In June, Sphera hosted a roundtable discussion in Calgary, Alberta, Canada, on Integrated Risk Management. The panelists were Bill Timbers, a Professional Engineer specializing in Process Safety and Operational Risk Management; Jim Cormack, an environmental management, regulation and risk consultant with Internex; and Tyler Tarnoczi, Senior Advisor, Air & GHG Emissions at Cenovus Energy. Mike Easley, Sphera’s group vice president of sales, moderated the discussion.
As research firm Gartner explains, Integrated Risk Management is “a set of practices and processes supported by a risk-aware culture and enabling technologies that improves decision-making and performance through an integrated view of how well an organization manages its unique set of risks.”
To re-create that event, Easley led a follow-up discussion with the three panelists in August. Here are some of those highlights in an edited transcript. What are your thoughts on a successful Integrated Risk Management program? Email us at firstname.lastname@example.org, and your comments might appear in the next edition of Spark.
Mike Easley: As we were preparing for the roundtable, we discussed that the concept of risk management is not new, but it’s constantly changing. You mentioned some of the tools and services that you have, and those probably evolve over time as well. Can you share with us some of the trends that you see today?
Bill Timbers: Basically, I find right now with some of my key clients that they’re confused, they’re not quite sure how to respond, and sometimes their goals are counterproductive to reality. As a consultant, that’s of course good for me because then they need people like myself to lead them through it. We’re really operating between two ends of the spectrum in the major hazard industries. We’re operating between what I call the ‘capture and release of black swans,’ which are catastrophic incidents that occur at a very low frequency or a ‘check the box’ attitude with some companies just wanting to do risk assessments and risk analyses. When I work with a client, we always have a process safety moment at the beginning of every meeting, a safety moment just to talk.
Easley: We’re seeing a lot of focus now in the market on safeguards: safeguard efficacy, improving safeguards, focusing on safeguards. How has that evolved or how have you seen your customers addressing that lately?
Timbers: I think ultimately it comes down to every organization. You need to have leadership at all levels, but you can’t have leadership at all levels unless it’s really supported from the top of the leadership all the way down. Where they really want to know and to understand what the risk is and how it can change on a continual basis, and a lot of times, especially with engineers, and I’m not criticizing engineers because I am an engineer, but a lot of engineers see hazardous conditions or risk, and we need more safeguards. There’s some really good tools out there, Layers of Protection Analysis [LOPA] that came out in 2001 and is supported by the American Institute of Chemical Engineers. And basically, one of the fundamental reasons you want to use Layers of Protection Analysis is, when you have a worst-credible consequence, you want to fully understand the consequence and chain of events for the worst-credible consequence to Tyler Tarnoczi a final outcome that could result in a catastrophic event. And you want to have the right amount of safeguards. Throwing more safeguards onto a system results in more complexity and results in more items that people aren’t going to be looking at. Or, it’ll result in people saying, ‘Yeah, we have a pressure-relieving device. No problem. We’re good to go.’ People need to understand there’s a whole portfolio of safeguards, and instead of adding more safeguards, you have to really understand what your safeguards are and what are you really asking them to do. To go forward from there, and I think quite a few of my clients don’t quite understand because, of course, they’re engineers and they want to add more and more.
Easley: Jim, one of the areas of risk that companies are actively dealing with is the uncertainty regarding regulations and compliance, including greenhouse gas emissions. Can you share the trends you’re seeing with your customers and how you’re helping them address them?
Jim Cormack: At a high level, adapting to a new regulatory environment and adapting to the reality of politics as well as how stakeholder issues intermingle with historically typical business decisions that might have been in-house in the past. And that’s a trend that many businesses, especially in the energy industry, have been grappling with for a long time now. But even though they’ve been grappling with it for a long time now, it’s still evolving and maturing. There’s a reality that many organizations, especially larger ones, end up with organizational silos that all businesses are aware of, but it does not help the matter when trying to make decisions that require inputs or have variables outside of the silo. So that makes things more difficult as well. And then, of course, people in industry norms get stuck in what I might call ‘generically cognitive biased mode’ as well. So those types of things that we see in a complex world make things difficult.
Easley: Can you comment on the regulatory uncertainty in Alberta? Are there moving parts there that are making this landscape a little bit more difficult for customers, and how is that impacting business and how are your customers dealing with that?
Cormack: If I just use greenhouse gas specifically, some of the questions they need to consider are: Which greenhouse gas is going to be covered by regulation in the future? There’s an uncertainty about which specific sectors are going to be regulated. Are the targets going to be absolute? Are they going to be intensity-based or performance-based? Or what is the future government going to think about those different options for how to set targets on greenhouse gases, and are governments going to reward early action? That’s a big question because there’s a lot of companies that did a lot of work on technology development that would probably like to make a decision about implementing new technology, but they sometimes hesitate because of how they’re going to be rewarded for early action.
Easley: Tyler, keying off this concept of risk and the uncertainty around greenhouse gas emissions and our pending carbon-constraint world, and you having to live this day in and day out, can you share with us what does this mean to you and how is Cenovus reacting to it?
Tyler Tarnoczi: When we look at the emerging policy and regulatory environment, we have seen a great deal of change on that front, both in the greenhouse gas regulatory world through provincial and federal regulation but also in the broader air pollutant sphere. And I would even extend that further to environmental risk in general. This is something that we are engaged in both working with regulators to inform good policy that provides positive environmental outcomes in a cost-effective way as well as incorporating those environmental regulations or, in the case of greenhouse gases, a price of carbon into our future development plans.
Easley: Can you share some specifics?
Tarnoczi: I’ll speak to the greenhouse gas side of things. We are certainly engaged with our corporate development and corporate strategy teams on incorporating a price on carbon into the planning phase when we look at future capital allocation. So to the degree our projects have a greenhouse gas emission impact, and those greenhouse gas emissions are priced, cash flow impact will make its way into the project economics. It will also be evaluated as part of the capital allocation process that we have corporately. If we’re looking at a project that has an emissions-reductions benefit, it will ultimately show up as a positive cash flow to the project and will help to bolster project economics. On the flip side, if projects have a greenhouse gas emissions impact that results in an operating cost that will ultimately be priced and evaluated as part of the project economics and as part of the broader corporate capital allocation process that we have.
Easley: It would seem that there are many factors that our customer-operators use to evaluate projects. Especially when political environments can change, do you see a lot of consensus, or are there a lot of conversations that you need to have to get the key planners and stakeholders on board with certain decisions?
Tarnoczi: Certainly, as we look further into the future, the greater the uncertainty. I think, ultimately, it’s addressed through the scenario analysis approach. So we would assess a scenario where we look at what happens if governments impose a price on carbon that is necessary in order for the world to meet the two-degree climate commitment under the Paris Climate Agreement. [Editor’s note: As the United Nations states, “The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels.”]
What does that mean for our projects? What does that mean for our price on carbon? How does that influence our decision-making? And that’s a scenario that we will consider. We will also look at scenarios that we would consider to have a more probabilistic outcome, and that might be something similar to the International Energy Agency’s New Policies Scenario to address greenhouse gas admissions and climate change.