What are the increased risks for the Energy Industry arising from COVID-19?
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Many Mining, Utilities and Oil and Petrochemical (OPC) sites face increased risks and temporary shutdowns as a consequence of COVID-19.
We talked to our Energy industry experts who shared their insights on the current crisis. This conversation features: Erick Mondragon, Manager, Mining Risk Engineering, Massimo Giachino, Manager, OPC Risk Engineering and Rodrigo Davila, Manager, Utilities Risk Engineering discussing risk trends they are seeing and practical loss prevention advice for clients in the Energy industry.
Increased risks for the Mining industry
A conversation with Erick Mondragon, Manager, Mining Risk Engineering on the increased risks for the Mining Industry arising from COVID-19.
How has the mining industry been affected by the current COVID-19 pandemic - what trends are we observing globally?
Mondragon: We see that the impact, consequences and effects of COVID-19 on the mining industry are dependent on global, regional and country-specific factors. At a global level, the gold price has surged, with some investors viewing it as a "safe haven". Meanwhile, we've observed base metal prices going down as the construction, manufacturing and industrial use plummets globally. Iron ore was one of the first products to dip together with China's lockdown, as they are the top steel producer, and global consumption of steel does not appear promising. On the coal front, metallurgical and thermal coal appear to have opposite price trends. Notably, reduced energy consumption and low gas and oil prices seem to have affected thermal coal prices. On the opposite side, even though steel production is slowing, some supply restrictions could lead to a stable coking coal pricing.
What are some trends we are seeing regionally?
Mondragon: At a regional level, the picture is very diverse. We see Australia attempting to operate at "restricted" normal levels, while some countries in South America and South Africa have mostly stopped mining activities, and some coal miners in the US are trying to operate at normal levels. These diverse approaches are dependent on local conditions. The level of production also depends on certain jurisdictions labelling mining as an "essential" activity. Nevertheless, being "essential" does not spare an industry from shutting down if the entire country is on lockdown, without the means to mobilize workers, supplies or final products. Risk managers needs to prepare for the new and increased risks of such a scenario and ensure the necessary business continuity plans are in place to minimize losses, safeguarding the health and safety of their miners - their most important asset.
What are some of the new or increased risks in the scenario of a complete or partial shutdown of a mining site?
Mondragon: Based on this new operating environment, we've seen new or aggravated exposures arise. We've created a loss prevention advisory for clients, identifying key risks and recommended mitigation measures in the mining industry.
One key aggravated risk today is fire. Many activities in the ore/coal processing are wet, such as concentrators, coal wash plants and filtering plants that condition the need for fixed fire protection. This situation changes radically if the plant is under a Care and Maintenance (C&M) regime. Depending on where the fire would start, the spread – and expected associated damage - could be significant. When the wet processes are active, a fire is less likely to spread to surrounding equipment. When dry however, the fire could spread more extensively before it is manually, or automatically put down.
The stability of main infrastructure and availability of services should also be considered. Structures such as open pits, tailing dams, waste dumps or stockpiles are stable during the operation. However, these are "live" structures and are designed to be stable in the long-term only at the end of the Life of Mine. Therefore, it is important to ensure that all critical mine infrastructure is monitored for stability and soundness while the mine is on C&M.
These are just a two of many of the increased risks we cover in our new advisory. Others include delays due to limited availability of technical experts for critical inspections, maintenance deferrals due to strained economic conditions, limited availability of spare parts due to supply chain disruption and potential social unrest leading to mine access blockage.
With these increased mining risks in mind what are a few practical tips you can give during this period to plant managers?
Mondragon: Plant managers should ensure that idling/mothballing procedures are in place and are compatible with the expected Care and Maintenance (C&M) period. Procedures must change depending on the estimated length of the idle period which could be three months, a year or more, and adapted accordingly. Depending on the estimated timing, considerations for issues like corrosion, liquids drainage or equipment rotation could change. Additionally, main equipment vendors/OEMs should be involved for C&M procedures. Not involving them from the start could result in equipment damage, loss of warranties or poor re-commissioning practices. Plant managers should also ensure Hot work permit (HWP) application is very strict during a C&M period and that fire protection features are properly operated and maintained during the idle period.
Supply chain disruption is also a key consideration, and a good spare parts and consumable stock should be in place to allow continuous operation for longer periods without external dependence. Operators should re-assess the availability and lead times of critical spares and supplies. Consider – Are all critical spare parts available on site? Do the Business Continuity Plans consider critical spares availability and alternative consumable suppliers?
While by no means a comprehensive list, these are a few considerations and questions that clients should be asking.
We cover this and more in the new risk advisory accessible below.
