The Impact of Risk Management on the Oil & Gas Industry
Posted on May 29, 2022 at 05:05 AM
Risk management is an essential part of any industry, but it is vital in the oil and gas industry.
Oil and gas companies have many chemicals and hazardous substances at their disposal, and workers in these companies are often exposed to these substances daily. Therefore, if companies do not have adequate risk management strategies, they put themselves and their employees at serious risk of harm.
This article will help you understand the most effective ways to manage the oil and gas industry risks to keep your company safe while complying with relevant laws and regulations.
The concept of risk management:
Risk management identifies and analyses the threats a company can face and control.
These risks can be caused by various sources, such as financial problems, legal responsibilities, technology issues, strategic management errors, accidents, and natural disasters.
What is the importance of risk management?
The goal of risk management is to eliminate or reduce unacceptable levels of risk. In oil and gas, for example, this might mean comparing a new project to an existing one based on cost, time to market, and other factors. Another example could be evaluating the safety of a new drilling site before actually going down there with a team to drill.
Every day, oil and gas companies evaluate their risks in order to achieve their goals. They continuously assess their operational activities and identify the risks that are most critical to them.
The importance of risk management in the oil and gas sector lies in the following:
- Predict risk and determine its causes.
- Risk analysis, assessing its impact on property and people, if realised.
- Measure risk by knowing the likelihood of its recurrence and the associated losses and being prepared to face it.
- Choose the best methods to deal appropriately with the risk.
The oil and gas industry is fraught with dangers:
The oil and gas industry is one of the most capital-intensive businesses in the world. Oil and gas companies are exposed to many inherent risks, some more significant than others. These risks range from commodity price volatility to environmental disasters, and they can have a major impact on these companies ability to operate successfully.
Here are 7 of the biggest risks faced by oil and gas companies:
1. Price volatility
Crude oil prices are notoriously volatile, which is a major challenge for oil companies. When prices fall, these companies can struggle to meet their costs and may fail to turn a profit. Oil price drops also tend to reduce demand for fossil fuels in general, as consumers focus on sustainable options.
2. Transportation risks
Oil companies face transportation risks throughout their value chains â from production to refining to delivery of fuel products to customers. For example, a pipeline spill could have costly environmental consequences or lead to regulatory fines if not properly handled. A natural disaster such as a hurricane could also disrupt transport operations and result in temporary losses for an oil company.
3. Political Risks
Political risks are associated with instability in government policies. These risks can be associated with changes in fiscal policies (taxes, subsidies, incentives) or regulatory policies (licensing / permit requirements). They may also include changes in restrictions on foreign ownership, nationalization or expropriation of assets, and political violence.
In many cases, governments may choose to implement new laws that reduce the profitability of oil and gas projects by increasing taxes or reducing subsidies. In some cases, governments may even implement laws that ban certain types of oil production altogether.
4. Environmental Risks
Environmental risks are associated with the impact of extraction activities on the environment. These risks include everything from negative health effects to damage to the ecosystem and environment. Environmental impacts may come from harmful emissions into the air or water supply. They may also result directly from resource extraction activities such as hydraulic fracturing (commonly known as fracking).
5. Operating Risk
Oil and gas companies also face operating risks because they are physically involved in extracting a commodity from the ground. Worker safety is a major issue for exploration and production companies. In addition to potential physical damage to workers, there's also a potential cost in fines if they fail to meet environmental regulations.
6. Oil spills
Oil drilling, production and transportation operations can cause major environmental damage. Not only do these accidents harm wildlife, but they also hurt the companyâs reputation with consumers who want to buy products that are environmentally friendly.
Fossil fuel extraction also releases massive amounts of greenhouse gases into the atmosphere, which contributes to climate change and global warming. In order to improve their image with consumers, oil and gas companies must increase safety measures for drilling operations and develop more efficient extraction techniques that release fewer pollutants into the air.
7. supply and demand risks:
Supply and demand shocks pose a real risk to oil and gas companies, taking a fair chunk of capital and continuing volatility in the price of oil and gas with its impact on economic factors and financial crises.
Project Risk Management in the Oil and Gas Industry
The oil and gas industry at all stages (production, transportation, liquidation) is dangerous, so there must be strict procedures for the managers of these enterprises to manage the risks arising from the oil and gas industry.
Risk management in the oil and gas industry is determined by the application of safety procedures for:
- Environment
- Staff members
- means of production.
Risk factors in the oil and gas industry:
- Risk factors in the oil and gas industry:
- Failure to define the company's safety culture.
- Failure to commit to applying the risk management plan by managers and staff.
- Lack of a specialised risk management team.
- Failure to analyse risks properly and seriously.
- Deficiencies in communication and reporting systems.
- Failure to learn from past incidents.
- Income-export inequality.
Two additional factors mainly affect oil and gas industry accidents:
- Mixing occupational safety with system safety:
Many managers believe that keeping workers safe is enough to apply their protective procedures and overlook the role of protecting the production system by maintaining complete protection, such as machinery, operating system, and chemicals.
- Believing that the likelihood of practical accidents is low:
Oil and gas risk managers fancy taking full ownership without keeping part of the sudden disasters, epidemics, environmental disasters, and others from implementing the risk management plan.
Risk management model in the oil and gas industry:
The main objective of the company's oil and gas risk management is to ensure the continuity and stability of the production process by preventing threats and restricting the degree to which negative external and internal factors affect the company's activities.
Accordingly, the risk management plan must be an integral part of the internal environment of oil and gas manufacturers:
- The implementation of mandatory risk protection procedures in the company's industrial and management activities.
- Systematic analyses of potential risks.
- Design of the company's risk control and evaluation system and protective procedures.
- Definition of risks and understanding of all means of protection by all employees and placing primary responsibility on administrators.
- Ensure regulatory support and strengthen safety and risk management procedures according to the company's policies.
- Establish a clear structure for the systematic and accurate distribution of the safety plan and risk management functions.
In conclusion,
Risk management steps will help oil and gas companies prevent many risks and mitigate the impact of uncontrollable conditions. Hence, risk management plays a significant role in the industry.
Accordingly, attending oil and gas training courses in Dubai will help you follow the rules and standards of the oil and gas industry and devote time and resources to meeting all safety requirements and best practices, which is a real investment in the company's success.
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