Process safety: leading from the top

Process safety: leading from the top Launch event for OECD s Corporate Governance for Process Safety Paris, France Ben van Beurden Executive Vice President, Shell Chemicals Limited June 15, 2012

Ben van Beurden was appointed to the position of Executive Vice President Chemicals on 1st December 2006, based in London. Prior to this from January 2005 he was Vice President Manufacturing Excellence based in Houston, responsible for standards in operational excellence and pacesetting initiatives in refining and chemicals manufacturing. From 2002 until 2004 Ben held the role of Private Assistant to the Chairman of Royal Dutch Shell. In March 2009 Ben was appointed to the board of the International Council of Chemicals Associations (ICCA). The ICCA represents chemical manufacturers and producers all over the world. In 2010 he became the chair of the Program Council - Communications for Cefic, the European Chemical Industry Council. Ben joined Shell in 1983 after graduating with a Masters degree in Chemical Engineering from Delft University in The Netherlands. From 1983 to 2002 Ben was employed by Royal Dutch/Shell Group of companies in a variety of technical and commercial roles both in the upstream and downstream businesses. He has lived and worked for Shell in The Netherlands, Sudan, Malaysia, The United Kingdom and The United States. Ben is married to Stacey and has four children - a son and three daughters. He enjoys reading, running and travelling with his family.

Good morning ladies and gentlemen, distinguished guests. I m very pleased to be here this morning to share Shell s perspective on the vital issue of process safety. At Shell, we relentlessly pursue the goal of no harm to people and no significant incidents. A goal of zero has to be the right one to set, but achieving it demands not just high standards of personal safety but also constant attention to all the aspects of safety that run through the many high risk operations we manage. I fully support the OECD in driving for greater consistency in process safety management, across the globe and across industry sectors. And, in the course of my brief presentation, I hope I can show that Shell is already aligned with the fundamentals of the OECD recommendations. At Shell, we relentlessly pursue the goal of no harm to people and no significant incidents. I will touch on a number of themes today. The essential needs of today s society but also the public s shifting expectations The high-hazard environments that Shell operates in The actions being taken in Shell to strengthen our approach to process safety And, above all, the fundamental importance of strong leadership in delivering effective management of process safety risks Finding and converting hydrocarbons Before I move into the detail of process safety, I would like to take a few moments to describe essentially what we do in Shell. We have more than 90,000 direct employees and four times as many contractors who work together in more than 90 countries to meet the world s growing demand for energy and petrochemicals. We search for, recover and process crude oil and natural gas. We are developers and marketers of biofuels. We make, move and sell a range of fuels and lubricants for domestic, industrial and transport use. And, in my business, Shell Chemicals, we convert the hydrocarbons extracted and often initially processed by our Shell colleagues into petrochemicals. I m sure you re already beginning to see that our operations involve a lot of lives and a lot of hardware, as well as touch a lot of communities. Staying focused on all aspects of safety, given the complexity and scale of our businesses, as well as our ambition for substantial growth, is an ever-present challenge for all leaders in Shell. Without the products of the oil and gas industries, modern society would simply not exist. In the developed world and increasingly in the developing world, energy derived from oil and gas powers our industries, supports our home lives, and enables the constant movement of people and goods. The fabric of our modern lives also depends upon the products of the petrochemical industry. Insulation in our homes, affordable clothing, life-saving equipment in hospitals, lighter car components and mobile technologies all rely on petrochemicals. Staying focused on all aspects of safety, given the complexity and scale of our businesses, as well as our ambition for substantial growth, is an ever-present challenge for all leaders in Shell. But while they feel the obvious benefits, people around the world are increasingly intolerant of industries that have accidents, especially if those accidents appear to be due to poor management of the associated risks. In the glare of the media spotlight, high-hazard industries

