Latest Oil and Gas News Russia

ROGTEC talks to the market leaders.

Contributors:

Konstantin Timoshechkin, Head of SGS Systems & Services Certification in Eastern Europe

Chris Renwick, International Development Manager and General Director of Lloyd’s Register Kazakhstan LLP

1) Quality management, assessment and certification programs are vitally important to be championed and driven by top management down through the organizations. What are the general levels of acceptance and adoption by senior management in Russia and the Caspian? How are any problems to this overcome by your organization? How can they provide real benefits to the organisation?

Konstantin: Implementation of a quality management system and its further certification cannot be initiated without top management endorsement. However, once launched, in many cases the quality management and certification program tend, in fact, to be fully the responsibility of a Quality Manager without much support from CEO.

But the good thing is that, as a rule, after a while we acknowledge a transformation in mentality of both line personnel and managers. Normally, within 1 year after the program was launched people are getting used to the new system and realize the advantages it has given to each staff member, e.g. clear distribution of tasks and responsibilities in the organization. Facing the real effect of a QMS on business performance, its impact on daily work of personnel and its contribution to decision making process top management starts paying more attention to the subject in question. And this attention is crucial for the success of the program's implementation and its further maintenance, since resistance to change is a natural response to changes that confront our usual way of doing things. The speed of adoption of the changes by an organization directly depends on the leadership. It is top management's responsibility to indicate the right direction, to motivate and also to neutralize the inevitable opposition.

Within the regional oil & gas sector, we face quite a high level of understanding of the significance of system certification compared with other industries, which is due to a large extent to their high risk exposure and export orientation, and many players within oil & gas are certified according to ISO 14001 and OHSAS 18000. Nevertheless, overall situation with top management attitude towards quality management programs fits into the general market trends as described above. This attitude is gradually changing. Partly, this is due to the public training activities that SGS in particular has been performing regularly for the last few years in Moscow and other locations all over the region. Moreover, while conducting certification and surveillance audits we put maximum efforts in involving top management deeply into the process. Even if sometimes initially the company's primary objective consists in just obtaining a certificate for PR purposes, we consider as one of our key tasks to help regional leaders realizing true benefits of a quality management system implementation, and it does result in mentality change.

Chris: Nowadays senior management increasingly realise that development and implementation of management systems will bring benefits to their business if they do it correctly. That is why many companies strive to receive not just a certificate on the wall but to establish a strong system with defined processes and responsibilities for their organisation.

Top management of companies which operated in the Soviet Union era can face some difficulties in adoption and adaptation related to effectively delivering the management system’s idea to their employees. Not only middle management but all employees can have important input to delivering value from the management system, but they may see it as an additional burden. Senior management then face the challenge of looking for ways that they can demonstrate how it will benefit the workforce to help gain their support and creative input. We do not see this as a major issue and we find that this can be resolved by actively involving staff at all levels from senior management down in appropriate management systems’ training and practical tasks to encourage ownership at all levels,

Most of the senior managers we speak to are interested in management systems as they understand the benefits such as: Defined and established processes, roles & responsibilities; Clear picture for all of the company strategy, mission, policy and objectives; Best practices to satisfy customers and improve the quality of services/production cycle through analysis and preventive/corrective actions; decreasing the number of rejections and deficiencies

2) Recently a major international operator was found to have cut back on their inspection practices with tragic consequences within several sections of their operations. What is the attitude to inspection and assessments in the FSU? How could these be improved further?

Konstantin: Reactive inspection practice still prevails over pro-active behaviour. However, there are more and more cases when we get the order to perform a preventive inspection for certain reasons. Firstly, there is a new generation of managers that graduated from European or American Business School and have a Western experience of using inspection services regularly and not ad hoc. Secondly, once the operator confronted the problem related to lack of preventive inspection, he would most probably tend to avoid such problem in the future by allocating costs on inspection activities in his budget. To cite an example, after one of our clients found himself with equipment purchased from China that didn’t comply he has not placed any order without involving SGS as a third party inspector ever since. Thirdly, obviously our sales process contains an educational element. We teach clients on what are the risk management tools, on what could be outsourced, on the economic benefits of inspection services, on what can be assessed and which parameters to control.

