Chemicals

Making the Business Case for Chemical Process Safety

Nearly every nation has at least one story to tell of a disastrous process safety failure that destroyed lives, property, and critical production installations. These incidents also wreak havoc on a business’s regional, and sometimes national or international, reputation—not to mention its stock price. The cost of effective process safety management pales in comparison to the costs of these incidents.

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Despite that, it can be difficult to make a compelling business case for process safety management (PSM). Enter the Organisation for Economic Co-operation and Development (OECD), an intergovernmental group that draws representatives from 34 industrialized nations around the world to work on international policy issues and problems, giving it access to information about process safety disasters in all of those nations. As a part of its “Environment, Health and Safety Chemical Accidents Program,” the OECD has used that information to develop a guidance document, Corporate Governance for Process Safety: Guidance for Senior Leaders in High Hazard Industries.

Credible Business Risks

In its guidance document, the OECD argues that “leaders need to recognise … major accidents as credible business risks.” Detrimental business impacts that can result from process safety management failures include:

Human impacts. Depending on scale, incidents arising out of PSM failures can result in injuries and loss of life to employees, nonemployees on your site, emergency responders, and members of the community.

Environmental impacts. Air, water, and land impacts are all common in PSM failures. The Deepwater Horizon disaster in the Gulf of Mexico in 2010 released more than 4 million barrels of oil, causing extensive damage to both water and coastal areas.

Production impacts. A PSM disaster can disrupt production operations, in both the short term and the long term. When production operations are suspended, the organization may lose customers, who must find the organization’s product from other suppliers. The organization may also lose its own suppliers, either because they find new customers or because the loss of a customer does irreparable financial harm to their business.

Financial impacts. The direct and indirect costs of a PSM disaster can be devastating to the organization and can impact other businesses as well. Repair costs, regulatory fines, legal fees and judgments, and increased insurance costs frequently run into the billions. Within 2 years of the 2005 BP Texas City Refinery explosion, the company’s losses exceeded $1.5 billion. In the wake of the Grande Paroisse fertilizer factory explosion outside Toulon, France, in 2001, insurers paid out damages of more than 1.5 billion euros.

Brand impacts. An organization’s reputation can take a hit as a result of a disaster. Sometimes this takes the form of lost sales. It can also hit an organization’s stock price. After a 2012 explosion at the LSB Industries chemical plant in El Dorado, Arkansas, the company’s stock fell more than $6 within hours. The 2010 Deepwater Horizon oil rig explosion caused long-term damage to BP stock, which fell by 55%, from $59.48 a share to $27 a share, within 2 months after the explosion and was still down 27% more than 4 years later.

Tomorrow we’ll look at one of the key corporate governance ingredients that is common to chemical process safety failures: inadequate leadership.

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