Cynthia Ezekwe
Business insurance firm, Allianz Commercial, has urged oil and gas sector operators to adopt a holistic approach to risk management in order to safeguard against potential disruptions that threaten to capsize the future of oil and gas business. This comes as the global oil and gas sector is being buffeted by escalating geopolitical tensions, climate change-driven disruptions, regulatory changes, fluctuations in oil prices, and supply chain disruptions.
A new, pressing report from Allianz Risk Barometer has revealed that, in 2024, the top concern facing the oil and gas sector will be the daunting spectre of business interruption, a calamity that could potentially disrupt the industry at its core. This risk is closely trailed by a relentless tide of other dangers, including the energy crisis, the looming threat of climate change, the destructive force of fire and explosion, and the catastrophic impact of natural disasters.
The report, based on insights from over 3,000 risk management professionals and business leaders, highlights the growing importance of addressing these risks to steer clear of potential disruptions and ensure business continuity.
Allianz Insurance pinpointed business interruption as the oil and gas sector’s most pressing risk, with a host of factors, including supply chain disruptions, geopolitical instability, and fluctuating oil prices, fueling this existential threat. The report also underscored the continued prominence of energy crisis risks, which have been intensified by disruptions in the global supply chain, geopolitical tensions, and evolving regulatory frameworks.
In addition to the threats of business interruption and energy crisis risks, the report also noted that climate change risks have risen to the third position, reflecting a heightened awareness of the dangers associated with the industry’s carbon-intensive nature. Moreover, the oil and gas sector is also particularly vulnerable to the physical impacts of climate change, such as extreme weather events that can disrupt operations, or sea-level rise that can threaten coastal infrastructure.
The report identified fire and explosion risks as another major threat facing the oil and gas industry, ranking fourth in the list of top risks. The volatile nature of hydrocarbons, which are the backbone of the industry, coupled with the complex infrastructure needed for exploration, production, and transportation, were considered a hazardous environment, as a single spark or leak can trigger a devastating chain reaction, causing catastrophic loss of life and property.
Adding to its list of threats, the report also flagged natural catastrophes as new entrants in the top five risks, placing them in the fifth position.
To address these challenges, Allianz stressed the need for business continuity planning reviews, noting that they are essential and must be regularly updated.Â
“Faced with loss scenarios that can fall like dominoes, businesses need robust, resilient operational processes to safeguard their supply chains and ensure business continuity. Business continuity planning (BCP) reviews are essential and must be regularly updated,’’ Allianz noted.
Concerning the risk of business interruption, which ranked highest in the list, Allianz noted that mitigation strategies should prioritise implementing robust contingency plans, diversifying operations across multiple geographic regions, and investing in technology for real-time monitoring of production facilities and pipelines to detect and respond to potential disruptions promptly.
The report also recommended that mitigation strategies should prioritise diversifying energy sources and investing in renewable energy technologies to reduce dependency on fossil fuels and enhance resilience to energy shortages. It highlighted the need to implement energy efficiency measures in operations and adoption of advanced technologies for extraction and refining processes that can optimise resource utilisation and mitigate the impact of energy crises.
“Collaboration with governments, industry stakeholders, and research institutions to develop sustainable energy policies and strategies is crucial. Proactive measures to enhance energy efficiency and diversify energy sources are essential for oil and gas companies to mitigate energy crisis risks and ensure long-term sustainability in a rapidly evolving energy landscape,’’ Allianz risk barometer advised.
Highlighting the measures to take to mitigate climate change-driven risks, Allianz noted that mitigation strategies should prioritise reducing emissions through investments in carbon capture and storage technologies, transitioning towards cleaner energy sources such as natural gas and renewables, and implementing methane reduction initiatives in extraction and production processes. It noted that proactive measures to address climate change risks are imperative for the long-term sustainability and competitiveness of the oil and gas industry in a transitioning energy landscape.
The report also highlighted that mitigation strategies for fire explosion should prioritise implementing robust safety protocols, including regular equipment inspections, hazard assessments, and employee training on emergency response procedures.
Allianz noted that establishment of strict regulations and standards for the construction and operation of facilities and pipelines, as well as maintaining adequate emergency response capabilities, is crucial, while stressing the need for proactive risk management and adherence to stringent safety measures as they are essential for oil and gas companies to mitigate the risk of fire and explosion incidents and ensure the safety of workers and surrounding communities.
On the mitigation strategies for natural catastrophes, the report recommended that the strategy should include conducting thorough risk assessments to identify vulnerable assets and implementing measures to enhance resilience, such as reinforcing infrastructure, relocating critical facilities away from high-risk areas, and investing in advanced monitoring and early warning systems. It further stressed the need for establishment of robust emergency response plans and coordination mechanisms with local authorities and responders that can enable swift and effective response to natural disasters.