Increased risks for the Oil and Petrochemical Industry
A conversation with Massimo Giachino, Manager, OPC Risk Engineering on the increased risks for the Oil and Petrochemical Industry arising from COVID-19.
How has been the Oil and Petro Chemical industry's reaction to increased risks faced during this current crisis – how important is it for quick action?
Giachino: Taking quick action is imperative in order to provide "first aid" measures against the current COVID-19 crisis. Oil and petrochemical (OPC) companies have the duty to act immediately in order to protect their employees by helping to mitigate the outbreak and addressing business challenges.
Many OPC companies have reacted in stopping operations temporarily. In this scenario, where the property is idle or vacant, loss of containment resulting in a severe fire incident becomes a key concern. For companies that are still operating on the other hand, a high degree of flexibility is required to manage their production volumes and inventories, adjusting to fluctuating demand. These new actions may result in unexpected deviations from standard operating procedures (SOPs), exposing the plant to new and increased exposures, which we talk about in our new loss prevention advisory for the OPC industry.
What are the current biggest concerns we hear from clients in the Oil & Petrochemical industry today?
Giachino: The situation is evolving rapidly, and many are finding "traditional" Business Continuity Plans in place unable to fully address today's fast-moving variables. Some of clients' top priorities at the moment include reduced workforce productivity, limitations in financial liquidity and capital resources, supply chain disruption, decreased consumer confidence and demands along with risks of a global recession.
What are some of the new or increased risks facing the Oil & Petrochemical industry in light of COVID-19?
Giachino: As mentioned above, in today's operating environment, oil and petrochemical plants are exposed to new and aggravated risks. One key risk is an increased likelihood of incident scenarios due to changes in process configurations. With the current supply chain disruption, plant managers may be required to make operational changes that introduce unusual process configurations/raw materials and lead to uncommon utilisation factors (outside of the 50–90% range). This can result in "abnormal" operating conditions (e.g., temperature, pressure, flows, etc.) outside of the safety envelope that may stress personnel and equipment. The likelihood of incidents such as loss of containment resulting in fire or explosion could increase in such a scenario.
Maintenance and inspection investment deferrals also lend themselves to increased risk. Today, a reduced number of contractors and limited capital resources has meant a deferral of major capital expenditures such as maintenance and inspection turnarounds for some plants. This can impact the "fitness-for-service" of equipment and machinery approaching end-of-life. Operating equipment and machinery close to its end-of-life increases the likelihood of loss of containment, thereby increasing the likelihood of incidents resulting in fire and/or explosions. We might assume this exposure is much higher in countries where the frequency of testing and inspection activities is not regulated by statutory requirements.
These are just a two of many of the increased risks we cover in our new advisory. Others include social distancing within organizations, business continuity exposures, idling/mothballing/restart and more.
With these increased risks in mind what are a few practical tips you can give to Oil & Petrochemical plant managers during this period?
Giachino: Plant managers should ensure a structured safety review is followed for all changes to hardware and software. This should involve a multidisciplinary team and parties across Operations, Maintenance, Inspection, HR & HSEQ and have an increased focus on changes to process configurations and changes in feedstock. They should consider the following:
- Has the management of change (MoC) procedure been applied in the case of changes to the traditional process configuration? The MoC procedure represents the most suitable practice to be applied from a process safety perspective.
- Has the Integrity Operating Window (IoW as per API 584) concept been applied? IoW is the most suitable standard for identifying atypical fluctuations and exceedances of main operating parameters that could impact the mechanical integrity in the medium term. It does so by preventing damage mechanisms and reducing the deterioration of equipment and machinery.
In the case where a maintenance / inspection turnaround has been postponed, proper risk assessments (via MoC or the deferral procedure) must be applied. The assessment should cover the deferral of inspection activities for all disciplines (mechanical, electrical, instrumental, civil) and must not be limited to those with consequences on equipment under statutory regulation.
In addition, special attention should be paid to the postponement of safety critical systems testing. Outcomes from the deferral analysis must highlight fitness-for-service for the extended run length. This should be done by providing, where necessary, the remaining life calculation and the countermeasures to be adopted should a piece of equipment be considered unfit for continued service for the required period (e.g. shutting down or de-rating of equipment).
While by no means a comprehensive list, these are a few considerations and questions that clients should be asking. At this stage, it is difficult to predict whether actions will be limited to short-term since the duration of the crisis remains unknown. Long-term solutions/new business models may need to be implemented if the crisis persists.
We cover this and more in the new risk advisory for the Oil and Petrochemical industry accessible below.
