The oil and gas industry poses various risks to the environment and economies at large; however despite its adverse effects, one cannot deny the reliance of these products around the world (Ferrell, et al., 2016). In 2016, the International Energy Agency reported that the average demand for oil and liquid fuels was at 96million barrels a day (IEA, 2016). In addition to this, other products such as pesticides, plastics and fertilisers are also produced using petroleum products. However, with this massive demand come significant challenges. In addition to depletion of natural resources and other environmental concerns, safety has become a major issue in the industry. Ethical lapses in management and administration have seen various catastrophes over the years. The two major tragedies in the recent decades; Exxon Oil Spill and the Deepwater Horizon Explosion, will form the basis of the following discussion into the ethical risks emerging in the oil and gas industry as well as the role ethical leadership has to play in mitigating them. The discussion will also look into the risks arising from the fracking industry which proponents have argued is a safer alternative to other exploration processes. The aim of this report is to illuminate the significance of business ethics in the quest for sustainability in the gas and oil industry.
Risk management in any business entails controlling or putting measures in place to tackle any threats that would arise in the course of business. These threats could arise from regulatory changes, public outcries, previous failures in the industry among others (Francis & Armstrong, 2003). Ethics, on the other hand, refers to the principles, values, rules adopted by a particular group or organisation which guides them in making the right decisions (Roche, 2012). As such, in recent years, ethics has developed to be a key component in business as a risk management strategy. Where ethics are applied, leadership, management and other stakeholders are driven to ensure any potential risks are adequately considered and mitigated. This as such includes ensuring the safety of employees, adherence to human rights, the safety of the environment and the community and all in all adhering to the national and international regulations governing the particular industry.
From crude oil used to run machines to other petroleum products such as plastics, the significance of the oil industry is visible in our everyday lives. However, with this massive impact also comes massive responsibility; as such various ethical issues arise from the continued operations of this industry. These issues can be categorised into environmental concerns, safety and health concerns and the overall influence over the community. The oil and gas industry, and recently the fracking industry, have come under criticism over their role in water pollution, greenhouse gas emissions leading to global warming, negative effects on wildlife and seismic shifts; seismic shifts are attributed to the fracking industry. Additionally, the safety of workers is also a primary concern; the Deepwater catastrophe in 2010 led to the death of 11 workers, workers in the fracking industry have also complained of health issues. There have also been some negative effects on the community, for example, oil spills led to the loss of income of various fishermen and other small businesses that relied on the shore for income (Committee on Small Business and Entrepreneurship, 2010). Fracking has also been reported to lead to a decline in value of homes near fracking sites (Sereix, 2016). Managing these risks ensures accidents arising from them are reduced in the following ways.
Safety measures are not a luxury, they have great influence over profitability and the survival of an industry; the Exxon and BP tragedies are a clear example of this. Providing the required incentives for change in the safety culture of an organisation will ensure risks are detected and measures are taken to mitigate them before a catastrophe occurs (Leveson, 2011). In the Exxon spill, cutting safety corners led to a slow response to the accident and as such contributed to the escalation of the catastrophe which would have been controlled and possibly avoided had proper measures been put in place to deal with possible risk (Ferrell, et al., 2016). Self-policing within the industry could go a long way in ensuring all members adopt a culture of safety for workers and all other stakeholders who may be affected by the ongoing operations. A safety culture will see to it that as oil exploration and extraction strategies develop, safety measure remain up-to-date with consideration for the latest technology and regulatory provisions.
Certification and training are another way in which the ethical issues raised above can be addressed. One of the factors considered to contribute to the Exxon spill was that the vessel had been left in the hands of the third mate who had no licence to actually pilot it (Ferrell, et al., 2016). Additionally, investigations in the Deepwater catastrophe unearthed that most of the crew had no training or professional certification; they learned on the job (Gupta, 2010). The regulatory agency also lacked a proper formal training and certification program for its inspectors. All these issues played a contributory role; had the leadership and management in the agency, or at BP adhered to a strict code of ethics that valued proper training and certification, the warning signs leading up to the explosion would not have gone ignored.
The oil and gas industry faces a number of changes which may have detrimental effects if not dealt with effectively. For example, process conditions become more severe due to changes in temperature or pressure, facilities get larger and more complex depending on the project stage and technological advancements, finances and other resources also pose a challenge due to competitiveness in the industry (RPS Energy, 2010). Tackling these concerns and preparing for them where they are expected is key to ensuring the prevention or reduction of accidents in the industry. Proper assessment of procedures and approval should be considered before any major change so as to ensure the strategy adopted by the organisation is safe for all stakeholders involved. In the beginning BP appeared to have adopted a change strategy to ensure safety and sustainability in its organisations; however, the Deepwater explosion goes to show that adequate measures were not taken to consider issues such as pressure changes, the organisation also opted for cheaper equipment which was proved riskier. Where safety is concerned, especially in the oil and gas industry all measures and expenses should be employed to ensure it.