Chris: Inspection and assessment is often closely monitored and many certificates can be requried to get and maintain a permit to operate. The issue is not the willingness or the quality of the inspections it is the appropriateness of them. For the oil industry the Piper Alpha disaster was a wake up call. The process and practices were examined in detail and found wanting in a number of key areas. One of the biggest issues was the fact that the prescriptive approach failed to properly address the risks involved. The result was a move to a risk-based approach where the operator had to provide evidence that the inspections and assessments and other risk control mechanisms were appropriate for the hazards concerned. Increasing the adoption of such hard learned lessons will help to improve the value of inspection and assessments in the FSU.

3) The FSU, traditionally, had the attitude of if it is not broken don't touch it, towards quality and assessment, how is this changing?

Konstantin: Such attitude has been gradually changing - see answers to Q. 2

Chris: With the increasing adoption of international business practices and the easing of trade barriers there is a growing appreciation that process improvement can provide significant benefit to the organisation, its clients and the community, from improved revenues for the company and improved products for the clients to better operational safety and environmental compliance that will benefit the wider community. The situation will not change overnight but with improved access to investment many industries in the FSU are now more able to make such changes which can only be good news for all concerned.

4) Russia often employs its own certification standards, a) how to these differ to EU standards b) What effect do they have on companies entering the market? c) or Russian companies exporting?

Konstantin: When we talk about product certification in oil & gas, we do face various discrepancies between standards employed in Russia and in the EU. For example, Russian steel classification principles do not match the European ones. In Russia, so far standards to be used for Q&Q assessment in LNG sector simply do not exist, which causes serious problems for the market players. Testing methods for oil products in Russian and the EU differ. And the list of examples could be prolonged. The fact that Russia has not signed Mutual Recognition Agreement with any of the recognised European accreditation bodies is the reason why producers have to test their products more than once and cannot use one single test report for certification in an export market. The other consequence of the discrepancies in standardization for both exporters and importers can be that in some cases design of certain equipment has to be altered to comply with foreign standards or safety rules.

Chris: In considering how they differ we should consider not just if they are different but we must also ask ourselves if the differences really matter. The fundamental issue is does an FSU standard and an equivalent EU standard both provide an acceptable level of safety? If the answer is yes then is it a real issue?.

In reality the issue may be more one of needing a certificate of compliance with the standard rather than any consideration of equivalent safety etc. It is this that can have the biggest effect on companies entering the market where they are asked to provide for additional testing and approval prior to importing the equipment. The result can be increased costs and difficulty in competing in the local market. The good news is that there are a steadily increasing number of international standards that are recognised, adopted or harmonised in the FSU states so barriers are coming down, albeit not as fast as some may want. For FSU companies exporting they are normally free to adopt whatever standards they like for export production so provided they can manufacture and obtain certification to the required EU standards then the export market is open to them.

5) How can assessment and conformity programs aid an organisations performance?
One of the good examples is the help that such programs provide in terms of supplier management. Procedures established as a result of a QMS implementation and auditing programs (either outsorced or conducted by own staff) are the effective tools to select an organisation’s suppliers and to further monitor their performance. Taking in mind that mutually beneficial supplier relationships is one of the eight key quality management principles, these programs directly boost the organisation’s performance.

Konstantin: One of the good examples is the help that such programs provide in terms of supplier management. Procedures established as a result of a QMS implementation and auditing programs (either outsourced or conducted by internal staff) are the effective tools to select an organisation’s suppliers and to further monitor their performance. Taking in mind that mutually beneficial supplier relationships is one of the eight key quality management principles, these programs directly boost the organisation’s performance.

