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Poor process safety performance is bad business!
Process Safety
Poor process safety performance is bad business!
O
ne advantage of writing a column is that you can change your topic at the last minute! As I sat down to write this column in the middle of November 2012, I had the radio playing in the background. After a little bit of Miles Davis, the station switched to the evening business report. One of the stories was about the financial impact that the various process safety incidents have had on BP over the past several years. It seemed timely, so the couple of paragraphs I wrote on another topic can wait for a later column. On November 14, 2012, BP and the US Department of Justice announced the terms of some of the criminal cases resulting from the April 2010 Macondo blowout, explosion, and oil spill in the Gulf of Mexico. BP will plead guilty to 11 felony counts related to the deaths of 11 workers, and will pay $4.5 billion in fines and other payments. This is the largest settlement of its kind in United States history. Criminal charges will also be filed against three BP employees. The radio business news reported that on November 18, 2012, BP announced that it will spend about $6 billion to purchase its own shares. BP stock price has significantly lagged its peers in the oil industry. For example, From July 2004 through November 2012, ExxonMobil stock has nearly doubled, Chevron stock has more than doubled, while BP stock is down about 20%. According to the Sunday Times in England, part of the reason for the stock buyback is a concern about potential takeover attempts. Cash rich rivals might view an acquisition of BP as a cheap way to increase their known oil reserves. The financial cost of major process safety incidents such as the March 2005 Texas City refinery explosion and the April 2010 Macondo blowout, explosion, and oil spill in the Gulf of Mexico is an important factor in the relative performance of the stocks. As ongoing legal issues become better resolved, potential acquirers can better understand the potential liabilities and incorporate them into their financial plans. This report made me think about the business impacts of many other process safety incidents. While the primary objective of process safety management is the protection of human life, prevention of injuries, and
60
ß Division of Chemical Health and Safety of the American Chemical Society Elsevier Inc. All rights reserved.
protection of the environment, we cannot forget that having an accident is really bad business as well. When you think about some of the major process safety accidents which have occurred, they have had devastating consequences for the companies or plants where they happened. Following the June 1974 explosion, the Flixborough, England caprolactam plant was rebuilt despite community objections. However, it closed down a few years later and was demolished in 1981. While economic conditions may have contributed to the final shutdown, the need to invest significant new money to rebuild the plant certainly did not help its economic viability. Following the 1984 Bhopal India toxic gas release, Union Carbide faced hundreds of millions of dollars in liabilities, and had to sell important and profitable businesses to raise money to pay them. Of course, the easiest businesses to sell are the profitable and growing businesses. Union Carbide was also unable to do business in India, a growing emerging market. The company got smaller, and ultimately was acquired by Dow. Years later, the organizers of the 2012 London Olympics were pressured to drop Dow as a sponsor (they did not), so the potential for impact on business continues. It would be interesting to go through the investigations from the United States Chemical Safety and Hazard Investigation Board (CSB) and determine how many of the companies or plants where the incidents occurred went out of business or shut down. Some examples: The April 1998 runaway reaction in a Morton International dye plant in Paterson NJ injured 9 workers. A few years later the plant shut down and was demolished. In February 1999 an explosion destroyed a hydroxylamine plant owned by Concept Sciences in Allentown PA. Five people were killed and the plant was never re-built. An April 2004 explosion in a polyvinyl chloride plant owned by Formosa Plastics in Illiopolis IL killed 5 people and seriously injured 2 others. The plant was never rebuilt.
1871-5532/$36.00 http://dx.doi.org/10.1016/j.jchas.2012.12.004
Following an August 2008 explosion, Bayer CropSciences shut down an insecticide plant in Institute WV. The plant used methyl isocyanate (MIC), the chemical released in the Bhopal tragedy. Although the explosion did not directly involve MIC, public concern about the potential for a release of MIC from impact of the explosion and flying debris resulted in significant community pressure to prevent re-start. An attempt was made to upgrade the facility, but ultimately the company decided to shut it down.
resources to find out what happened at other facilities where they have investigated significant accidents, but I suspect there are many more examples of a major process safety event contributing to a plant or company going out of business. Also, these impacts are not only felt as a result of major industrial accidents. Think about some of the incidents, which have been reported in university laboratories – for example, at UCLA and Texas Tech. What impact did these incidents have on the ability of these laboratories to continue their research? I certainly don’t want to minimize the human impact of all of
these tragedies – people were killed or seriously injured in ways that changed their lives forever. Certainly our primary goal in process safety is to protect people and the environment. But, in doing that, we will also be protecting assets, business, jobs, and the economy of the communities in which we live and work. This is also a worthy goal. Process safety pioneer Trevor Kletz has often been quoted as saying, ‘‘If you think safety is expensive, try having an accident.’’ These and many other examples demonstrate Trevor’s point – good process safety performance is not just good humanity, it is also good business.
I have not gone through all of the CSB reports, and don’t have good
Journal of Chemical Health & Safety, January/February 2013
61
Poor process safety performance is bad business!
