Memorandum submitted by DONG Energy
EXECUTIVE SUMMARY
— The Macondo blowout in the Gulf of Mexico
was a tragic accident which has challenged the whole oil and gas
industry to carry out a thorough and detailed audit and revalidation
of its safety, environmental and operating processes across all
of its exploration and production (E&P) activities;
— In the immediate wake of the Macondo
incident DONG Energy established an internal "Deepwater Horizon
Learning Task Force". This was designed to ensure that all
information and data emanating from the various technical groups
and industry initiatives established to investigate the incident
could be comprehensively gathered, distributed and incorporated
throughout the organisation's procedures;
— DONG Energy has stringently re-appraised
the existing regulatory regime against our internal processes
and concluded that the goal-setting framework in the UK is robust
and fit for purpose for operations in all water depths;
— In light of this, we do not believe that
there is a requirement for a moratorium on drilling in the West
of Shetlands;
— The industry response to the Macondo
incident through OSPRAG will allow the industry to apply the lessons
learned from the disaster; and
— A moratorium would prevent the discovery
and extraction of the new sources of gas supply from the West
of Shetland which are required to mitigate the decline in supply
from other areas of the UKCS. This continued supply is imperative
as the drive for renewable electricity will demand new, low-carbon,
flexible gas fired power plants to compensate for the intermittency
of wind generation.
1. DONG Energy Company Profile
1.1 DONG Energy is a leading energy company
operating in Northern Europe and headquartered in Denmark. It
has a strong presence across the energy value chains. These include
Exploration and Production, Generation (thermal and renewable),
Energy Markets and Sales and Distribution. DONG Energy does not
however supply energy to retail customers in the UK.
1.2 By 2020, DONG Energy aims to have reduced
its CO2 emissions per kWh of generation by 50%, and by 85% by
2040. In order to achieve these targets, growth has been focussed
on the two main areas of Renewable Power Generation and natural
gas. The United Kingdom has a major part to play in both areas.
Exploration and Production (E&P)
1.3 DONG Energy is one of the largest acreage
holders in the West of Shetland Region and a partner in the recently
sanctioned Laggan-Tormore gas development. The company's first
operated well in the UK (the Glenlivet gas discovery) was drilled
in the West of Shetland in 2009. It has interests in a further
six discoveries. DONG Energy is not currently drilling as operator
in UK territorial waters. Aside from the UK, DONG Energy is the
operator of nine licences in Denmark, six in Norway, including
the Barents Sea and one in Greenland.
Renewable Power Generation
1.4 DONG Energy is one of the most active
offshore wind operators and investors in the United Kingdom. The
company currently operates three offshore wind farms (Gunfleet
Sands, Barrow & Burbo Bank). It has a stake in a further two
sites currently under development (London Array and Walney). DONG
Energy is the major shareholder in London Array. It also possesses
a strong pipeline of potential future renewable projects.
Thermal Generation
1.5 In thermal generation, DONG Power UK
is close to completing a new CCGT gas fired power station of 824MW
output at Severn in South Wales.
2. What are the implications of the Gulf
of Mexico oil spill for deepwater drilling in the UK?
2.1 DONG Energy believes that careful planning,
competence of personnel, integrity management of equipment and
risk management of operations are imperative prerequisites of
safe conduct and acceptable results. Whilst the physical conditions
of deepwater drilling do change the requirements for planning
and equipment, the principles for operations, risk management
and risk reduction remain the same. The application of the lessons
learned from the Macondo incident should not therefore be limited
to deepwater operations, regardless of definition.
2.2 The principle implication of the Macondo
incident is a renewed need for the oil and gas industry to actively
demonstrate that it has taken account of worst case scenarios
in its planning. It must be able to demonstrate to the satisfaction
of all interested stakeholders that it is competent to drill safely
in all targeted reservoirs on the UKCS and that it has the capacity
to respond promptly and effectively to a loss of well control
and to any resultant oil spill—however unlikely that occurrence
might be.
2.3 It is important to consider what defines
deepwater drilling and, more significantly, what impact water
depth had on the operations and incidents leading up to the Deepwater
Horizon blow-out. Depth was but one factor of many. Whilst drilling
does take place at significant water depths in the West of Shetland
Region, other factors are notably different to those at Macondo.