Chris: The evolution of the global marketplace has made customers and regulators increasingly dependent not only on standards but also on the methods used to ensure that products comply with the requirements of those standards such as conformity assessment. Therefore conformity assessment programs form a vital link between standards (which define the necessary characteristics or requirements) and the products themselves. The choice of the most appropriate assessment processes can have a significant effect on the confidence and reliance of the organisations’ operations activities.

Conformity assessment can verify that a particular product meets a given level of quality or safety. The organisation will receive explicit (and implicit) information about the product’s characteristics, the consistency of those characteristics or the performance of the product. Assessment can also increase a customer’s confidence in a product, providing the information about product’s safety and suitability.

Using the results from the assessment the organization can develop and implement strategies which can improve its operations and will help develop closer cooperation with partners and customers

6) Are the regional companies looking at the ISO 9000 and 14000 series as practical solutions to improving their quality and environmental practices?

Konstantin: The answer is yes for both but not equal yes. With ISO 9001, Russian companies do not realize the standard’s benefits immediately, whereas the ISO 14001 is much clearer since it gives direct economic effect one can feel straight away as a result of the implementation: reduction in energy consumption, cost-saving thanks to waste management, decrease of penalties for non-compliance with environmental legal requirements etc.

Chris: From what we can see our local regional companies intend to develop and implement management systems based on ISO9001 and 14001 elements to improve their processes, improve quality to satisfy customers and meet social expectations of good environmental practices. They understand that implementation is beneficial as it will help them understand the strengths and weaknesses of current practices. We see companies are moving easily into ISO 9001 & 14001 because they were already doing many of the things it requires There is often a keen interest to look first at the existing approach, the business and financial implications of any weaknesses and how a management system according to ISO 9001 & 14000 could add value though improving what they are currently doing.

Dependant on the region there may be government programs which support companies interested in ISO 9001 & 14000. This sort of positive support is helping drive the success of ISO 9001 & 14000 adoption

7) How effective are environmental standards at improving the situation in the region? How closely are they adhered to?

Konstantin: Environmental risks are evidently high in upstream since equipment is getting worn out and the area that should be monitored with regard to leakage and contamination is vast. Implementation of the ISO 14001 helps indeed to improve the situation by raising environmental awareness and social responsibility of O&G operators.

Chris: Governments are improving the legislation and publishing new regulations for the protection of the environment. The issue then becomes one of understanding and effective implementation. The challenge for the regulators is to provide a consistent and workable implementation so that the business community can put in place the requried plans and processes to achieve compliance. The more practical the implementation the better the compliance will be. There appears to be general willingness to adopt the standards but clearly the industries want to see the implementation done in a way that supports environmental improvement and not used simply for punitive measures.

8) Within risk assessment, what are the key risks and operations for operators to study? How do they impact on performance?

Chris: The source of risk is 50% asset integrity and 50% organizational integrity. The following two example support this:

DuPont’s – May 2007 NPRA Paper –says "85% of availability losses over previous 5 years were associated with Mechanical Integrity related failures."

British Petroleum’s Website - I “Approximately one third of all the major and high potential incidents reported in the group are related to integrity management – in other words, incidents where there has been loss of containment or failure of an engineering system.”

Risk technology can determine the highest-risk pieces of equipment the process-variable limits within which a customer can operate and not degrade the pressure boundary faster than expected/predicted. The variables need to be tied to monitored process variables, alarmed, and communicated to operations with instructions as to what operations need to be performed in the event of a deviation. Risk brings visibility and accountability to the organization and measures the ongoing success or lack of success in terms of reduced high potential incidents.

How do they impact on performance?
Well a few statistics provide a good illustration. Equipment failures cost the US refining industry over $2 billion per year and 2/3 of those costs are associated with failures of static equipment The average refinery has a risk between $10 million and $70 million per year due to failures of static equipment and 2/3 of those costs are associated with piping failures

A reliability based mechanical integrity program for all asset families including fixed equipment, pipelines, piping, relief devices, rotating equipment, electrical systems and instrumentation and control systems will greatly contribute to productivity and safety through asset integrity. A good reliability mechanical program will reduce 75% of a plants total risk and dramatically decrease equipment failures.

