The project Gorgon Gas Expansion is heading forward to entre in its second stage of the expansion. The location of this project is located 150 kilometres towards the western coast of Australia. This project is being looked forward to create hundreds of employment opportunities in the area. The Gorgon project is one of the important and largest gas projects in the world. This is also one of the costliest projects which are expected to cost $69 billion. This project has already provided employment opportunities to nearly 10000 people at the time of the construction itself of the processing facility which was undertaken at Barrow Island situated in the west of Karratha. This project has emphasised on employment generation for local people as well as to accelerate growth and development in the country. This project also aims to accelerate the growth of west Australia and bring it on track again. This project has the ability to secure the future supply of gas in the country and will also enhance future business opportunities in the Western Australia (Collard, 2018).
Image Source: (Collard, 2018).
The stage two is part of the original Gorgon Development Plan which aims to expand the subsea gas network in order to maintain the long term supply of natural gas on the Barrow Island. The second phase of the drilling is expected to start in a year and the completion may take nearly four years according to the sources. Under this project seven new wells are expected to be drilled which will be nearly thousands of metres below the sea level in the field of Gorgon, whereas, four other drilling will be undertaken in the fields of Jansz-lo which is further 44 miles out to the sea. It is also being said that through this process it is also important to make investments in both the infrastructure as well as in the development of local skills and capabilities. The benefits of this project are expected to reach to other industries of Australia like the local project management, drilling, infrastructure, etc. (Economic times, 2018).
Image Source: (MAREX, 2018).
The first production began in the year 2016 and hence it is expected to be completed in the next four years that is by 2020. The third train of the expansion started its operations in the last year. The project includes the operations of three trains that is 15.6 million ton per annum (MTPA) LNG plant which is situated on the Barrow Island. This also includes a gas plant which has the capacity of supplying 300 terajoules of gas on a daily basis to the western part of Australia. This project also falls under the world’s largest carbon dioxide injection projects which aim to reduce the greenhouse gas emissions by nearly 40 per cent (MAREX, 2018).
Satellite image of the Gorgon LNG Plant on Barrow Island
Image Source: (Harvey, 2018).
Since the very inception of the project more than 250 cargoes through tankers have been sent to Asia. Gorgon is operated through a joint venture between different organizations namely by “Chevron, ExxonMobil (25 per cent), S Tokyo Gas (1 per cent) hell (25 per cent), Osaka Gas (1.25 per cent), and JERA (0.417 per cent)” respectively in the order of their partnership (Harvey, 2018).
Image Source: (LNG World News, 2018).
This case study aims to examine this project from different angles especially from the prospect of project risk management. The case study will examine the identification of risk by the organization as well as analyse and evaluate the efforts taken by the organization in order to manage the risks attached to the project. As it is a drilling process which is related to the supply of gas it is very important that the organizations pay attention to every minute details as well as take all the necessary precautions in order to avoid any kind of risks or danger.
Project Risk Management
Exploring gas requires well managed construction facilities supported by the required infrastructure, drilling as well as production activities or injection wells. All this activities require a lot of caution and hence, it is very important that different type of risks is assessed in the very beginning of the project. In undertaking all these activities related to gas exploration highly advanced technology is required and also requires huge capital investment (Total, 2014). Hence project risk management becomes very important by organizations. Project risk management in simple terms can be understood as the process of identifying the risks, analyzing the nature of the risk and then making strategies to overcome those risks in the life cycle of the project. Risk management should be an integral part of the planning process of the project in order to plan in advance about the controlling measures to control or reduce the negative impact of risks attached to the project. Risk can be defined as anything that has the ability to negatively impact the project, its duration, its performance as well as its budget. If the risk becomes realty they become issues of the project. Hence, in order to avoid this project risk management is adopted so that risks can be dealt with before they take the shape of issues of the projects (Sadgrove, 2015). Project risk management should be integrated in the management system of the organization in order to develop a culture of assessing risk beforehand in every project undertaken and developing a sense of responsibility among the employees as well as other stakeholders of the organization. Two different ways of integration has been suggested by Alena Labodová in her work “Implementing integrated management systems using a risk analysis based approach”. The first way is through introducing the individual systems and then undertaking the integration process of the separate management systems till then. The second way is developing as well as implementing integrated management system in an organization (Labodová, 2004).
Risk Assessment
Risk assessment is an important activity under project risk management. In order to successfully implement project risk management as well as successfully complete the project without any issues it is very important to assess different risks. Hence, risk assessment should be laid down in the legislative procedures of the organization or the project being undertaken. Many different approaches as well as techniques are there that helps in the assessment of risks as well as in the assessment of different types of hazards that can damage the environment or human beings (Kirchsteiger, 2002). In order to integrate risk management system in the management system it is very important to develop proper communication as well as knowledge. Also proper guidelines regarding the selection of risks techniques need to be adopted by the management system (Cagliano, Grimaldi, & Rafele, 2015).
