BAKER & O’BRIEN Incorporated, All Rights ReservedCONFIDENTIAL

Implementation of Health, Safety, & Environment in the

U.S. Process Industry October 21, 2008

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Agenda

Introduction

Health, Safety, and Environment (HS&E) InitiativesOSHA 1910.119 - Process Safety Management of Highly Hazardous Chemicals

OSHA National Emphasis Program

Risk-based Process Safety

Company Culture and Safety Performance

Closing Comments

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Introduction

Dave Morgan – Senior Consultant with Baker & O’BrienDue to the occurrence of several catastrophic events within operating facilities, it was determined that new initiatives for process safety were needed. A high profile example is the Phillips Petroleum explosion and fire in 1989:

Pasadena, Texas23 fatalities and 130 injuriesHundreds of millions dollars in damageConsidered the precursor for upcoming governmental regulations

This incident, as well as others, usually occurred due to an aspect of safety management failure, such as:

Improper training or understanding of procedures.Inadequate follow-up of incident investigation or safety audits.Inadequate inspection or maintenance programs.Limited supervision of contractors or company personnel.

Incidents like these resulted in the evolution of process safety initiatives.Company culture and employee commitment, however, have had the ultimate impact to safety performance.

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Phillips Pasadena Explosion (1989)

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SH&E Initiatives

Regulations, by themselves, were not sufficient to reduce the risk of accidents occurring at acceptable levels.

There needed to be new approaches to prevent or minimize the consequences of a catastrophic event.

Process safety initiatives that were developed include:OSHA Process Safety Management (PSM) standardOSHA National Emphasis programIndustry recommendations such as Risk-based Process Safety

Process safety management programs are intended to develop systems and processes to assure the greatest possible protectionfrom process related damage for:

Plant personnelSurrounding public and environmentProcess equipment and materials

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OSHA Process Safety Management (PSM)

The OSHA PSM standard (29 CFR 1910.119) was published in the Federal Register on Monday, February 24, 1992.

PSM is a management system developed to manage the safety of anyprocess involving highly hazardous chemicals.

The objective of PSM is to prevent the occurrence or minimize the consequence of a catastrophic release of toxic, flammable, or explosive highly hazardous chemical from a process.

PSM consist of 14 individual elements that can be categorized into four areas:

System implementationIncident reductionIncident managementSystem control

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PSM Elements

The 14 elements of PSM are:Employee participationProcess safety informationProcess hazard analysis (PHA)Operating proceduresTrainingContractorsPre start-up safety reviewMechanical integrityHot work permit (safe work practices)Management of change (MOC)Incident investigationEmergency planning and responseCompliance audits Trade secrets

Combined, each of these 14 points are intended to produce a holistic approach to developing and implementing an effective PSM system.

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PSM Elements 1 thru 4

Employee participation states that employees must be given the opportunity to participate in the development, implementation, and review of the PSM system. Benefits include:

Employees are generally most knowledgeable of daily operations of the facility.There is a significant advantage to encouraging participation and gaining support.

Process safety information consists of knowledge and data needed to understand hazards associated with a process including:

Chemical hazards.Process technology and equipment information.Updated piping and instrumentation diagrams (P&IDs).

PHA is necessary to develop an effective PSM system by:Identifying hazards associated with a system.Assessing hazards, and then develop a mitigation to eliminate or reduce the risk.

Operating procedures are required to:Standardize the way duties and tasks are performed.Assure that operations are accomplished in a safe and environmentally sound manner.

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PSM Elements 5 thru 9

Training is required to assure personnel understand the written procedures and can operate complex equipment in a safe and responsible manner

Contractors provide many services to the industry, and PSM is used to assure their safety by:

Informing contract employees about potential hazards.Training contract employees in the company’s safe work practices.

Pre start-up safety reviews are important to assure that both new and modified processes can be started up safely.

Mechanical integrity programs assure critical equipment process safety by:Identifying and categorizing equipment and system criticality.Developing appropriate programs to operate and maintain critical equipment.Assuring proper design, fabrication, and installation are considered.

Safe work practices are needed to ensure work activities that might affect process safety are performed properly, and include:

Hot work permits.Lock-out/tag-out.Confined space entry.

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PSM Elements 10 thru 14

Management of change (MOC) is a formal process to assure that risk associated with any changes to the process are evaluated to:

Reduce likelihood that changes will cause an incident to occur.Improve communications and knowledge associated with a change.

Incident investigation is an activity to allow an effective PSM system to evaluate unexpected occurrences and prevent them from happening again.

