Questions
The petroleum is one of the vital industries in the world and accounts for the largest industry in terms of the value of dollars (Knox, Agnew and McCarthy 2014). The recent downturn in the oil and gas industry has highlighted the urgency of the petroleum companies in the world to make some plans for the profitability and reducing the risks of different types of accidents in different scenarios. The oil and gas industry is taking into consideration the growth in the petroleum production and resources though profitability is the pertinent issue (Akinremi 2015). A broad range of operational environments that include frontier exploration and onshore production of reservoir characterize this industry. Some of the present uncertainties in the industry have prompted the companies to take favorable measures like preventing any form of accidents in the petroleum reserves in order to manage the ethical risks. Some of the biggest oil and gas companies of the world like BP, Exxon and Saudi Aramco are taking precautionary measures in order to protect their reserves and reduce the chances of accidents (Mucci 2015). The companies are trying to explore new technologies in order to enhance their performance. The innovative approaches in retaining and recruiting the best talent can provide the long-term success of the companies (Longley 2014). The petroleum industry has proved over the years, its abilities to reinvent and also innovate itself.
1. The management of ethical risks in the oil and petroleum industry is very significant for the economy where the businesses are able to provide healthy and safe working conditions (Crane and Matten 2016). This ethical process is based on the core values of responsibility, exemplary behavior and respect. The failure of the companies to give importance to human rights, tolerance of unethical practices and activities and not complying with the laws may affect the confidence of the investors and can have adverse impact on the relationships with the stakeholders (Knechel and Salterio 2016). Some kinds of risks, which the companies like BP, Exxon and other renowned oil and gas petroleum companies are facing, may be because of the sudden spilling of oil, any form of leakages or explosions in the plant. These hazards are coming to the headlines and the companies do not have enough evidence to provide support in order to give assurance to the shareholders. The general public is also anxious about the risks that the companies and the industry are facing. The hydraulic fracturing operational activities of the petroleum companies are under intense surveillance because of the fact that they cause the maximum damage to the environment (Holloway and Rudd 2013).
The world is heavily dependent on the petroleum industry and the demand for the petroleum products are on the rise with days (Morse 2014). This dependence of the companies has put the companies in front of challenges. The demand for the petroleum products is leading to the depletion of the oil reserves in most of the countries at a faster pace. This has been the matter of concern for most of the nations. There is always a fear about the depletion of the oil reserves and the demand may outstrip the supply. The companies are able to assess this and trying to find out alternative energy resources. In spite of all these, the biggest concern for the petroleum companies is the environmental risks that are associated with this industry. Many ethical risks are the sources of accidents in the petroleum sector (Jørgensen 2014). Drilling is a very common operation in the oil and gas industry. It is causing adverse impacts on the environment.
Answers
There are various types of risks associated with the oil and gas industry which have harmful effects on the human beings as well on the company itself. These risks have direct relations with the accidents occur in the oil reserves or in the production plants. This industry is very vulnerable to small changes that can create huge impact on the companies. This petroleum industry may be subjected to financial, operational, strategic or compliance risks. These are considered as external risks which are responsible for most of the accidents. The financial risks occur due to the problems in the economy. The operational risks are due to lack of strategies on the part of the management. These risks have the largest impact and tend to affect the processes, systems and common people. Strategic risks may come from the customers, investors or the competitors.
The potential impacts of the risks on the environment are described below.
There are several potential impacts of the oil and gas industry that have been taken into discussion. There is a chance of water contamination because of the effluent, wash water and discharges of cooling water, any form of seepage from waste tanks. This contamination can be because of the discharge of water effluents that are rich in inorganic substances. Thermal pollution is occurred because of the discharge of effluents, which have high temperatures. There is another possibility of water contamination because of the spilling of oil. The emissions of harmful gases in the atmosphere from the production plants are other ill effects on the environment. Presence of inefficient workers in the production plants may lead to the occurrence of incidents like spilling over of oil which can get mixed up with water and affect the aquatic plants and animals. Lack of proper leadership can create problems in the future as appropriate precautionary measures are not taken in the earlier stages. This can affect the environment and create high amount of risks.