Temperature and pressure, for example, are substantially lower
in the WoS. Judgement of risk on water depth alone is too crude
a measure.
2.4 There is no standard or uniformly adopted
definition of deepwater operations. However, for the purposes
of progressing the investigations into deepwater drilling in the
UKCS, DECC, HSE and MCA use the term "deepwater" to
indicate drilling operations in water depths of more than 300
metres. When the UK offshore oil and gas business was in its early
development phase in the early/mid 1970s, water depths of 200
metres were considered "deep". Over the last three decades,
the global offshore drilling industry has developed technology
and experience that has enabled drilling operations to take place
in water depths as high as 3,000 metres. Advances in offshore
technology mean that the number of regions of the world in which
exploration is possible will continue to grow in the years ahead.
2.5 There are fundamental challenges and
risks to any form of drilling. Some of these are specific to the
conditions and environment of a certain area, but others are common
to all. Maintaining and ensuring well control, both primary and
secondary, is of overriding importance in all drilling operations
anywhere, whether onshore or offshore, in shallow or deep water.
DONG Energy conducts its operations in accordance with management
systems based on regulatory requirements, international standards
and norms, industry best practice and more than 30 years of operational
experience. We believe that the probability of major accidents
is dictated by a variety of factors including company policy,
equipment, procedures and personnel—not on the specific
location alone. Our operations are constantly evaluated against
risk to ensure that risk is reduced as low as reasonably practicable
(ALARP). We look for continuous improvement in our planning and
operations and require absolute compliance with our internal company
standards wherever we operate.
DONG Energy's response to the Macondo incident
2.6 In the immediate wake of the Macondo
incident DONG Energy established an internal "Deepwater Horizon
Learning Task Force". This was designed to ensure that all
information and data emanating from the various technical groups
and industry initiatives established to investigate the incident
could be comprehensively gathered and distributed throughout the
organisation. Furthermore, it has ensured that DONG Energy is
aware of all industry programmes and is well-equipped to contribute
its expertise as appropriate.
2.7 DONG Energy in the UK has played a full
and active role in the work of the OSPRAG Technical Review Group
sub-teams to ensure effective cross-industry learning and the
dissemination of best practice.
3. To what extent is the existing UK safety
and environmental regulatory regime fit for purpose?
Regulatory Regime
3.1 In contrast to the US and other parts
of Europe where regulation lays down precisely what an operator
is expected to do, the UK HSE regulatory environment is based
on a goal-setting, non-prescriptive regime. This approach was
developed following Lord Cullen's inquiry into the Piper Alpha
tragedy of 1988. Under the current process, operators on the UKCS
are required to show that they have taken appropriate steps to
identify and assess the consequences of major accident hazards
and to demonstrate to the regulator that necessary measures have
been taken to reduce these risks as far as reasonably practicable.
The regime is also designed to give precedence to the safety of
personnel and places an emphasis on the prevention of accidents.
This approach has been seen to be effective and successful over
the past 20 years. DONG Energy subscribes to the widely-held view
that the UK regulatory regime is regarded as one of the most thorough
and robust in the world.
Offshore Installations and Wells (Design and Construction,
etc) Regulations 1996 (DCR)
3.2 A key component of DCR is the requirement
for a formal well examination scheme and the appointment of a
Well Examiner. The regulation requires that the design, construction
and maintenance of a well must be independently verified and defines
the Well Examiner's role in examining all stages of a well's planning,
execution and operation throughout its life cycle. DONG Energy
places a high importance on well design, planning and construction.
All DONG Energy well designs are planned from the conceptual stage
of a Basis of Design (BOD) and evolve through the sequential cycle
of a well planning process. DONG Energy has five clear stages
of well planning, from the initial Business Planning and Feasibility
Study stages, through to the final Execution phase synonymous
with the drilling of the well. Prior to progressing through each
stage, the well design is peer reviewed by both in-house and external
bodies. This includes assessment by the UK Well Examination scheme,
which reviews and assesses well design. Ultimately, the final
well design is presented to and examined by the independent Well
Examiner and Health and Safety Executive (HSE), prior to final
sign off and acceptance of the well plan. DONG Energy considers
these requirements to represent a robust and practical method
of managing and controlling well design to ensure the safe drilling
and completion of wells on the UKCS.
