it a safer operation.”

The use of telematics has really taken hold over the past six years amid the current “distracted driving scourge,” said John Kramer, vice president and head of North American operations for telematics provider The Floow Ltd. based in Detroit.

“Many large organizations and companies with safety-sensitive associates who have access to vehicles, they have policies against using their phones while driving,” he said. “Using this type of technology, they’re able to detect when this is happening, provide coaching feedback when it happens and address those situations as they arise.”

“It’s really kind of come into vogue simply because the cost of the technology is coming down,” he said of the use of telematics. “It’s become something that is a little bit more palatable for businesses to apply a telematic solution for their fleets.”

Fatigue is often a contributing factor to workplace accidents, so instant fatigue detection tools are also gaining traction, experts say. The tools can detect if an employee is showing signs of fatigue, such as lengthy or excessive blinking or falling asleep, and will alert both the employee and a monitor to the danger, said Mark Gaskamp, managing director for insurance brokerage Wortham L.L.C. based in Austin, Texas.

“I think we’re going to continue to see that evolve,” he said. “There’s just so much more technology that’s available.” The use of autonomous vehicles is another emerging technology that could eventually be used to mitigate employee fatigue and inattentive issues that contribute to workplace safety incidents and injuries, experts say.

“Those are innovations that are attractive for the energy sector to consider because one of the biggest costs is the human that’s driving those vehicles, but the ability to get to market is probably further off,” said Joel Roberson, a Washington, D.C.-based partner with Holland & Knight L.L.P. “Drones … are here today. Autonomous vehicles are starting to show up, but they’re probably a year or two away.”

Insurance implications

Companies using emerging technologies are getting better terms and conditions as brokers discuss their usage and impact during conversations with underwriters, said Fred W. Smith IV, director of natural resources and head of U.S. mining and metals at Willis Towers Watson P.L.C. in Knoxville, Tennessee. For example, if a mining company can show it is doing everything possible to improve the safety of its employees, underwriters can take that into account in setting more preferential rates for buyers of workers compensation policies, he said.

“These things can all help in the insurance underwriting process to make a mining company look better compared to their peers,” Mr. Smith said.

Policyholders would not necessarily receive a credit for using telematics, “but we would hope to see a better loss experience from implementing a telematics program and using them appropriately,” Ms. Dekermanji of Liberty Mutual said, adding that if they have a large deductible and will pay part of any claim, it is beneficial to use such technologies to reduce the likelihood or severity of claims.

But disruptive technologies, while “very exciting,” also trigger a host of legal and insurance questions, including how to price an insurance policy commensurate with the risk of the products, especially given the lack of data on crash rates and other factors, Mr. Roberson noted.

While there have been some incidents with drone failures, there have not been any major claims or losses related to drone usage in the energy sector, Ms. Palmer said. But given their increasing usage, particularly in proximity of expensive assets, risk managers should be aware of the potential for drones to do damage and plan accordingly, she said.

Obstacles ahead

With any emerging technology comes challenges, including the need to understand the data being collected via telematics and properly use it to pinpoint patterns, experts say.

“If you’re just collecting it and not benefiting from using that data, then it’s really not worthwhile,” Ms. Dekermanji said.

Regulation is another critical challenge for all emerging technologies.

“That is something that is going to have to be looked at closely, because regulation can either accelerate or put the brakes on new technology and how widely it’s used,” Mr. Smith said.

For autonomous vehicles, a key regulatory challenge is that the National Highway Traffic Safety Administration’s Federal Motor Vehicle Safety Standards are “all written with expectation of it being driven by a human,” Mr. Roberson said. While the U.S. House of Representatives passed legislation in September to revamp the process for companies to prove the safety of these vehicles regardless of their lack of compliance with requirements for human-driven cars, the future for the legislation and the pathway for the vehicles is unclear.

“The reason that’s important for the energy sector is because a lot of innovation is happening around autonomous vehicles, but the ability to get to market is still an open question, and I don’t think we’ll see robust investment in that space until federal regulation makes the process clearer,” he said.

But emerging technologies can also help address regulatory challenges and requirements, experts say.

For example, some technological efforts are focused on dealing with the requirements of the U.S. Occupational Safety and Health Administration’s silica rule, which lowered the permissible exposure limits for workers exposed to silica dust.

The requirements have already taken effect for the construction sector, while some of the requirements for the hydraulic fracturing industry will begin to kick in on June 23. However, because silica controls for fracking are still being developed, the rule will give these employers three additional years to implement engineering controls to limit exposures.

“The energy sector, (including) the fracking industry, is spending a significant amount of time trying to deal with the new OSHA silica standard,” Mr. Gaskamp said. “That’s kind of a game changer.”

And privacy issues are another consideration, more so in relation to third parties than employees, experts say. Drones used to monitor energy operations, for example, could inadvertently record personal information from nonemployees, leading to liability concerns that risk managers should check with their brokers and insurers to examine their policies for coverage.

But some of the emerging technologies collect data about employees, so energy companies do need to consider the privacy implications. The key is to ensure employees know that the technology is being used to improve safety, experts say.

“I don’t think you want to make it about productivity,” Ms. Dekermanji said. “The focus is to make sure people are taking the best route or not using cellphones when they’re driving or not driving erratically.

Making sure that they understand you’re doing it for their safety will help them adopt it.”

But these potential hurdles are generally seen as surmountable, meaning the use of these emerging technologies in the energy sector is expected to continue to expand and change the way risks are cataloged going forward, experts say.

“It’s almost changing the way risk managers will look at their facilities, we hope,” Ms. Adams said. “This whole drone piece is starting a little bit of a revolution. It’s no longer just an Excel spreadsheet. Now, it all really does come to life, and I think it’s just the beginning.”