So actively managing these risks is good for your business – no matter where you are operating

9) How comfortable are you that the risks associated with operations have been clearly identified and that your inspection and certification programs are aligned with those risks?

Chris: With many types of operations the generic risks are well known. The challenge often comes when moving established practice, from for example USA or Europe, to new locations, such as the Caspian and Russia, where the physical environment or legislative requirements may impose conditions that create risks not seen as significant before. So the first thing is to accept that industry best practice is a very good guide but we cannot afford to be complacent and adopt a one size fits all approach. Local awareness of conditions is critical if the risks are to be understood and managed and supported with inspection and certification programs that are appropriate. So are we comfortable that we have everything identified? No, because we need to remain alert. Comfort can lead to complacency and from that to disaster something none of us want

10) Is there a place for Risk Based Inspection in the Caspian and Russian markets?

Konstantin: In fact, Risk Based Inspection is in demand in Russia. However, the Russian companies are not yet ready to outsource this function to a specialized organisation and so far use own staff and own equipment to implement the work.

Chris: Yes, one of the chief advantages of risk reduction technologies is the ability to measure and manage the risk to the assets due to equipment failures. Implementation of this technology permits the higher risk items to be appropriately managed to a lower risk, while diverting inspection resources from low risk items. The overall risk can be decreased dramatically by focusing inspection efforts on the high risks. The goal will be to not only estimate but measure the overall reduction in the risk of failure. Risk reductions are real and mature tools are on the market to clearly understand the savings. Risk technologies enable a sustainable and continuously improving business process best practice for asset integrity management. Additionally, the risk capabilities can help promote environmental protection, personnel safety, community responsibility and safety while improving equipment integrity and reliability.

11) What tools can you supply to help organizations manage risk?

Konstantin: SGS offers a number of risk management solutions to O&G upstream sector. Firstly, these are testing and inspection services: integrity management and risk-based inspection, project monitoring, supply chain services, non-destructive testing, inspections of tanks, pumps and valves, pipes, welding and coating inspection. Secondly, these are certification services of an organization's management systems according to international standards such as ISO 9001, ISO 14001 and OHSAS 18000.

Among the many SGS services to upstream customers, there is one in particular that stands out in its potential to add value and reduce risk. SGS uses leading-edge technology to help clients detect the presence of mercury in oil and gas production. Mercury, a naturally existing element, is inherent in oil and gas. However its presence can cause catastrophic consequences. Mercury is highly corrosive and has-been proven to be the cause of many major plant failures, resulting not only in the loss of property and production but also loss of life. SGS provides its customers with crucial detection capabilities and helps them find solutions to remediate the problem thereby maintaining plant security and integrity – thus preventing costly shutdowns.

Chris: We are able to provide tools and techniques to our clients to help them manage their risks. It is all about being selective and pragmatic in the choice. The tools vary widely and may be asset based, operational process or activity based. For assets there are well established methods such as classification and verification to more specific tools such as risk based mechanical integrity (RBMI). While for the operational activity our management systems business assurance approach helps clients focus on the areas of business where they may have the greatest risk.

12) How do you see risk management, as a business tool, developing in Russia over the next 5 years?

Konstantin: I am confident that within the next 5 years regional O&G operators will have made an enormous step forward towards a more systematic risk management approach adopted by the leadership. The latter would be well acquainted with fundamentals of risk management and aware of what are the various tools and how to use them to an organization's benefit.

Chris: As I said before risk reductions are real and mature tools are on the market to clearly understand the savings. The application of appropriate processes and technologies enable a sustainable and continuously improving business environment that looks to create and adopt process best practice. It is hard to imagine that there will not be a strong take up of this approach in the next five or so years. For business in general the door is clearly open. For asset risk the rate of development will be influenced to some extent by the rate of change of legislation to allow adoption of more risk based practices as a viable alternative to prescriptive practices.

Labels: certification, Lloyd´s Register, oil gas, quality assurance, risk based inspection, Russia, SGS

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