The petroleum companies may try to reduce the ethical risks so that the number of accidents can be reduced to a greater extent. There can be operational challenges in the new environments as the oil and gas companies are continuously drilling deep and lack of proper technology can invite major risks in the environment. Reducing this can bring down accidents. The companies need to have some rigorous processes for the identification of hazards and manage the risks. The key functions of the leaders of a petroleum company in order to avoid accidents are setting policies and criteria, establishing certain risk management methodologies, identification of the risks, proper assessment of the risks, review and verification of the adequacy of controls, development of appropriate responses and monitoring and review. The companies showing commitment to resilience always check the functioning of the devices or the machines in the reserves or refinery to avoid any discrepancies in the future that can affect human beings or property. Even if that happens, it will be able to make early recovery. Regular checking of the machines in the refinery and reserves may avoid the chances of creating any holes in the containers and the leakages can be reduced. Giving proper training to the workers in the production plant may avoid the risk of spilling over of oil. Unnecessary deaths can be avoided through this. The leaders or the managers of a petroleum company has the option of arranging risk workshops where the workers of the production plants or those who remain engaged with drilling, may get some idea about the probable risks of some untoward incidents. The control verification and response plans take into consideration the leadership, governance and proper communication with the employees and workers in mitigating the risks reduce accident levels. Risk prioritization is another factor which the companies should consider. Transactional supports such as QRA, Audits, HAZIDS and HAZOPS provide assistance to the management of the companies.
Potential Risks
There are other options for the managers of a petroleum company to avoid the ethical risks such as providing appropriate incentives to make positive changes in the safety culture of the organization, clearly abide by the policies and procedures of the industry, strong and improved safety management systems, integration of safety engineers in the decision-making regarding operational activities, learning from the past events, regular maintenance of the safety-critical instrument, analysis of the hazards that have occurred and third party certification. Sometimes, many minor issues are overlooked by the employees of a company that can be easily detected by others. Proper utilization of the hazard analysis technique named HAZOP helps to improve the technological designs of the equipments. Integration of the safety engineers in meetings is significant as they usually make the safety-related decision-making.
2. The major energy providing companies of the world are BP, Exxon, Shell etc. BP, originally named as British Petroleum, is a multinational oil and gas company. It is headquartered in London. BP is one of the seven biggest oil and natural gas companies of the world. In 2012, the company held the position of six among the largest oil companies based on their performance. The operations of the company cover all the sections of the oil and gas production, such as, exploration, production, refining of crude oil, distribution, marketing, power generation, petro chemicals and trading of oil and gas. It has expanded its operations in the renewable energy sources such as wind power and biofuels (bp.cpm 2017).
Exxon is another big name in the oil and natural gas industry. It is an American oil and gas company. Exxon has the major concentration of stations and convenience stores in the Eastern, Southern and Mid Atlantic region, such as in the states of New Jersey, Pennsylvania, Texas and southern regions (Exxon.com 2017). Another very big multinational oil and gas company is Shell, or Royal Dutch Shell. Its headquarter is located in Netherlands.
All these big companies produce energy and contribute in the economic growth of the world. They have the same motto of improving the standard of living of the citizens of the world with the help of better provisions of energy. The companies claim that the way the energies, that is, light, mobility and heat are delivered to the world at present will change to a more efficient way in near future. Apart from meeting the high demand of energy, these companies also focus on the changing pattern of the consumption and demand. The oil and gas companies contribute in the effort of having a low carbon future for the world (Rudloff and Schultz 2016).
However, there are many risks in the operations of these companies. Since, the oil and gas companies contribute in the majority of energy production, hence, they face majority of risks of energy production and distribution. According to Charles Dewhurst (Energydigital.com 2017), the risks are increasing as the demand is growing by leaps and bounds every day. The risks are as follows according to their weightage
Potential Environmental Impacts
Volatile prices for oil and gas: the issues in the supply and regulatory battles have a significant effect on the oil and gas prices. Over the years, taxes, environmental laws and regulations; and turmoil in the Middle East have lead to a hike in the oil prices globally. The continuous changes in economic conditions of the oil supplying countries have made the prices volatile. This is the major risk for the oil companies.
Changes in legislations and regulations and increasing compliance costs: the rules, regulations and legislations have become tighter after the oil spill happened in the Gulf of Mexico by BP Deepwater Horizon. The regulations have restricted the power of the oil companies to do the offshore drilling in that region and in various other regions. The industries have to follow tight regulations in all over the productive regions to cause least damage to the environment (Clark 2014).
As the demand for energy is increasing, the companies face a huge challenge to replenish the energy sources. Since, the oil and gas resources cannot be expanded, replenished or replaced, in the near future there will be shortage of resources and it would be very hard to supply energy from this source. At the same time, the resources now are becoming harder to drill out as they are further and deeper offshore (Energydigital.com 2017).
