Risk Management in the Oil and Gas Industry
What is risk management?
Risk management is the identification, evaluation, and prioritization of risks. It is accompanied by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.
The above definition is a general definition for most (or all) businesses. For every business however, this definition may be tweaked to suit that businesses niche.
What is risk management in oil and gas?
Risk management in oil and gas is basically the identification, evaluation, and prioritization of risks in the oil and gas sector. This may be on the drilling rigs, semi-submersibles, engineering equipment, refineries, etc.
There are three major categories of risks in the oil and gas sector. They are:
- Economic risk
- Political risk and
- Environmental risk
Oil and gas economic risks are hugely affected by money, the economy at every given point in time. Some factors that can affect oil and gas economically are:
- Oil price collapse. The rise and fall in the price of oil greatly affect the economy and in turn, affects products made with oil and gas raw materials. When there is a rise in the price of oil, there is almost always an equal rise price of other products.
- Capital cost overruns. These are “one-time bill payments” that later cost way more than was originally envisioned in the budgeting phase.
- High operating costs. This is no news. The cost of running and maintaining an oil rig is pretty high.
A small change in a country’s management or political philosophies can result in a re-evaluation of the country’s oil and gas reserves. Some changes include: change in taxation structure, change in economic terms and revision of production shares.
Environmental risks involving oil and gas are not foreign to many. For example pollution, flood, fire, ecological damage, etc.
Managing risks in the oil and gas industry involve more than just identifying the risks. Therefore it requires dedicated workers that would assess portfolios for optimization and using complex mathematical models, assess various risk-return relationships. Using a probability profile to evaluate risk make better-informed decisions than making single point evaluations.
In conclusion, learning about the intricate details of managing oil and gas risks will enable you to do more for yourself, the society and the planet. Join forces with those who strive hard to make the oil and gas industry a low-risk venture. Learn about health and safety with the Globat Skills Health and Safety training course.