It is important to know that why so much emphasis is being given to project risk management by almost every field of the industry. The answer to this question is that project risk management is directly related to the performance of the business or project. A proper risk management has the ability to enhance the performance of the project by reducing the hurdles to the projects. Risk assessment hence, helps the managers to know that what type of problems or risk are going to be faced throughout the life cycle of the project and hence, accordingly necessary actions are taken at a very early stage (Junior & Carvalho, 2013). Also, project risk management or assessing the risk beforehand and integrating it with project planning helps in improving or enhancing the project’s performance by helping to complete the project on time and within the expected budget (Zwikael & Sadeh, 2007). Zwikael and Ahn (2011) has also said that project risk management helps to moderate the relationship being shared between the risk level of the project as well as the success of the project. The author in his research has also mentioned that a moderate level of effort taken towards risk management help in a greater way to the success of the project (Zwikael & Ahn, 2011).
Environmental Risk
Quantitative Risk Assessment (QRA) and risk tolerance criteria are being used by Chevron in order to assess the risk attached to the projects undertaken by the organization. As the organization deals in oil and gas exploration it poses serious threat to environment as well as human life. One of the major risks attached to this project is the environmental risk. Gas exploration imposes risk like seismic risk as well as drilling risk. At the time of drilling there are risks of gas venting out and impacting the environment very negatively. This may even contaminate land as well as water and if any seismic activity occurs then there are chances that local land may subside. Also emission of different toxic pollutants may contaminate the environment negatively affecting the flora and fauna of the local area. Also such activities are highly towards adding greenhouse gases in the environment (Barclays, 2015). Hence, this project may impact the environment if any flaw takes place in during the lifecycle of the project. Hence, it becomes important to assess environmental risk in the very beginning of the project. Chevron in order to avoid such incidents in the projects undertaken by the organization has adopted Quantitative risk assessment system through which the organization is able to develop numerical estimates related to the frequency as well as the potential accidents that can take place depending upon the nature of the project. This is done by the organization on the basis of the engineering evaluation or by using mathematical techniques (Chevron, 2013). Hence, it can be said that the executives at Chevron uses quantitative decision making tools in order to assess as well as to fight the environmental risks attached to the Gorgon gas expansion project (Reinhardt, Mandelli, & Burns, 1999).
Individual risk
Gas exploration has several negative and hazardous impacts on the human health especially the employees working over the project. The employees or the workers of the gas exploration project are the first ones at risk of any fatality caused due to release of any toxic gas or any seismic activity, fire breakout, malfunction of any structure, etc. caused due to drilling activities or by undertaking the activities of gas exploration (Institut National De Sante Publique, 2015). Also if any major mishap does not take place there are chances of minor impacts on the health of workers because of the nature of the drilling taken place by the organization. Hence, it is very important to pay caution at every day work at an oil or gas exploration site. Some of the projects may also have negative impact on the genetics of people and may be carried forward to the following generations and may cause physical or mental impairment among people. Hence, it is very necessary to include workers safety in the risk management of the organization (Epstein, 2017).
Chevron has taken several efforts to against individual risk so, that any human being is not affected because of the projects of the organization. Some of the strategies adopted by the organization in order to manage individual risk effectively include managing as well as developing a culture of same work environment; The organization has also undertaken materials as well as equipments management in order to ensure that the working environment is proper and safe to undertake work. Also the organization ensures occupational hygiene so that if workers by any chance come across any toxic pollutants during the time of drilling or undertaking exploration activities then it is not passed on to other workers or is not spread outside the site of the project. This also ensures that the worker is safe and protected from harmful impacts of toxic pollutants (Chevron, 2018).
Geopolitical and legislative risk
Geopolitical risks in simple words can be understood as the impact of the physical features of the earth, climate, topography as well as human political activity. International relationship also has an impact on the results of the organization and if the relationship turns negative for the company than this acts as risk to the success of the project (Energy Collective, 2018). Depending upon the geographical or other features of the site of the project there are chances that new legislation may come up any time. And hence, the organization has to speculate such moves of the political parties and has to include this in their risk assessment. Any change in climatic condition may bring new legislations and the direct impact of which falls on the gas exploration project. Hence, it becomes necessary to integrate the geopolitical risk in the risk management of the company. The impact of political or legislative decisions can also be seen on the economy sometimes which may directly impact the demand and supply as well as the prices of the product. So, this cannot be avoided (Karasalihovic, 2006).
