Preventing Refinery Explosions: Regulation By Litigation

By David Michaels

The US Chemical Safety Board (CSB) is holding a public meeting tonight in Texas City, Texas, to release the final report of its investigation into the explosion at the BP refinery that killed 15 workers and injured 170 more in March, 2005. Thursday, the House Education and Labor Committee will be holding a hearing on the disaster.

Both these events will focus on ways to prevent more explosions in the future. There are many lessons to be learned from the explosion, but its clear to me that the one lesson managers of other firms will take home from the BP disaster is that the subsequent law suits are what really hurt the company's bottom line.

Whatâs to stop this from occurring again, elsewhere? Not OSHA, that's for sure. More than anything else, fear of lawsuits has replaced formal regulation as the best means to encourage good corporate behavior.

Yesterday, Carolyn Merritt, CSB Chairman, spoke at a meeting of the National Petrochemical and Refiners Association. In a report in the Houston Chronicle, she blamed the explosion on BPâs years of cost-cutting, operator mistakes and a corporate culture that didn't make safety a top priority.

According to Chairman Merritt:

The combination of cost-cutting, production pressures, and failure to invest caused a progressive deterioration of safety at the refinery. Beginning in 2002, BP commissioned a series of audits and studies that revealed serious safety problems at the Texas City refinery, including a lack of necessary preventative maintenance and training. These audits and studies were shared with BP executives in London, and were provided to at least one member of the executive board. BP's response was too little and too late. Some additional investments were made, but they did not address the core problems in Texas City. In 2004, BP executives challenged their refineries to cut yet another 25% from their budgets for the following year."

None of this should come as a great surprise to safety experts, or to anyone following the story in Confined Space over the last two years (several dozen posts are here). The basic synopsis: BP acquired the US oil company Amoco in 1998 not because of its refining capacity but because it had extensive oil reserves. Saddled with old refineries like the one in Texas City, BP decided to run them into the ground rather than maintain them.

The disaster has no doubt hurt BP's image. It is taking a lot of hits in the press. BP's CEO stepped down earlier than he might have wanted. It will cost some money to repair the Texas City refinery (but it was hit pretty hard by Hurricane Katrina, so many of those costs were unavoidable). And OSHA issued a record fine (a record for OSHA, that is) of $21 million. Of course, this isnât very painful for a company whose revenues in 2005 topped $22 billion.

None of this, however, will have as much impact on CEOs and Boards of Directors of other companies as the cost to BP of law suits filed by the injured workers and families of those who died. The company has already settled 1000 suits and is facing many more. BP has set aside $1.6 billion to cover these costs.

Iâve heard it said many times that if you go behind closed doors and ask a CEO which one he fears most â OSHA or lawsuits â the answer always is lawsuits. Inspections by OSHA and the CSB may help keep workplaces safe and employers honest, but neither can hold a candle to the power of litigation as a way to encourage the safe operation of factories.

David Michaels heads the Project on Scientific Knowledge and Public Policy (SKAPP) and is Professor and Associate Chairman in the Department of Environmental and Occupational Health, the George Washington University School of Public Health and Health Services.