This is a paper that seeks to examine the challenges that the oil and gas industry faces. It aims to achieve this objective through the study of three case studies. These case studies are the fracking industry in America, the Exxon Valdez Oil spill and the Deep-water Horizon Oil Spill. For purposes of achieving the objective of this paper, three questions will be looked upon. One question seeks to answer how managing ethical risks helps to reduce accidents in oil and gas companies, the comparisons that exists between the fracking industry, Exxon and BP and how ethical leadership can help to mitigate the risks that is found in the oil and gas industry.
Providing appropriate incentives to change the safety culture
One of the best ways of managing ethical risks for purposes of reducing the rates of accidents in the oil and gas industry is through coming up with proper incentives in order to change the safety culture of an organization. For instance, it is possible to denote that one of the major reasons for the Exxon Valdez disaster is the human error that made it possible for the tanker to dump 11 million gallons of crude oil into the ocean, resulting to the environmental disaster, and the death of close to a quarter of the sea birds that were found in the region (Holdaway 2014). It is possible to note that there are a number of reasons for the occurrence of the Exxon Valdez oil disaster, and these reasons can be summed up as the existence of unethical behavior amongst the employees of the company (Watts, Mason and Appel 2015).
This is because the culture of the company encouraged the employee of the organization to behave in unethical manner, even when they are on duty. For instance, the employees of Exxon Valdez were accused of drinking while on duty, and most of them were not given enough rests, prior to starting their duty. On this note, it is possible to denote that the employees of Exxon Valdez had an excessive workload and lacked enough rest that could enable them concentrate on their duty (Papavinasam 2013). Additionally, the master shipper was unable to maneuver his ship because of drunkenness; which eventually led to the disaster. On this note developing and creating a safety culture is one of the ways that can be used for purposes of reducing accidents in the oil and gas industry.
However, it is important to denote that changing the culture of an organization is a difficult process, and normally faces resistance. To achieve efficiency in changing the culture of an oil and gas company, there will be a need of coming up with incentives, that will encourage the employees of these organizations to develop a safety culture, that will help to ensure the company is sustainable and it engages in productive activities that conserve the environment.
Another method that can be used in managing ethical risk is through certification and training. Earning a professional certification is of great importance to an employee of an organization because it motivates them to work hard within an organization, and provides a high level of skill and expertise that would always make an employee to be ethical. For example, when an employee in the oil and gas industry are able to acquire certification on the best procedures of handling their work, they will know the approaches they can use for purposes of reducing the risks of oil leakages, and other insecurities that are associated with the oil and gas industry. It is important to note that when the management assists the employees of the business organization to get industry designations, it is an indication of the need of wanting these employees to be highly skilled and the best in the industry of their operation.
This will in turn help to attract some of the most highly skilled workers and professionals, because people normally want to work for organizations that are interested in their welfare. Additionally, the companies will manage to retain some of their most highly qualified and experienced workforce (Holditch 2013). This is because the employees of the organization will feel that they are valued and their work appreciated if the organization helps them to achieve professional certification in their work force. Obviously, it is an experienced member of staff who is able to know the various risks that the oil and gas company faces, and they may come up with innovative ways and methods that can be used for purposes of reducing the risks.
On this note, through certification and training, chances are high that the oil and gas companies may reduce the chances of risks and disasters from happening. Additionally, it is possible to denote that certified and trained employees normally learn the importance of adhering to the safety standards and requirements that are established in their industry. These employees can rely on the members of their team to help in meeting the benchmark of their industry and work hard towards producing a consistent and high quality work (Rao, Krishna and Subrahmanyam 2014). This will in turn help to reduce the risks that are associated with the oil and gas industry. Take for example the ship master of Exxon Valdez. If he was a certified professional, he could not have gotten drunk while on duty, because it would affect his sense of judgment and may lead to an accident.
One of the best ways of managing ethical risks that relates to the reduction of accidents in the oil and gas industry is through good and proper leadership. It is important to note that the leaders of an organization must come up with a good leadership style that is inclusive and one that will involve all the employees of the organization into the decision making process. Through inclusive and good leadership, the management of the company will be able to identify the various problems that employees face; hence come up with a solution to the identified problems (Shultz et al 2015). Obviously, a demotivated workforce is a risk to the organization, because they might not be able to work efficiently, and this would ultimately result to vulnerability of oil leaks, spills and explosions.
Moreover, it is possible to assert that an effective and good leadership initiative will enable the management of an organization to effectively introduce the necessary changes within an organization that may help to reduce the risks associated with the gas and oil industry. It is an obvious fact that people normally resist change, more so, changes that will affect and alter the manner which they are used to doing things (Holloway et al 2016). Therefore, while introducing changes that will help to mitigate the risks associated with the oil and gas industry, a good managerial practice and leadership will enable the management to implement the changes without causing resistance in the organization. On this note, proper leadership and change management is an effective and efficient method of managing ethical risks that are associated with the reduction of accidents within the oil and gas industry.
One of the major comparisons that BP, Exxon and Fracking industry faces is the emergence of gas and oil leaks, spills and explosions. For instance, Exxon has faced an oil spill and it has been one of the worst environmental disasters in the world. A good example is in 1989, when Exxon Valdez, the oil tanker that was managed and owned by Exxon Oil Company managed to cause an environmental disaster through an oil spill at the Prince William Sound in Alaska. During this oil spill, Exxon Valdex managed to spill more than 10 million gallons of crude oil into the waters, causing one of the greatest environmental disasters in the world (Belkin, Nichol and Woehrel 2013).
