Risk is inherent in any business and is all the more crucial in the energy sector, especially the oil and gas industry. Some of these risks are inherent while others are taken deliberately to grow the business, evolve with the times and fulfill market expectations. To thrive in the long run, enterprises must balance risk-taking with risk mitigation. It is here that the role of risk management comes in. Anyone looking for or pursuing oil and gas jobs must be aware of such risks. Let us look at the top 5 risks faced by the oil and gas industry.
Major Risks Faced By The Oil and Gas Industry
The oil and gas industry is one of the most volatile and capital-intensive industries in the world with oil and gas service providers exposed to several inherent risks, some of which are more crucial than others. Here, we look at some of the more important ones.
- Price Volatility: Prices of crude oil are extremely volatile and are one of the major challenges faced by oil and gas companies. Geo-political events, such as the ongoing Ukraine-Russia war, and recently, the COVID-19 pandemic have added to the volatility, leaving companies struggling to meet their costs and achieve profits. Any drop in oil price also tends to reduce demand for fossil fuels with consumers looking for more sustainable options.
- Transportation Risks: This is another risk that is inherent to oil and gas companies. These companies face transportation risks throughout the value chains from production to refining to the final delivery of the products to the end customers. Any risk along any rung of the value chain can have drastic consequences, for instance, a pipeline spill can have a great impact on the environment. This may in turn lead to regulatory fines if the leak is not properly handled. Then again, natural disasters such as a hurricane or cyclones can also disrupt the supply chain leading to losses for the oil and gas company.
- Political Risks: As the name suggests, these risks are attributable to the instability in government policies, such as changes in fiscal policies – subsidies, taxes, and incentives or regulatory policy changes with regard to licensing or permits. They can also manifest in the form of restrictions on foreign ownership, expropriation of assets, nationalization, or political unrest. In any such scenario, the governments can implement policies that are deterrent to the oil and gas companies.
- Operating Risks: Oil and Gas Companies are physically involved in extracting crude oil and fossil fuels from the ground and so worker safety is a major operating risk they face. Apart from potential physical harm to the workers, the companies may also be faced with fines in case they fail to meet the necessary environmental and other regulations.
- Environment Risks: The environmental risks are associated with extraction activities and include both health risks to workers and damage to the environment and ecosystem. For instance, harmful emissions can make their way into the air and water supply.
What is risk management?
Risk management refers to the process of limiting risks that can impact the performance and reputation of an organization. To grow and thrive, businesses need to innovate and tread unchartered territories. Rather than just plunging into unknown waters, enterprises first study the waters, their own skill sets, and other resources needed to navigate new territories, and then weigh the pros and cons to discover the most profitable and least risky course of action.
While individuals manage risk in a limited domain, it is the overall risk management policy of the enterprise and the regulatory environment in which it operates that provide the framework and govern how it assesses and manages risk.
In the context of the oil and gas industry, risk management becomes all the more vital given that oil and gas companies, especially the ones offering oilfield training and jobs, deal with chemicals and hazardous substances that workers are exposed to daily. Going beyond, there are also risks associated with dangerous equipment and machinery in oil wells and fields located in remote locations. Then again companies may wish to compare an existing project based on factors such as costs involved and time to market. Or they may want to evaluate the safety of a new drilling site before actually sending their crew to carry out the function.
At GET Global, we follow stringent risk management practices that are focused both on prevention and cure. Supported by a team of oil and gas experts and well-trained personnel, we aim to minimize risk for our clients ensuring the continuity and stability of the production, exploration, and extraction processes by preventing threats and restricting the degree to which negative internal and external factors affect the associated activities. Our risk management strategy is based on a systematic analysis of risks based on which we implement mandatory risk protection procedures in all industrial-including oil & gas industry training and management activities. In sum, we follow the regulations and standards of the oil and gas industry and devote time and resources to meeting all safety requirements and best practices, which are crucial to our client’s success.