Increased risks for the Power Generation Utilities Industry
A conversation with Rodrigo Davila, Manager Utilities Risk Engineering the increased risks for the Power Generation Utilities Industry arising from COVID-19.
How has the power generation utilities industry been affected by the current COVID-19 pandemic - what are we observing?
Davila: The effect of the current and coming restrictions is different by country, depending on the COVID-19 impact level and the varying extents of social distancing, quarantine and industry shutdown adopted by different governments.
Nevertheless, a general consequence we see significant reduction in industrial activity in the short and medium term, which will result in an expected reduction in power demand accordingly. To date, a reduction of 20 to 30% or more in power demand has been observed in many countries following the implementation of stricter quarantine measures. Additionally, demand patterns and peaks are shifting towards a single peak during the evening.
This, together with the onset of summer in the northern hemisphere will certainly increase power demand again as temperatures rise and many homes require air conditioning. The effect on electricity prices is therefore difficult to predict. Also, seasonal changes in weather and sun height will increase the share of the renewables in the generation mix.
What are some of the new or increased risks facing the power generation utilities industry in light of COVID-19?
Davila: Power generation utilities plant managers are experiencing a number of new and increased risks today. One key risk is maintenance and other capital investment deferrals. In many cases, outages are scheduled during the spring season to prepare for the high demand period during summer or aiming to avoid periods of extreme heat or cold. Outstanding outages will likely face challenges in obtaining the necessary manpower or would shift the window of opportunity. Larger plants requiring more outage manpower are expected to be the most affected. Even when the situation recovers, attempts to catch up on maintenance will likely face challenges due to shortages of manpower as all others will likely do the same.
While many power plants (except base loaders) are used to having some equipment idle over certain periods, under the current situation, idle periods might extend, resulting in some plants potentially being mothballed, depending on how long the COVID-19 situation lasts. This also presents its own challenges and associated risks. Recently we've also put together guide specific to risks to idle and vacant properties.
Limited expert availability during this period also presents risks. At least through 2020, international travel restrictions will affect the availability of technical experts from Original Equipment Manufacturers (OEMs) to reach sites should the need for troubleshooting arise. The same would apply to loss adjusters. OEMs offer different degrees of Long Term Service Agreement (LTSA) support, from very basic (critical spares only) to very comprehensive (dedicated engineer on site plus remote monitoring).
These are just three of many of the increased risks we cover in our new advisory. Others include jurisdictional inspection, spare parts availability, changes in operational regime and more.
With these increased risks in mind what are a few practical tips you can give to power generation plant managers during this period?
Davila: Faced with maintenance and other capital investment deferrals, power generation utilities plant managers should secure critical spare parts required for planned outages and the required manpower in advance of normalisation. Plant managers should refer to Original Equipment Manufacturer (OEM) guidelines and obtain OEM approval for deviations from mandatory inspections. We would recommend clients to consider the following:
- Do you have any major outages planned for this year?
- Is any equipment overdue for major inspection/overhaul?
- Do you have enough spare parts for any planned outages?
- Are there other smaller projects being postponed?
- Have you considered securing manpower in advance of any large deferred outages/overhauls that are being postponed due to COVID-19?
Where idle periods have been extended, Original Equipment Manufacturers (OEMs) should be involved for longer than usual shutdowns. Their advice must be followed in order to secure a safe equipment idling and later restart. Measures for idling (and later restarting) complex equipment can have many subtleties and variations depending manufacturer and model. Preservation measures vary greatly depending on the equipment involved and the length of the shutdown. The LMA Mothballing and Recommissioning Questionnaire 9142 provides a good base and is an insurance market-accepted clause.
The more comprehensive the Long Term Service Agreement (LTSA) available at a plant, the easier will it be to deal with expert availability. Operators should consider whether their LTSA includes an expert on site or remote equipment monitoring and also whether they have a protocol in place for accepting foreign personnel at their facility.
While by no means a comprehensive list, these are a few considerations and questions that clients should be asking. We cover this and more in the new risk advisory accessible below.
Disclaimer: The guidance contained in this document, in the opinion of Swiss Re Corporate Solutions, is sound, reasonable and may help reduce the risk of property loss and business interruption. This guidance is used for low to medium hazard property occupancies and is not suitable for higher hazard facilities. Swiss Re Corporate Solutions does not warrant that all losses will be avoided or that all reasonable preventive measures have been taken if advice in this document is followed. By sharing its opinion as to certain sound and reasonable practices, Swiss Re Corporate Solutions does not relieve the insured of its own duties and obligations with respect to assessing and implementing loss prevention measures and Swiss Re Corporate Solutions disclaims any liability as respects loss prevention.