It is important to note that oil spills is not limited to Exxon, but BP is also vulnerable to oil spills. A good example is the oil spill that was called the Deep Water Horizon. This is an oil spill that occurred in 2010, at the Gulf of Mexico, and it is considered as the greatest oil spill in human history, and this is because it resulted to a spill of about 210 million gallons of crude oil. This oil spill led to a widespread destruction of the marine and wild life habitats, causing great environmental damage (Heflin and Wallace 2015). The fracking industry is also vulnerable to oil spills and gas leaks. For instance, fracking has been accused of leaking dangerous gases into the atmosphere and water bodies. An example of these gases is methane.
Moreover, fracking is also vulnerable to oil spills, and scientists denote that approximately 16% of oil and gas wells that pass through fracking are vulnerable to oil spills. Furthermore, these scientists denote that fracking sites in North Dakota are the ones that are most vulnerable to oil spills and leaks, and approximately 67% of these sites normally spill oil. However, it is possible to assert that oil spills and leaks are a common factors and risks associated with BP. Exxon and Fracking industry.
Another risk that affects BP, Exxon and the fracking industry in America is the political risks. It is important to denote that political factors heavily affect the oil and gas industry in the United States; hence making it one of the greatest risks that companies operating in this industry face. Take for example the fracking industry (Kelland 2014). The shale gas technology has been in existence for more than 60 years; however, America has not been using the technology to extract oil because of political factors. There has been a political debate in America on the environmental sustainability of the shale gas technology, and this has prevented the issuance of licenses to companies that seek to extract oil by the use of this technology. Furthermore, it is possible to assert that some of the areas where BP and Exxon extract oil are characterized by political insecurities.
Examples include North Africa and Middle East. Countries such as Iraq and Libya are important sources of crude oil; however, they are facing political instability and insecurity, which has resulted to the inability of companies such as Exxon and BP to effectively and efficiently invest in the oil industry of these countries. Furthermore, international political agreements, with countries such as Iran can result to a strong impact on the gas and oil industry. This is because Iran is one of the major oil producing countries in the world, and allowing its oil to enter into the global market, will result to the reduction of the market controlled by BP, Exxon and the shale oil gas producing companies in America. This will definitely result to reduced profitability.
Financial and economic risks are associated with the amount of money that these companies are always required to pay, in case of a disaster. Take for example the deep water horizon oil spill. BP was forced to pay billions of dollars in terms of fines, compensation and medical bills to the victims of the oil spill. For instance, the company paid approximately $ 9.8 billion in terms of medical benefits, and approximately $ 4 billion, which was to be paid as fines and compensation to the victims of the disaster. Obviously, these are enormous figures, and it is an indication of the financial risks that oil companies face, in the case of a disaster.
Moreover, it is possible to denote that the fluctuating prices of oil are also a financial risk to the fracking oil industry, BP and Exxon. For the last 5 years, the prices of oil per barrel have not been stable. These prices have moved from as high as $ 120 per barrel to as low as $ 30 per barrel over the years. There are a number of factors that explain the emergence of these fluctuating prices, and they include political instability in oil producing countries, the decision by OPEC not to interfere with the production of oil, resulting to a large supply of the product into the market (Saad et al, 2014). It is important to note that because of these fluctuating prices of oil, it is difficult for organizations such as BP and Exxon to come up with an efficient and effective pricing structure that will ensure they are able to get profits. In fact, it is possible to assert that one of the reasons for the unwillingness of countries such as Saudi Arabia and OPEC to interfere with the supply of oil is to counter the effects of the oil from the American fracking industry, by making it too cheap, to the extent that companies will find it unsustainable to engage in the production of oil through the fracking technology
One of the methods that ethical leadership can help to manage risks in the oil and gas industry is through promoting the culture of transparency and responsibility. It is important to note that when the leaders of an organization initiate policies that will make their organizations to be transparent, chances are high that the employees of the organization will behave in an ethical manner, because they are under the scrutiny of the public and government agencies (Cameron 2016). Furthermore, promoting the culture of responsibility will help to minimize the risks associated with oil and gas risks.
When the employees of an organization are responsible, they will ensure that they are able to meet the safety standards of the industry, and carry out their duty in accordance to the principles and standards that are established, which can help to mitigate any risks that the organization faces (Alford, et al 2014). On this note, promoting the culture of transparency and responsibility is one of the methods that ethical leadership can be used for purposes of managing risks associated with the gas and oil industry.
Environmental risk management
Through ethical leadership, the management of the company can came up with environmental risk management policies that can make the organization to engage in environmental sustainable programs. It is important to note that without these programs, the company will not be able to initiate measures and activities that will motivate their employees to be conscious of the environment. Some of the environment risk initiatives or activities that the oil companies can engage in are reducing the oil extraction processed or other activities in their production process that contribute to the destruction of the environment. This includes coming up with measures that can help in the reduction of greenhouse gases into the atmospheres.
Conclusion
Finally, it is possible to assert that the oil and gas industry has a number of challenges. One such challenge touches on the political interference of the industry. Because of the importance of the gas and oil industry to the economic development of a country, this industry is under intense supervision and political control. A good example is the formation of OPEC, which is an inter-governmental body that is responsible for regulating oil productions. The policies that are developed by OPEC affect the business operations of BP, Exxon and the fracking industry in America. On an economic perspective, the fluctuating oil prices play a role in making the industry to be uncertain, because of a lack of reliable information that can be used for purposes of setting up a good price for the oil products that will not result to lose. However, one of the ways of ensuring that an oil and gas company manages to mitigate the risks that it faces is through ensuring its employees have professional certifications. Employees who have these kinds of certifications will be professionals and they will acquire the necessary skills that can be used for purposes of mitigating the various risks that the organization faces.
Reference List
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