O
ne advantage of writing a column is that you can change your topic at the last minute! As I sat down to write this column in the middle of November 2012, I had the radio playing in the background. After a little bit of Miles Davis, the station switched to the evening business report. One of the stories was about the financial impact that the various process safety incidents have had on BP over the past several years. It seemed timely, so the couple of paragraphs I wrote on another topic can wait for a later column. On November 14, 2012, BP and the US Department of Justice announced the terms of some of the criminal cases resulting from the April 2010 Macondo blowout, explosion, and oil spill in the Gulf of Mexico. BP will plead guilty to 11 felony counts related to the deaths of 11 workers, and will pay $4.5 billion in fines and other payments. This is the largest settlement of its kind in United States history. Criminal charges will also be filed against three BP employees. The radio business news reported that on November 18, 2012, BP announced that it will spend about $6 billion to purchase its own shares. BP stock price has significantly lagged its peers in the oil industry. For example, From July 2004 through November 2012, ExxonMobil stock has nearly doubled, Chevron stock has more than doubled, while BP stock is down about 20%. According to the Sunday Times in England, part of the reason for the stock buyback is a concern about potential takeover attempts. Cash rich rivals might view an acquisition of BP as a cheap way to increase their known oil reserves. The financial cost of major process safety incidents such as the March 2005 Texas City refinery explosion and the April 2010 Macondo blowout, explosion, and oil spill in the Gulf of Mexico is an important factor in the relative performance of the stocks. As ongoing legal issues become better resolved, potential acquirers can better understand the potential liabilities and incorporate them into their financial plans. This report made me think about the business impacts of many other process safety incidents. While the primary objective of process safety management is the protection of human life, prevention of injuries, and
60
ß Division of Chemical Health and Safety of the American Chemical Society Elsevier Inc. All rights reserved.
protection of the environment, we cannot forget that having an accident is really bad business as well. When you think about some of the major process safety accidents which have occurred, they have had devastating consequences for the companies or plants where they happened. Following the June 1974 explosion, the Flixborough, England caprolactam plant was rebuilt despite community objections. However, it closed down a few years later and was demolished in 1981. While economic conditions may have contributed to the final shutdown, the need to invest significant new money to rebuild the plant certainly did not help its economic viability. Following the 1984 Bhopal India toxic gas release, Union Carbide faced hundreds of millions of dollars in liabilities, and had to sell important and profitable businesses to raise money to pay them. Of course, the easiest businesses to sell are the profitable and growing businesses. Union Carbide was also unable to do business in India, a growing emerging market. The company got smaller, and ultimately was acquired by Dow. Years later, the organizers of the 2012 London Olympics were pressured to drop Dow as a sponsor (they did not), so the potential for impact on business continues. It would be interesting to go through the investigations from the United States Chemical Safety and Hazard Investigation Board (CSB) and determine how many of the companies or plants where the incidents occurred went out of business or shut down. Some examples: The April 1998 runaway reaction in a Morton International dye plant in Paterson NJ injured 9 workers. A few years later the plant shut down and was demolished. In February 1999 an explosion destroyed a hydroxylamine plant owned by Concept Sciences in Allentown PA. Five people were killed and the plant was never re-built. An April 2004 explosion in a polyvinyl chloride plant owned by Formosa Plastics in Illiopolis IL killed 5 people and seriously injured 2 others. The plant was never rebuilt.
1871-5532/$36.00 http://dx.doi.org/10.1016/j.jchas.2012.12.004
Following an August 2008 explosion, Bayer CropSciences shut down an insecticide plant in Institute WV. The plant used methyl isocyanate (MIC), the chemical released in the Bhopal tragedy. Although the explosion did not directly involve MIC, public concern about the potential for a release of MIC from impact of the explosion and flying debris resulted in significant community pressure to prevent re-start. An attempt was made to upgrade the facility, but ultimately the company decided to shut it down.
resources to find out what happened at other facilities where they have investigated significant accidents, but I suspect there are many more examples of a major process safety event contributing to a plant or company going out of business. Also, these impacts are not only felt as a result of major industrial accidents. Think about some of the incidents, which have been reported in university laboratories – for example, at UCLA and Texas Tech. What impact did these incidents have on the ability of these laboratories to continue their research? I certainly don’t want to minimize the human impact of all of
these tragedies – people were killed or seriously injured in ways that changed their lives forever. Certainly our primary goal in process safety is to protect people and the environment. But, in doing that, we will also be protecting assets, business, jobs, and the economy of the communities in which we live and work. This is also a worthy goal. Process safety pioneer Trevor Kletz has often been quoted as saying, ‘‘If you think safety is expensive, try having an accident.’’ These and many other examples demonstrate Trevor’s point – good process safety performance is not just good humanity, it is also good business.
I have not gone through all of the CSB reports, and don’t have good
Journal of Chemical Health & Safety, January/February 2013
61