The oil and gas industry is universally considered one of the riskiest industries and arguably one that faces several challenges. Over the years, there have been notable cases of oils spills and refinery explosions linked to devastating environmental effects. Other concerns include the construction of oil and gas infrastructure, which causes environmental pollution and disruption of wildlands and wildlife habitat. All these are serious concerns that the entire industry and government institutions are trying to solve.
In recent years, oil and gas giants have developed risk assessment and mitigation measures to help them stay competitive in the highly volatile market. These strategies seek to identify risks, map the potential impacts and suggest possible solutions. Due to the nature of the industry, environmental risks are considered the most pressing concern that can affect both the industry’s reputation and finances.
Below, we’ve highlighted the major environmental concerns, other risks affecting the industry, and how risk assessment and mitigation play a significant role.
Environmental Risks in Oil and Gas Industry
Like any other economic sector that employs millions of people and generates billions in taxes, the oil and gas industry has been in operation for decades without a keen consideration of its negative impacts on the environment. Several efforts to regulate the industry have proven challenging to implement due to the complexity of the industry’s operations.
One of the critical concerns is the pollution impact that oil drilling has on communities. There are nearly 1.2 million oil and gas production facilities in the U.S alone, i.e., from wells to processing plants. To make it worse, almost 12.6 million people live within a half-mile radius from these sites, meaning they are exposed to various pollutants daily.
These emissions do not only affect humans but also the climate. Carbon dioxide emitted from oil refineries, and processing plants trap heat in the atmosphere causing global warming. Several oil & gas developments have also ruined wildlands, causing irreversible damage to the pristine wilderness.
Other adverse environmental risks of oil and gas drilling operations are oil spills that damage the marine ecosystem. The BP’s Deepwater Horizon spill, for instance, killed nearly 1 million seabirds, 1000 sea turtles, and 5,000 marine mammals. And while most oil spills don’t make the headlines, they still cause devastating effects.
A recent report, for instance, found that there were 2,179 oil spills in New Mexico, Colorado, and Wyoming combined in 2020 alone. These spills affect marine life through inhalation, direct contact, and ingestion of harmful chemicals.
Other Risks Facing Oil and Gas Sector
Besides the environmental risks, oil and gas sector faces several other threats categorized as short-term or long-term risks. Short-term risks include dynamic regulatory policies and political stances, while long-term risks include the dwindling natural supply and a wholesale market shift to renewable resources. The other risks include:
1. Cyber Risks
As the oil and gas industry adopts digital transformation, they are rapidly scaling and moving their legacy systems to the cloud. This rapid digitization exposes the company to potential cyber threats. Therefore, oil & gas industries should invest in cybersecurity risk assessment to anticipate and mitigate cyber risks.
2. Financial Risks
Like any other commodity in the market, oil and gas prices are subject to price volatility, supply and demand constraints, as well as cost risks. All these factors can affect the industry’s profitability, and companies should hedge their risks by diversifying their investment options.
3. Political Risks
Political stability plays a critical role in the success of oil and gas companies due to their reliance on partnerships and long-term leases. Shifting political landscapes and inconsistent regulatory environments are always a cause for concern for many oil and gas companies, especially those operating overseas.
4. Safety Risk
The oil & gas drilling and refining processes can be dangerous. Over the years, machinery breakdown, human errors, negligence, and natural disasters have led to severe injuries and even deaths. This recurring risk can be mitigated by prioritizing system safety engineering and nurturing a safety-first culture.
Managing Risk in Your Oil and Gas Company
The majority of the top risks facing oil and gas industry can be mitigated by anticipating the threats and taking appropriate action to counteract any potential impact. This often means setting aside the resources for risk management and having the talent to execute the necessary risk mitigation processes and operations.
Managing all the risks can be difficult, but not impossible. You just need to allocate time and effort into overseeing all the risky operations. The essence of mitigating risks is to protect your company’s assets and reputation without undermining profits.
That said, risk management isn’t a one-time event, rather a continuous process that keeps evolving with time. Today’s challenges are different from yesterdays’, so regular risk assessments are necessary to stay updated. And regardless of the risks, industry stakeholders should invest in risk mitigation technologies, processes, and operational cultures that prioritize safety and compliance.