As aforementioned, the oil and gas industry faces various risks in its operations; these include health, safety and environmental risks, corporate social responsibility (CSR) and organisation reputation risks, political risks and finally financial risks. Although the fracturing industry has been propagated as a safer alternative, it still falls victim to some of these risks. It is the responsibility of all industry players to ensure they undertake necessary measures to mitigate these challenges as they continue to meet the insatiable demand for energy the world over.
The oil and gas industry is plagued with various health, safety and environmental risks; the prevention of fatal accidents associated with these risks is of primary concern to all industry players (Oppong, 2014). For employees, the oil and gas industry provides a dangerous working environment; most work is carried out in remote locations with limited access to proper medical care (ILO, 2016). Additionally, the possibility of leaks, spills and explosions also poses a risk to most employees as well as the environment. As seen in the Deepwater and Exxon cases, the oil spills led to the death of various wildlife, it is said that to date the events still have detrimental effects on sea life, the coral reef and the neighbouring community (Ferrell, et al., 2016). The environmental, health and safety risks also arise from the greenhouse gas emissions that contribute to air and water pollution in the area (Conner, 2015).
The fracking industry also faces various health, safety and environmental risks; however, as it is not a major source of energy as the oil and gas industry most of the issues raised are from individual cases. For employees, there have been reports of health issues such as migraines, difficulties breathing among other concerns raised by employees at fracking rigs (Ferrell, et al., 2016). The National Institute for Occupational Safety and Health in the US established that workers at fracking sites were regularly exposed to benzene and other gases that put them at risk of cancer (Banerjee, 2014). Additionally, there have been reports that the methane and other gases produced could be harmful to the environment. It has been found responsible for water contamination which has led to the deaths of various animals (Krauss & Zeller, 2010); methane also led to a house blowing up after it filled up a basement in a house near a fracking site (Weiss, 2014). Additionally, the process uses a lot of water and therefore poses a challenge to contamination as well as conservation measures.
Prior to the oil spill in 2010, BP had embarked on a campaign to present itself as a sustainable organisation; on that considered and made efforts to control its impact on the environment (Ferrell, et al., 2016). However, the oil spill and the subsequent discovery that the organisation had been lax in some of its responsibilities towards risk management led to a tarnished reputation for the organisation (Conner, 2015). CSR and reputational risk are very important in the business world today and particularly the oil and gas industry; a good record will influence survival, oil contracts can only be given where a company has demonstrated a good reputation (Gayidova, 2016). An organisation that considers the constantly changing expectation of the community while it carries out its operations has proper reputation risk management (Spence, 2010). These expectations may be by way of increased pressure from the public, regulatory concerns or certain developments in research that place added responsibility on how the industry carries out its operations. For example, recent studies go to how that methane leaking from pipelines may be higher than was originally thought; Exxon, BP and other industry players are tasked with considering these discoveries and putting in place measures to deal with them.
Exxon, BP, the fracking industry also face various political risks; there is pressure from activist groups and new regulations into operations and gas emissions that have to be considered. For example, after the Deepwater catastrophe, the government issued a moratorium on oil gas exploration in the Gulf of Mexico for six months (Ferrell, et al., 2016). The fracking industry has also faced banning in various jurisdictions the world over; recently in Victoria farmers welcomed a legislative ban on fracking as a protection measure to the agricultural sector (Lusted, 2017). These regulatory measures influenced by public pressure from various activist groups are some of the risks players in the oil and gas industry continue to face.
Oil spills and leaks bring about massive financial implications; the company has to spend on clean-up costs which can last up to months or even years on end. Additionally, legal claims arising from these accidents have to be dealt with; injured workers have to be compensated, businesses which have been affected as well have to be compensated. Any mistake in this industry can become a costly affair. For example, the Exxon spill cost the organisation well over $2.2 billion in clean-up and compensation (Ferrell, et al., 2016). The clean-up operations took up to five years to complete. In addition to these costs, the organisation lost millions in the gallons of oil lost at sea. A similar scenario played out with the Deepwater explosion; in addition to the clean-up and legal cost implications, the organisation also lost the rig which eventually sunk. Financial risks in this industry also arise from compliance measure; in order to maintain a good reputation and survive in the industry, oil and gas companies have to spend millions in infrastructure and technology to ensure they mitigate the aforementioned ethical risks.
