Among the lessons to be learned from a recent study of BP plc’s Deepwater Horizon rig disaster is that risk management systems and technology need to be studied and updated, said Christopher Smith, the Department of Energy’s assistant secretary for oil and natural gas.

“It wasn’t one person, it wasn’t one company, it was an entire system and how all of the pieces fit together,” Smith told the Natural Gas Roundtable in Washington, DC, last Tuesday. “Within all of these companies there are excellent engineers, there are excellent scientists and there is an intent to do things well. But there is concern about the way these systems fit together.”

Some of the technology used to monitor rigs and react to early indications of trouble is 40-50 years old, according to Smith.

“I think that’s something we do need to be concerned about,” he said.

According to the report of the presidential commission on the BP Deepwater Horizon rig disaster, “the immediate cause of the Macondo well blowout can be traced to a series of identifiable mistakes that reveal such systematic failures of risk management that they place in doubt the safety culture of the entire industry” (see NGI, Jan. 17). The commission called for major safety reforms in the offshore oil and natural gas industry, such as the creation of an industry-run offshore safety institute. Producers were divided on some of the report’s conclusions and recommendations, and congressional lawmakers were far from united in their reaction to the report (see related story).

“Thinking through how we conceptualize risk and how we manage it in complex situations is something that we collectively need to think about,” Smith said. “The tools are there; the skills are there. This industry is obviously extremely large, extremely well funded and has some very, very smart scientists and engineers. The industry has the ability on individual tasks to tackle whatever happens to come up, but the intersection of those systems is something that should give us pause. I think that’s one of the big areas of doubt.

“There’s a role for government there and there’s a role for industry…the job on the government side is to make sure we are doing the right research to quantify these risks so we end up understanding them.”

Turning to the nation’s burgeoning shale resources, Smith said federal agencies and the natural gas industry should provide communities newly affected by shale drilling activity with the kind of research needed to better understand those affects.

“You see this rolling wave of moratorium action that’s happening at the state level, and you see this very complex, interwoven set of regulations that we use here in our country to regulate natural gas — we don’t have a national framework, we’ve got a state-by-state approach, largely — and you realize that although the technical challenges are things we understand a lot about, it’s that concern around the environmental impact of natural gas and the safety impact of hydraulic fracturing that communities have that’s going to be a very important step in ensuring that we develop this resource to its fullest potential.”

That makes it important for regulators and the industry to conduct the right research to bring scientific rigor to the discussion, he said. “I think we can collectively raise that to make sure that we’re talking about the right things and we’re collectively making the right decisions.”

Many of communities experiencing a boom in shale-related exploration and production (E&P) activity “haven’t seen E&P for generations.,” Smith said. “Shale gas kind of started and moved quickly in the Barnett Shale, where you’ve got a history of exploration and production activity, but as you move to the East Coast and further up north, you’re moving into communities that don’t know how to do this. They don’t have this experience…

“You’re seeing the future tax base, you’re seeing a lot of positive things — you’re seeing new jobs, you’re seeing economic prosperity — and all of these things are things the communities want…[but] before you get that first incremental tax dollar, you’ve got development to deal with, you’ve got permits to deal with, you’ve got people who have concerns…many communities don’t know how to deal with that boom and bust cycle…

“How do we ensure that communities are ready for this freight train that’s about to hit them? It could be a very good thing; it should be a very good thing. It should be about economic development and prosperity to come, and will be if we manage it correctly, but there’s a path that these communities have to go through.”

Smith, who is responsible for administering domestic and international oil and gas programs, was appointed in October 2009. He previously worked for entities of Chevron Corp., focused primarily on upstream business development and liquefied natural gas trading, including three years negotiating production and transportation agreements in Bogota, Colombia.

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