Emergency planning and response is needed to assure:Facility is prepared to properly respond to both internal and external emergencies.Plant personnel and contractors respond properly to easily-controlled situations and not let them become uncontrollable or catastrophic.

Compliance audits are used as a process to evaluate the degree of compliance with the OSHA 1910 standard. Others utilized are:

PSM system audit to evaluate the process itself and its ability to manage riskProcess safety audit to evaluate the design construction, operations, and maintenance of the facility.

Trade secrets are required to assure all relevant information affecting process safety is made available to employees, and may require a confidentiality agreement.

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Renewed Industrial Focus

BP Amoco’s Refinery in Texas City, Texas explosion on March 23, 2005:Killed 15 people and injured 170 individuals.Splitter tower grossly overfilled, eventually expelling liquid hydrocarbons to atmosphere.

Kern Oil Refinery in Bakersfield, California explosion on January 19, 2005:Killed one employee and caused multiple injuries.During start-up, employees cleaning reboiler pumps over-pressured the system, causing a release and explosion

Giant Industries Refinery near Gallup, New Mexico explosion on April 8, 2004:Six employees injured, with four being hospitalized.While removing a pump, a valve was left open, resulting in release and explosion.

Renewed industry focus on PSM and heightened regulatory activities began:OSHA determined that, due to a large number of fatal or catastrophic incidents in the refining industry, there was a need for a new emphasis programs.Since the creation of PSM in 1992 through 2007, approximately 36 fatalities have occurred in refining industry.

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BP Texas City Explosion (2005)

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OSHA - National Emphasis Program

OSHA instituted a National Emphasis Program (NEP) (compliance directive CPL-03-00-004) on June 7, 2007.Approximately 300+ Compliance Safety and Health Officers have been trained and have begun inspections throughout the country.The purpose of the NEP is to:

Reduce or eliminate the workplace hazards associated with catastrophic releases .

Verify employers’ compliance with OSHA’s PSM directive.

Emphasis of the new NEP inspection program is “Implementation” over “Documentation”:

Past inspections found extensive written documentation.

However, implementation of procedures were found to be inadequate.

Industry emphasis began focusing on:Training

Understanding and utilization of developed procedures

Work processes (i.e., human performance issues)

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Industry Initiatives

PSM initiative has been successful in:Reducing plant incidents and improving overall safety.Facilitating the development of written procedures and safety programs.Raising awareness and identifying critical systems.

Incidents mentioned earlier indicate that in some areas there have been inadequate results.PSM programs can also be manpower intensive and strain available resources. Industrial organizations, therefore, have focused efforts to:

Look for strategies that will address PSM elements.Improve ability to develop and implement programs.Understand risk associated with failures.Focus resources in areas that pose the highest risk to process safety.

Utilization of risk-based methodology has been applied to improve process safety initiatives.

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Professional Organization Recommendations

Several professional organizations have made recommendations or developed publications concerning process safety.

Examples of these organizations are:American Institute of Chemical Engineers (AIChE)American Petroleum Institute (API)American Chemical Council (ACC)

Each of these organizations’ guidelines:Contain some aspect of OSHA 1910.119 PSM standard.Are concerned with preventing catastrophic events.Strive to ensure the safety of plant employees, surrounding community, and environmental integrity.

Risk-based Decision Making (RBDM) principles can be found in many of the guidelines.

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Risk Based Decision Making

RBDM is:Analyzing the consequence of an event versus the likelihood of the event occurring (Risk = Consequence x Probability).

Making decisions based on risks associated with these events.

RBDM is not about taking risk, but understanding and managing risk.

Risk-based methodology is discussed in more detail during a later presentation.

RBDM will help focus efforts by:Determining areas of highest risk, which directly affects the safe and environmentally-conscious operations of the facility.

Improving utilization of resources by focusing efforts in areas of highest risk.

Eliminating or reducing activities focused in areas with little or no risk.

Professional organizations have begun recommending utilization of RBDM methodology in areas such as inspection, maintenance, and safety improvements.

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Risk-based Process Safety

For example, the AIChE created the Center for Chemical Process Safety (CCPS) in 1985. CCPS developed a publication concerning Risk-based Process Safety (RBPS), including 20 elements dedicated to:

Understanding hazards and risk associated with operating a facility.Focusing limited resources on the areas of highest risk.Understanding safety culture within an organization.

RBPS does not replace PSM, but can be utilized to enhance and optimize the PSM process.RBDM can also be used to optimize other programs, such as safety, maintenance, materials management, and capital projects.The most effective companies will integrate their RBDM programs to:

Reduce duplication of efforts or resources.Assure each program complements the other.Utilize the foundations of a continuous improvement process to evaluate results and improve areas of concern.