risk not only their reputation but also their future if they fail to manage process safety risks appropriately. High hazard,, high impact The catastrophic incidents that have occurred in the oil and chemical industry, from Piper Alpha back in 1988 through to the most recent event at the synthetic rubber facility in Thailand, are stark and painful reminders of why we must never be complacent in managing process safety risks. The Marsh report, which catalogues asset losses in the hydrocarbon industry, tells us that the 100 largest losses of the past 40 years have together incurred losses of 33 billion US dollars. That s in terms of property loss alone and says nothing of the even more devastating loss of life and serious injuries that have resulted from these accidents. When we look at the evidence, we have to ask ourselves if we are truly learning from past mistakes and implementing new safeguards quickly enough. Texas City, for example, was a watershed moment in refinery process safety yet we know there have been a number of significant fires and explosions at other refineries since that point. In the glare of the media spotlight, high-hazard industries risk not only their reputation but also their future if they fail to manage process safety risks appropriately. WHAT PROCESS SAFETY HAZARDS DO WE MANAGE IN SHELL? Coal Gasification Wells Gas to Liquids Gas liquifaction & re-gasifaction facilities Oil & Gas production & treating facilities Coalbed Methane, shale gas, tight gas Depots & Pipelines Oil Sands & Upgrader Refineries & Chemical plants Maritime storage & transport Road & Rail transport So, as we turn to consider process safety in Shell, let s start by looking at the range of highhazard activities that Shell has to manage. In our upstream businesses, we produce 3.2 million barrels of oil equivalent a day, with almost half of that derived from natural gas. We need to ensure the safety of exploration and production wells, oil and gas processing facilities, oil sands operations, gas-to-liquids facilities and liquefied natural gas production units. In our downstream businesses we operate around 30 major refineries and chemical plants as well as 43,000 fuel retailing sites. We also manage extensive storage, distribution and transport activities, often involving highly-hazardous materials. It s not only our current operations that we have to consider but also those we are building to meet the world s future demand for energy and petrochemicals. Shell will be investing at the rate of $30billion a year for the foreseeable future. Projects coming on-stream in 2012 include the opening-up of the Gumusut field in Malaysia, our first deep-water oil field in this region, and doubling the capacity of our Port Arthur refinery in Texas. We also continue to

expand our operations in the Gulf of Mexico and strengthen our LNG operations off the coast of Australia. In my own business, Shell Chemicals, we have a number of expansion options ahead of us. We are working with Qatar Petroleum to develop a world-scale petrochemicals complex in Qatar s Ras Laffan Industrial City. We are looking at the commercial feasibility of building a petrochemical complex in North America s Appalachia region, using shale gas. We are also progressing a possible refinery and petrochemicals complex in China, which would be built in partnership with PetroChina and Qatar Petroleum. In each and every one of our many growth projects, it is essential that from the outset - we build in the highest standards of process safety. As a leader, I have a critical role in reinforcing these expectations and monitoring them through each successive step of development. In each and every one of our many growth projects, it is essential that from the outset - we build in the highest standards of process safety. Strengthening our approach to process safety In 2005, when the devastating Texas City incident occurred, I was working in Houston as Vice President for Downstream Manufacturing Excellence. It was a sobering moment for all of us, in my team, but also across many parts of Shell. It set in motion a renewed focus on process safety and has taken us on a journey of improvement that continues today. In the next few minutes I would like to share with you some of the main elements of Shell s approach to process safety. We certainly don t have all of the answers and, like all of you, we are continually looking for ways to improve. Elements of Corporate Governance for Process Safety We certainly don t have all of the answers. we are continually looking for ways to improve. To emphasise that we are already aligned with the OECD approach, I will share some examples in each of the areas of Risk Awareness, Information, Competence and Action before focusing, in particular, on how we are strengthening the role of leaders.

RISK AWARENESS Risk awareness Controls Recovery Measures H A Z A R D Threat 1 Threat 2 Threat 3 Top Event Consequence 1 Consequence 2 Consequence 3 Risk awareness: with so many hazardous operations to manage and so many staff and contractors involved, it s essential that we take a single, consistent approach to risk awareness. We ve refined our approach in recent years and now have one single process that helps us to understand the critical tasks and activities that can prevent process safety accidents and to be confident that, if controls fail, we have the recovery measures in place to deal with the consequences. It s essential that we take a single, consistent approach to risk awareness. We call this the Hazards and Effects Management Process or HEMP for short. We ve put many people in Shell though HEMP training. It also underpins structured conversations with leaders myself included - that take place to ensure we understand the risks we control and what we have to do to keep the barriers in place. INFORMATION Risk awareness Information EXTRACT FROM DESIGN ENGINEERING MANUAL Process Safety Basic Requirement Related Major Incidents in Industry Deepwater Well Design and Construction Avoid tank overfill followed by vapour cloud release Safe siting of occupied portable buildings Macondo well blow-out, Gulf of Mexico, April 20, 2010 Buncefield storage terminal explosion, UK, 2005 BP Texas City Isomerisation Unit Explosion, Texas, USA, 2005 Information: in the area of information, we ve focused on developing Leading Indicators, the measures that help us see how effective our underlying safety programmes are, and pinpoint trends or areas where we need to improve. For example, we monitor critical alarm rates and

