Risk management seeks to compare the projected costs of a loss and its probability to the costs of preventing or mitigating the loss. Some sources of potential loss are reasonably foreseeable and the costs associated with repair or recovering from the loss are generally understood and predictable. In those cases, calculating potential risk is less complicated. Then there are the situations that don’t conform to reasonable expectations. These can be events in which catastrophic consequences result from seemingly minor causes or events where the unfortunate proximity of receptors to incident creates excessive damages. Recent well-publicized examples include the train derailment and fire that devastated the town of Lac-Mégantic, Quebec, Canada and the rupture and explosion of a natural gas pipeline beneath a residential neighborhood in San Bruno, California.
Estimated costs for cleanup and restoration from these catastrophes range from hundreds of millions up to billions of dollars. The high costs associated with those events are primarily related to the extreme nature of the events, which took many lives, decimated surrounding populated areas, and caused extensive physical damage. However, less obviously dramatic events can also result in significant damages, and may be driven by circumstances that were not previously known or imagined.
It Happened in Louisiana
In the spring of 2012, bubbles appeared in swamps, waterways and ponds in the small community of Bayou Corne, Louisiana. In August 2012, approximately one acre of a quiet bayou was transformed overnight into an oily lake strewn with fallen, mature cypress trees. Local residents were evacuated from their homes. The Governor issued a Declaration of Emergency and ordered the company that occupied the property to immediately begin assessment to determine what happened. Within a week, the sinkhole had grown to four times its original area and was measured to be almost 400-feet deep. The nearby community worried that the sinkhole would continue to expand and threaten to swallow the town and a significant state highway.
The sinkhole appeared at the western end of a three mile-long by one mile-wide “salt dome”, an underground pillar of salt. The “quiet bayou” was actually located amidst numerous oil and gas exploration and production wells, natural gas pipelines, and subsurface caverns mined into the salt by injecting fresh water and pumping out the resulting brine. Drilling for oil and gas around the Napoleonville salt dome and mining its salt had been underway since at least the early 20th century. One of these solution mining caverns, inactive since 2011, was found to be located at the very edge of the salt dome. The cavern sidewall had apparently collapsed into the cavern more than 4,500 feet below the overlying swamp. The surrounding rock and sediment fell into the void of the cavern, causing the overlying strata to slump downward and create a crater that filled with surface water, debris and groundwater. The subsurface collapse released oil and natural gas deposits from the flank of the salt dome. Pressurized flammable gas bubbled up to the surface and created a risk of explosion to homes over an area of more than 1,000 acres.
Time (and Cost) Marches On
By early 2014, the sinkhole had grown to 37 acres. In June 2016, nearly four years after the sinkhole appeared, the subsidence was declared to have stabilized. Recommended evacuation orders were only lifted as of October 2016. In the intervening time, more than fifty gas-venting wells were drilled over a 1.5 square mile area to relieve the gas pressure, and more than 37 million cubic feet of methane were vented and burned off using flares. A containment berm was built around the sinkhole to prevent release of its salty waters to adjacent swamps and waterways. The bayou and the community of Bayou Corne were changed forever.
Costs for investigation, remediation, containment, monitoring, and property buyouts for community residents easily exceeded $100 million. Additional costs accrued from lawsuits by local residents and re-routing, ironically, two natural gas pipelines that had subsided into the sinkhole. At this time, various legal cases continue to work through the courts.
No event such as the Bayou Corne sinkhole is known to have occurred previously anywhere in the world. It was the product of highly site-specific conditions and a long chain of events. This risk was essentially unknown and could scarcely be imagined. But such a catastrophe broadens experience and informs the evaluation of potential risks. The Bayou Corne sinkhole remains an improbable event, yet it demonstrates that those low-probability risks should be included in the overall plan for risk management.
Other Costly Examples
The same sensitivity to specific conditions also exists for other types of incidents. For example, an electrical fault sparks a fire that destroys a small agricultural chemical blending facility and its associated warehouse. This unfortunate event is compounded when water used to fight the fire flushes the stored chemicals into a stream located nearly half a mile away through buried drains and overland ditches. The released contamination caused fish kills for miles downstream, closure of public drinking water supplies drawn from the affected stream, and ongoing contamination of stormwater runoff from the drainage pathway that required many months of containment, control, and cleanup – at a cost exceeding $10 million.
Spills of residential heating oil are not uncommon. However, assessment, remediation and property restoration costs for these events are highly variable and strongly depend on the event circumstances and the nature of the affected property. Necessary work can range from modest soil excavations that cost less than $20,000 to more extensive and technical soil excavation, chemical injections, and structural shoring, all before necessary restoration of damaged property. Specific factors can push total costs for a single spill event over $500,000.
HETI…Helping Manage Risks and Cost
HETI offers a staff of experienced environmental and risk management professionals with proven capabilities to deal with a full range of risk control issues. We can assist with planning for risk management when a loss remains only a possibility, and can also help with active risk management, cost control, and recovery if and when the improbable happens.