Carlos de Regules
Executive Director
View from the Top

Safety Through Self-Declaration

Wed, 01/18/2017 - 13:10

Q: How does ASEA spring into action when there is an accident in the industry?

A: In April 2015, one month after ASEA came into operation, a series of accidents occurred offshore. They were accidents involving natural gas, not oil, eliminating the risk of a spill. But people died. Once we understood that the accidents were recurring events, we stopped natural gas transportation operations in the Gulf of Mexico, a first for Mexico.

We made sure that at-risk operations could not continue until we were comfortable that the conditions allowed for safety. The way we did that was simple but effective. Instead of requiring all kinds of analyses and engineering information from the operator, which would have certainly lacked depth, we asked for a self-declaration instead. An entity declaring to the authorities that its safety conditions are sufficient to reinitiate operations is very powerful in technical and legal terms because they are self-declaring that safety has been personally verified. This declaration was signed by the head of PEMEX E&P, the head of the region and the head of the Environment, Health and Safety (EHS) department. After this, operations were reinstated.

Q: What measures are in place in the event of a large accident?

A: We have a framework for dealing with large environmental accidents, in particular oil spills. Our regulation for financial guarantees requires not only high-level coverage but also recognizes there is no sufficient coverage in the world to handle an event the size of Deepwater Horizon. What is needed is the technical execution capacity to react immediately, which is now a requirement in Mexican regulation. Operators must prove to the authorities prior to operations that they have the response capabilities to cope with an incident of this nature. This may be the operator’s own capacity or capacity shared with another company. It is no longer a question of “if,” it is mandated as part of our regulation.

Q: Should private companies also expect to self-declare their safety standards to ASEA in the future, as PEMEX did in April 2015?

A: Because our regulations are performance-oriented rather than prescriptive, we face the bureaucratic burden of having to analyze projects on a case by case basis, as opposed to one-size-fits-all. We also face the risk of creating a bureaucratic bottleneck because of this so we had to design new mechanisms. This mechanism is third parties.

The other aspect of providing flexibility to the industry through this kind of regulation involves making accountability undiluted and unequivocal. This is not achieved through self-assessment but self-declaration. Selfdeclarations are where the regulated entity signs a sworn oath that conditions have been met to ensure safety. In dealing with any future issue or even litigation, this selfdeclaration is very powerful in terms of the operator’s own accountability.

Q: Even if a company self-declares safety, what if something goes wrong? And if it does, how will ASEA protect its own public image?

A: Trying to define a more modern and efficient framework bears reputational risk for the regulator. However, we are convinced that this is the way to do things because in the end better performance in safety and environmental protection can be accomplished through this method. We are aware of the PR risks for ASEA but we hope we can demonstrate that sound, efficient and risk-based regulation is the answer to a risky industry. Zero-risk does not exist and would mean no industry.

Q: How has ASEA cooperated with the insurance sector to ensure the risk is structured properly in regulation and that it is insurable?

A: We work closely with the insurance industry and authorities not only in Mexico but also abroad. Our specialist team spent time in London and in talks with key players in New York to find out what was insurable and to what degree. The talks were complex and have resulted in us defining a high level of coverage. In the end our technical criteria for defining this high level of coverage prevailed and that is the regulation in place today.

Our unconventional field regulations were published last March. Their development was enhanced by what Canada has been doing nationally, particularly in the province of Alberta. The International Energy Agency (IEA) has also produced reports on the best practices for natural and shale gas development. Best practices and international tendencies have been in our DNA from the beginning. We understand this is a global industry and we need to be a global agency.

Q: How much dialogue is there with the supply chain?

A: This issue is one of the first subjects we discussed with our colleagues at the US Bureau of Safety and Environmental Enforcement, which is the equivalent of ASEA north of the border but only for the offshore industry. In their experience, contractors were among the elements that needed to be managed correctly. The operator takes center stage in our regulations because it has the sole responsibility for an activity’s safety. However, the operator needs to make sure that contractors and subcontractors are also operating according to the same philosophy.

Q: What lessons did ASEA learn as a regulating agency throughout Round One?

A: The first lesson is that working together with our colleagues at CNH is key to delivering sound regulation. Only when a project is well understood can it be adequately regulated. Collaboration between the two agencies has been intense and includes working on enhancing the contract model throughout the various legs of Round One. This is obvious when the contract involved in Round 1.1 is compared with that for deepwater Round 1.4.

Recently the OECD performed an analysis of the three oil and gas regulators in Mexico, marking the first time they have analyzed a system of regulators rather than an individual entity. Most of its recommendations focused on having the regulatory system work in a coordinated manner to gain efficiencies and provide certainty that risks are being correctly addressed.

Q: What was the OECD’s recommendation to improve ASEA’s coordination with other regulators?

A: One recommendation was to raise ASEA’s level of autonomy to similar to that of CNH and CRE. Another suggestion had to do with using the existing counsel to coordinate the efforts in the energy sector as a planning hub. From that type of integrated planning we could derive specific work programs for each agency. A further recommendation was to seek common ground in the area of attracting and retaining talent among the three regulators.