Environmental Management
3.3 The management of environmental matters
on the UKCS is subject to strict UK, EU and International environmental
legislation. This legislation is broad and far reaching and defines
requirements for consents, permits and environmental reporting.
Limits for discharges and emissions are also included, as are
arrangements for oil spill planning and response. These matters
are under the control of DECC which is also responsible for inspection,
investigation and enforcement. In line with OSPAR requirements,
DONG Energy operates under an ISO 14001 certified Environmental
Management System. The ISO 14001:2004 certification provides independent
verification that DONG Energy conducts its activities in an environmentally
responsible manner and is compliant with UK law and relevant oil
industry standards. The award of the ISO certificate confirms
that the company has identified and assessed the environmental
impacts and risks of its operations and has a reliable system
in place to manage these issues.
UK Regulatory Bodies
3.4 DONG Energy recognises and acknowledges
the wide-ranging skills, knowledge and experience of both HSE
and DECC. Both organisations possess the ability to access a wide
range of knowledge and experience which adds exceptional value
when assessing the management of safety and environmental risk
offshore.
4. What are the hazards and risks of deepwater
drilling to the West of Shetland?
4.1 The West of Shetland area is not considered
to be an especially deepwater area by global industry standards.
The most significant hazards with West of Shetland operations
are its remoteness and the meteorological and oceanographic conditions
encountered in the region particularly during winter months. Wind,
waves and currents are more severe and often less predictable
than in other areas of the UKCS. DONG Energy is extremely confident
that the risks associated with these hazards are well understood
and well managed under a fit-for-purpose regulatory regime and
an effective safety culture with multiple barriers in place. DONG
Energy keeps these systems under regular review, most recently
in light of the Macondo incident.
4.2 Water-depth and deepwater currents impact
on all aspects of drilling operations. These must be carefully
planned for and managed, particularly in the event of severe weather
conditions which require the rig to disconnect from the well until
those conditions subside. Due to significant water currents at
different depths, more care must be taken with riser design, well-head
fatigue analysis and general load distribution. These and many
other aspects are major considerations in selecting a suitable
rig to operate West of Shetland and are often more demanding criteria
than applied to normal UKCS activities. The selection of the right
drilling rig is essential. Dynamically positioned rigs and drillships
are typically used in water depths greater than 300 metres and
use sophisticated sensors, together with their own thrusters and
propellers, to maintain position and heading.
4.3 DONG Energy is active in several areas
in the West of Shetland. During 2009, the company (as operator)
successfully drilled an exploration well on the Glenlivet field
in UKCS Block 214/30a with no incident or accident. This well
is classed as a discovery and it is intended that this field should
be developed further. Whilst the Glenlivet field is a normally
pressured gas reservoir, DONG Energy will ensure that any and
all lessons learned from the Macondo incident will be implemented
in internal processes both for operated and non-operated activities.
4.4 In total, more than 400 wells have been
safely drilled West of Shetland over the last 30 years. The Foinaven
and Schiehallion fields have been successfully producing oil for
over ten years and Clair for five years without any significant
oil spill incident. The number of wells drilled clearly demonstrates
that the industry does have the skills and technology required
to operate safely in the West of Shetland area.
4.5 The UK's goal setting safety regime
requires a systematic approach to the identification of hazards
and ensures that risks are reduced as low as reasonably practicable
through the application of quality engineered solutions and systems.
The approach taken West of Shetland is no different.
5. Is deepwater oil and gas production necessary
during the UK's transition to a low carbon economy?
5.1 DONG Energy believes that the production
of gas is critical for the transition to a lower carbon future.
The West of Shetland area is currently believed to hold some 17-20%
of the UK's remaining hydrocarbon reserves. As such, it is essential
for the maintenance of a secure source of supply for the UK, particularly
in terms of gas.
6. To what extent would deepwater oil and
gas resources contribute to the UK's security of supply?
6.1 DONG Energy believes that there is significant
remaining gas prospectivity in the West of Shetland outside of
the Laggan-Tormore area which could strongly reinforce the UK's
gas security in the future. This will require further exploration
activity and the installation of further pipelines and infrastructure.
It should be noted that the time to drill, appraise and develop
fields in the West of Shetlands is very lengthy and therefore
it is imperative to maintain ongoing activity to guarantee this
future security.
October 2010
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