The biggest risks of the companies are oil spills, blowouts and personal injury of the employees. These are operational hazards and very common in this industry. The biggest example in this regard is the BP Deepwater Horizon oil spill, where 11 men died in the explosion. This event made the industry to be more careful about the safety so that such incidents never happen again.
Natural calamities and extreme weather conditions posses big risks to these companies. As the companies have to dig deeper into the seabed and offshore regions, the hurricanes and tropical storms create huge concern for the production (Clark 2014).
The other risks include the following factors:
- inadequate capital access and instability of the financers;
- economic and environmental policies of the countries, regarding policies for climate change;
- lack of insurance coverage;
- involvement of the third parties for transporting and other facilities;
- increase in the operational costs;
- credit risks from the partners and investors;
- inefficiency of the workers; and
- general competition among the companies as well as from other alternative energy sources (Rudloff and Schultz 2016).
Thus, it can be said that the oil and gas companies and fracking industries face many risks in their production operations, which are big concerns for this industry.
3. The leaders have a vital role to play in mitigating the risks in the oil and gas industry. The safety and the productivity of the companies are largely bestowed on the leaders (Bolden and O’Regan 2016). They are responsible for skillfully tackling the different situations arising in the production plants or in the organizational level. The leaders have the responsibility of motivating the employees and instill on them the values and principles of the organization. Committed leadership helps in the enhancement of employee engagement. The creation of a harmonious environment in the organization as well as in the production plant can help the employees and the workers to reduce the chance of committing errors (Neck, Houghton and Murray 2015). The leaders find it easy to optimize themselves. Proper understanding of the sources of risks involved in the petroleum industry and prioritizing the activities are the major roles of the leaders. There are various techniques of oil exploration and drilling in the oil reserves. These require proper training and excellence to avoid any kinds of risks or untoward incidents. The leaders or the managers also take care of various types of training needed for the employees and the workers (Fayol 2016). This assists in the enhancement of service level in the oil reserves. The managers who are ethical, also looks after the work culture of the organization whether any unethical practices are done in the organization. These unethical activities bring down the productivity of the company and it may incur huge loss (Hair 2015). Efficient and ethical managers handle such challenging situations with expertise.
Mitigation of Risks
New technologies and discoveries always bolster the confidence of any industry (Nilsson and Felding 2015). The oil and gas industry has made some significant breakthroughs with respect to technology for renewable energy resources. The leaders must take into consideration some factors that can help them to mitigate the risks of the petroleum industry. Firstly, the leaders must not take extreme risks so that the company may fall in any form of danger (Blaikie et al. 2014). They should listen to the advice of experts before investing in anything or must not overlook warnings about any safety measures. Any failure in responding to these may invite troubles and invite more risks. They should make one thing clear that crises expose dysfunctional cultures of the organization. Leaders need to identify when there is a chance of spinning of a crisis. The petroleum industry is such that there is a huge possibility of occurrence of untoward incidents (Gibson 2016).
The leaders need to take some measures and fight against the challenges. There has always been a challenge of ‘frontier acreage’ that represents the development and exploration of new reserves (Watts 2016). Sometimes this becomes very expensive or too much difficult to implement. The leaders must formulate strategies in order to avoid these problems and create more reserves with more safety measures. The unconventional resources were not so popular (Zou 2017). However, with the advancement of technologies, it has gained popularity and the leaders can make proper use of it. The leaders must keep one thing in mind that the laws and legislations of a country has immense impact on the petroleum industry of the country (Agarwal 2016). He should abide by the rules and regulations of the industry. So, the leaders have a big role to play to help the petroleum industry in minimizing the risks and take the companies to a better position and saving the lives of many.
Conclusion
The report has inferred about the present scenario of the oil and gas industry and how it is facing various issues every day. Big companies like BP and Exxon have experienced several issues that are affecting the companies and the environment as well. The risks are being identified and discussed in detail. Various recommendations have been put forward that may help the petroleum companies to mitigate the various kinds of risks that they have in future and are still suffering from. It has been observed from the discussion that continuous exploration and drilling are having adverse effects on the reserve and production plants. These are leading to unnecessary accidents in the plants and creating damages of the equipments. The significant issue that has come up in the report is the inadequate supply of energy and the future risks of demand getting higher than the supply. A comparative analysis of the risks that BP, Exxon and the fracking industry will face in the future in the supply of energy resources has been conducted. The fact that managing the ethical risks in the petroleum industry can lead to the reduction of the accidents has been considered in the report. The roles and responsibilities of the leaders in mitigating the risks and the various factors that are associated with them have been given immense importance.
References
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