have seen a steady reduction in the average critical alarm rate at our refineries and chemical plants over a four-year period, telling us that the control of our operations is improving. Learnings from past incidents are also critical pieces of information, helping us to avoid falling into the ever-open trap of repeating the same mistakes. As well as sharing learnings widely both within and outside Shell, we ve taken the step of incorporating learnings from some of the most catastrophic incidents in our industry into one of our essential process design manuals. So, for example, the lessons from Macondo underpin basic requirements for deepwater well design and construction, the experience from the Buncefield fire informs design of our storage terminals, while the learnings from Texas City set requirements for the safe siting of portable buildings. Competence: people are our most important barrier and so having enough people of the right calibre and with the right process safety competences is critical. Everyone needs to know what they need to do in any given role and have both the right technical and behavioural skills to manage the risks they face. As one example, we ve put 20,000 operators and contractors through barrier thinking training over the course of three years. Everyone needs to know what they need to do in any given role and have both the right technical and behavioural skills to manage the risks they face. We ve also created new roles for senior process safety managers and generally increased the number of people working in the discipline. And we continue to recruit process safety experts as our operations expand. ACTION Action Risk awareness Design Integrity Technical Integrity Competence Information Key enablers (people and systems) Operating Integrity Action: when it comes to action, there are two important examples I would like to share that are strengthening our management of process safety risks. The first is the approach we take to managing the integrity of our assets. Today, for example, all design engineers across Shell must follow specific guidelines when designing new assets, to make sure process safety risks will be at a level that is as low as reasonably practical. Clear rules also apply to maintaining safety critical equipment and infrastructure elements like pipelines, while essential operations, such as the isolation of processes and emergency response procedures, have been clarified and simplified.

To drive full compliance with our process safety requirements, we ve created a dedicated Process Safety Assurance Group, made up of some of our most senior practitioners in the area. That auditing team, which is tasked with reviewing facilities with an independent, expert eye, is today headed up by a former manager of both a refinery and chemicals facility. His team s findings are shared directly with Shell s executive committee. Leadership and culture: I m sure all of you will agree with me that the most essential ingredient in the safety mix is leadership. The best leaders care about safety not just because of their duty of care, but because they know that a safe organisation is also a more successful one. LEADERSHIP & CULTURE Action Risk awareness Leadership & Culture Competence Information About four years ago Shell introduced Goal Zero, a simple concept that asks everyone to start each day believing they can work free of incidents. Combined with other measures such as our Life-Saving Rules, that set tough sanctions for breaking rules relating to life-critical risks, we ve seen significant improvements in our safety performance. As leaders, we feel good about that, but equally we recognise that it makes us vulnerable. When all of the signals are green, it s easy to assume that all is well. But that s just the time to ask the difficult questions, welcome bad news, and, as a leader, go out into the field and find out for yourself whether anything fundamental is being overlooked. The best leaders care about safety not just because of their duty of care, but because they know that a safe organisation is also a more successful one. In Shell we describe this as chronic unease a frame of mind where we repeatedly ask ourselves what could go wrong and where we might need to take action to strengthen our controls. Starting with Shell s top 150 leaders, we are progressively equipping ourselves and those who work with us in our businesses with the skills to ask the right questions of all those who manage risks. There are many new conversations to be held and new habits to form but we believe it will help us to be more effective safety leaders.

Conclusion I would like to leave with you a few concluding remarks. In all parts of Shell, we are on a long journey to zero. Only this past week, the whole organisation came together for our annual Safety Day. Leaders at every level in Shell led staff and contractors in events that celebrated success but also served as reminders that, in our ever busier lives, we must always make time for safety. While we are making progress, we also know the risks of becoming complacent. An old Chinese proverb says you should dig the well before you re thirsty. We want to ensure we ask the difficult questions and take the right corrective actions before catastrophe strikes. That requires dedicated, consistent and skilled leadership. Our industries have a lot to be proud of but also a lot to be wary of. By working together on standards and solutions we will become collectively stronger and that is why I welcome and fully support the OECD s leadership in the vital area of process safety. My personal support will come though my role as a leader in Shell but also through my role as a champion of Responsible Care across the chemicals industry. Thank you for inviting me and thank you for refocusing our attention on process safety. Shell International Limited, 2012. Permission should be sought from Shell International before any part of this publication is reproduced, stored in a retrieval system, or transmitted by any other means. Agreement will normally be given, provided the source is acknowledged. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this publication the expressions Shell, Group and Shell Group are sometimes used for convenience where references are made to Group companies in general. Likewise, the words we, us and our are also used to refer to Group companies in general or those who work for them. These expressions are also used where there is no purpose in identifying specific companies.