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Company Culture

Company culture ultimately determines and affects the overall safety performance of an individual facility.

Initiatives, such as PSM, National Emphasis programs, and Risk-based Process Safety, all:

Represent sound practices and principles vital for the safe operation of a facility.Fall short of assuring the elimination of catastrophic incidents.

On January 28, 1986, the space shuttle Challenger exploded 73 seconds after lift-off.

Investigation of NASA, by presidential commission, indicated significant weaknesses in safety culture, including:

Tolerance of situations in which production issues overshadowed safety.Gradual acceptance of faults as being normal, that originally would not be tolerated.Can-do attitude based on past success.Hierarchical structure that limited free exchange of information and credibility of lower level employees.

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Space Shuttle Challenger Explosion (1986)

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Company Culture and Safety Performance

Organizations exist with poor safety performance that have excellent:Written procedures.Training programs.Engineering design and safety technology.

Audits of facilities have revealed:Craftsman performing unsafe tasks directly after:

• Completing a job task analysis of work to be performed.• Filling out safety permits outlining safe working procedures.

Procedures for safe start-up of a facility have been bypassed to improve start-up durations.Operators trained in proper safe work practices were performing maintenance task without:

• Following line clearing and lock-out/tag-out procedures.• Filling out required permits.

These organizations all possessed similar cultures as discussed with the NASA incident.

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Effective Safety Culture

Effective safety culture requires:Strong executive management that sets direction and example for the organization.

Mid-management that follows safety guidelines, procedures, and assures the safety of their plant personnel.

Open communication that exists both horizontally and down through the organization.

Empowering individuals to make decisions, follow safety guidelines, and develop improvement ideas.

Maintain a sense of understanding that process hazards exist, and personnel need to be alert to arising concerns

Continuous improvement process is needed to monitor and assess safety performance and effectiveness of the PSM programs.

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Statistics

Total Recordable Nonfatal Occupational Injury and Illness Incidence Rates by Case Type, Private Industry, 2003-2006

5.0

1.5

2.4

4.8

1.4

2.3

4.6

1.4

2.2

4.4

1.3

2.1

0

1

2

3

4

5

6

TRC DAFW ORC

Inci

denc

e R

ates

per

100

Ful

l-Tim

e W

orke

rs

2003 2004 2005 2006

TRC – Total Recordable CasesDAFW – Days Away from Work CasesORC – Other Recordable Cases

SOURCE: Bureau of Labor Statistics, U.S. Department of Labor

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Closing Comments

Implementation of safety initiatives in the U.S. has evolved during efforts to eliminate or reduce effects of catastrophic events.OSHA 1910.119 - Process Safety Standard introduced 14 elements required to operate and maintain a facility in a safe and environmentally responsible manner.Continued catastrophic occurrences produced new National Emphasis programs to audit facilities for:

PSM complianceUtilization and effectiveness of PSM programs

Industry began adopting RBDM methodology to refine and optimize PSM efforts.Safety culture will ultimately determine safety performance.Strong safety culture is supported by:

Utilization of process safety principles as the core of their safety program.Understanding and utilizing RBDM methodology to optimize and focus efforts.Utilizing a continuous improvement process to monitor progress and address concerns.

BAKER & O’BRIEN Incorporated, All Rights ReservedCONFIDENTIAL

QUESTIONS

BAKER & O’BRIEN Incorporated, All Rights ReservedCONFIDENTIAL

Backup Slides

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Acronyms

ACC = American Chemical Council

AIChE = American Institute of Chemical Engineers

API = American Petroleum Institute

CCPS = Center for Chemical Process Safety

MOC = Management of Change

NASA = National Aeronautics and Space Administration

NEP = National Emphasis Program

OSHA = Occupational Safety and Health Administration

PHA = Process Hazard Analysis

PSM = Process Safety Management

RBDM = Risk Basked Decision Making

RBPS = Risk Based Process Safety

SH&E = Safety Health and Environment

U.S. = United States

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Baker & O'Brien, Inc. (Baker & O’Brien) is a professional consulting firm specializing in the petroleum and petrochemical processing and marketing industries. The firm’s consultants have extensive international experience in constructing, operating, and evaluating refineries and petrochemical plants.

Our consultants are engineers, many with advanced business or engineering degrees, and have advised the world’s largest international oil companies on both commercial and technical issues. Additional information about the firm, including a list of representative assignments and consultant resumes, is provided on our website at www.bakerobrien.com.

Baker & O’Brien, Inc.

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