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.
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.
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.
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.
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.
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
Political risks are associated with instability in government policies. These risks can 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 expropriation of assets, and political violence.
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).
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.
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.