Chevron understands this and hence the company has already integrated the geopolitical as well as legislative risk in its risk management procedures. Chevron’s risk management process aims to assess a range of geopolitical risks as well as legislative and legal risks in order to assess them properly and then be prepared. Gas as well as oil exploration are activities which involves high risk of environmental damage and hence at regular intervals legislations as well as regulations are released in order to protect the environment as well as the life of people. Chevron always keeps a track of updates related to climate policies which may have a potential implication on the production of Chevron. And, depending upon this Chevron make changes in the portfolio management of the company so that the organization as well as the project is risk ready (Chevron, 2018).
The success of the project highly depends on its project management control system. Designing the appropriate project control system is a very important task in front of the project managers. One of the major reasons for emphasising so much over the project management control system is that to a great extent it helps to avoid failures in the project adopted and also it helps in enhancing the performance of the project. There are different components of project control system namely project estimation, project budget, EVPM that is Earned Value Management System, controlling cost, project scheduling, and performance measurement. Project estimation is the initial step of a project control management which is followed by project budget in which all the stakeholders of the project participate actively. EVPM is a technique that is used by the project managers in order to measure the performance as well as growth of the project. Cost controlling is another important component of project control system as it is very important to keep a constant check over the expenditures of the project. Project scheduling relates to the time schedule related to the project it majorly focuses on the completion date of the project. Performance measurement is one of the greatest components of project control system as it helps the project managers to quantify the success of the project on the basis of the three constraints namely time, cost and performance (Brown, 2018). Project control systems are generally in line with the strategy of the project. Project control system can be understood as a mathematical order of the project which deals with every single aspect of the project (Homer, 2004).
The Gorgon Gas project has also given all the details of the project according to the project management control system of the project. The case has provided about the investment that is the budget of the project as well as the completion date of the project which is the most important component of the project (Economic times, 2018).
On the basis of the above explanation it can be said that risk management can be characterized in five different stages. The first stage is related to the identification of the risk by the project manager, this is followed by the second stage that is analyzing the risk that is its intensity, its impact, etc. The third stage of risk management is related to the evaluation of risk on the basis of its magnitude. This stage is followed by the fourth stage and that is dealing with the risk with the help of proper planning. The fifth and the final stage of risk management are related to the reviewing and monitoring of the risk (Kloosterman, 2016). About the Gorgon gas project it can be said that the organization Chevron undertaking the drilling of the gas has successfully completed its first stage of expansion and is now entering in its second phase. The total budget of the project is $69 billion and the budget of the second phase of the project is $18-$20 billion. The project was started in the year 2016 and is expected to finish by the year 2020. This reflects that the organization has undertaken its project control system in a very effective manner. The first phase of the project was a success and the second phase is also being expected to be highly successful. The organization has undertaken several efforts towards risk assessment and risk management for this project. In the procedures of the company the organization has integrated several risks with its project management work in order to deal with the risk at a very prior stage before it becomes project issue. Different risks, like environmental risk, individual risk as well as geopolitical risk are the risk assessed by the organization and also the organization has taken necessary steps in order to deal with these risks so that they do not come in the way of success of the project. Quantitative risk assessment techniques are being used by the organization in order to analyze potential risks and take necessary steps in order to mitigate those risks. Also in order to deal with the individual risks the organization has adopted the measures in the procedures of the organization as well as the organization has integrated geopolitical risk with the risk management of the organization. Hence, it can be said that the organization has very efficiently used its project management as well as risk management in order to attain success in the project (Bruney, 2014).
Conclusion
In the end it can be concluded that project risk management is an important activity that is undertaken by the project manager. With the project risk management it is impossible to complete the project successfully. Project risk management helps the organization to assess the potential risks and develop alternative choices in order to avoid those risks. Gas exploration is a very risky project and hence it is important to adopt proper risk management. Risks like environmental risk, risk to human life, risk of changes in demand and supply of the products, as well as risk related to price volatility, fire explosion, failure of infrastructure, mishandling, lack of necessary expertise, etc. are some of the major risks that are associated to gas exploration. In order to deal with these risks a project management control system needs to be developed so that apart from risk assessment risk mitigation activities as well as other important links related to the successful completion of the project is undertaken by the project manager. Proper strategies are developed in order to deal with these risks and ensure effective completion of the project. The case study discussed about the Gorgon project has undertaken risk management as well as project control system in an efficient manner in order to achieve success in this project. The organization has been able to complete the first phase of the project successfully and has entered the second phase successfully which is going to begin from the next year
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