As previously established, the management of ethical issues arising in this industry is key to ensuring sustainability and maintaining competitiveness. Industry players are tasked with ensuring they employ measures to mitigate risks that arise in the course of operations. In order to adequately manage risks, it is important that proper leadership and management is adopted. Ethical leadership and ethical responsibility ensure all stakeholders play a role in monitoring and detecting risk and ensuring all measures are taken to avoid accidents such as the Exxon and Deepwater tragedies. The following discourse highlights ways in which ethical leadership contributes to ensuring risk management in the oil and gas industry. These includes adopting a culture of responsibility and transparency, putting in place measures to curb environmental risk and finally adopting strategies to ensure safety and quality in operations.
In business ethics, good corporate governance embodies a culture of responsibility, transparency, accountability and compliance (Bernhard, 2017). Responsibility is demonstrated in the commitment to ethics and compliance by establishing codes of conduct, rewarding those who observe the code and taking proper action against those who violate it (Thinnes, 2014). Ethical leadership in the oil and gas industry would lead to the establishment of self-policing strategies that would see those who adopt proper practice rewarded and those who fail admonished. These strategies place a responsibility on industry players to adopt best practice within their organisation in order to maintain a good reputation within the industry. An organisation guided by proper ethics would instil in its employees a culture of responsibility whereby they are able to adopt proper practice and question where these practices are not adhered to in the course of their duties; they hold each other accountable. Additionally, a culture or transparency would see to it that organisations are open which they strategies and risks they face to all external stakeholders; the IPIECA provides a platform for this through voluntary reports which industry players can issue to their stakeholders on their progress in sustainability.
Another aspect of ethical leadership in the industry is proper environmental risk management. Environmental risk is among the key ethical issues facing the oil and gas industry. In as much as the world is increasingly dependent on this industry for energy, the adverse effects it has on the environment cannot go ignored. These include the possibility of depletion of oil resources, water and air pollution due to gas emissions, seismic shifts among others. Additionally, accidents occurring in the industry have led to some of the most damaging effects on the environment to date. To date, scientists are still analysing the effects of the Deepwater Horizon oil rig explosion of 2010 (Beever & Hess, 2016); these include damages to the coral reef, death of sea life, possible contamination of seafood, water pollution among others. Ethical leadership would ensure that the ethical lapses attributable to such catastrophes, such as poor training and certification of employees and inspectors, under preparedness for possible accidents among others did not occur.
Ethical leadership does not compromise on safety and quality. In the oil and gas industry safety has to be hardwired into the organisation’s strategies; safety-first should be the primary objective of any organisation (Hart, 2011). Some of the ethical lapses in the two catastrophes discussed above were that the organisations in question made some compromises on safety. In the Exxon case, the ship was left in the care of an unlicensed pilot, the actual pilot was under the influence of alcohol. Additionally, the company tasked with conducting rescue operations was found inadequate as it had preferred cutting costs for profit purposes over an investment in proper equipment (Ferrell, et al., 2016). In the Deepwater case, although BP took some measures to ensure safety, it was found to have staff with no formal training, additionally, some of the equipment had been purchased because it was cheaper and not necessarily safer. These are examples of poor safety and quality management strategies; ethical leadership is an important factor to maintaining safety as it ensures the right decisions are made regarding the safety of employees and the quality of equipment used (Freiwald, 2013).
Conclusion
The case study above has explored two of the most significant tragedies in the oil and gas industry in an effort to determine how the industry has evolved in tackling sustainability issues. In this exploration, various risks have been identified as challenges to the industry; the oil and gas sector is plagued with environmental concerns, safety and health concerns as well as community risk concerns. From these issues, there are various risks that industry players in this sector have to consider in order to maintain a good reputation and remain competitive; these include the threat of spills and explosions, public pressure, regulatory changes, financial risks among others. As such, business ethics are the ultimate guide in ensuring these risks and safety concerns are managed. Through ethical leadership, an organisation can cultivate a culture of responsibility and transparency among all its stakeholders and therefore be able to efficiently self-regulate its operations to manage risk. Proper environmental, safety and quality management are another characteristic of ethical leadership. Guided by ethics, an organisation will ensure its decisions consider its environmental impact, are safe and the best quality of equipment is utilised for the safety of employees and all other stakeholders. The Exxon and BP catastrophes are a lesson to the industry about the important role ethics have to play in ensuring proper management of the risks attributable to the industry. The discourse recognises that operations in the oil industry are complex in a variety of aspects, however, it is important to appreciate that ethical responsibility and leadership are the only way to ensure proper risk management and maintain sustainability.
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