Jan-2011

Independent verification of refineries

Independent verification should focus on areas of greatest risk and so contribute to risk reduction measures

Donald Payne
DNV Vietnam

Article Summary

We live in a world where risk is a bad word. We are living in probably the safest time in human existence and are probably the most risk-averse generation there has ever been. We are under more scrutiny from stakeholders than ever before: from governments, lenders, NGOs, 
press and the general population. This scrutiny is not going to decrease, so we must be prepared to manage the risks associated with our activities.

Risk, in the hydrocarbon processing business, takes many forms (see Figure 1). Some risks are obvious and are the ones we think of most often, such as fatality or injury and asset damage.

Often, we do not pay as much attention to production losses, but these can be considerable and many times the cost of asset damage. DNV is aware of one offshore installation, producing 50 000 b/d of condensate that was shut down for 14 months due to a pipeline failure. At $70/bbl, production losses were approximately $1.5 billion and, with a rate of return on revenue of 10%, lost profits amounted to $150 million.

Other losses are even less at the forefront of our minds; for instance, production delays that may affect our ability to start paying back loans. Recent events in the Gulf of Mexico have illustrated further risks in relation to environmental impact, loss of reputation and political impact, with their consequential financial liabilities.

A further politically related risk affects governments and national oil companies that commission the building of a refinery from one of the international turnkey contractors, but have insufficient experience themselves and are not well qualified to query cost and schedule estimates.

Independent verification
Refinery and petrochemical projects are complex, with many interactions between the various units and project phases. Decisions taken in one phase may have adverse implications for another phase. It can be difficult in a project, when involved in day-to-day work, to identify all of these interactions.

In addition, we develop projects today in a truly global market, with many of the components, systems and design processes developed in locations remote from the facility.

A particular challenge are fast-track projects that often start many phases in parallel with a preceding one, without all aspects being fully developed, and with overlapping decision gates.

Therefore, in managing these challenges, the use of an independent party with wide experience is beneficial, and independent verification will lead to a reduction in design, supply, construction and commissioning errors.

Independent verification is a valuable tool for the refinery or petrochemical facility owner to obtain assurance of the contractors’ work or to show partners, financiers, insurers and the public that the refinery or petrochemical facility has sufficient integrity to fulfil its specified purpose, and that the risks to personnel associated with the facility are reduced as much as is reasonably practicable.

Additionally, it is good business practice to subject critical work to an independent check; this minimises the possibility of errors remaining undetected.

Independent verification will ensure that the verifier has an 
unbiased view and perspective when performing this activity. Furthermore, it will avoid the situation where errors could be overlooked by engineers because of their closeness to work within 
the facility.

Verification can also be used as a part of the project risk management process. The failure of any part of the facility may expose the owner to:
• Safety risks
• Environmental risks
• Economic risks
• Political risks.

Since verification increases confidence levels that the refinery or petrochemical facility complies with the requirements placed on it by national authorities, the owner or the lenders, it follows that the risk of failure of the facility decreases as a result of independent verification. Thus, independent verification contributes to project risk management and reduction.

Verification and risk
Risk is the likelihood of an accident or unplanned event occurring, considered in conjunction with the potential consequences of such a failure. In quantitative terms, risk is proportional to the probability of failure multiplied by the consequence of such failure.

Measures usually taken to reduce the risks to the operation of the refinery and process facility, and to protect the health and safety of personnel associated with it or in its vicinity, are through reduction in the probability of failure, and/or mitigation of the consequences of failure.

Independent verification of refineries and petrochemical facilities has a key part to play in both aspects of risk reduction. Once the risks to the facility have been identified, as well as the measures to be taken to reduce these risks, verification work can be focused on these critical areas.

The benefits of this risk-based approach are:
•  mproved safety and financial performance by optimisation
• Cost savings with the main focus on critical areas
• Management of supply chain risks
• A transparent, traceable and well-documented verification system.