When people think about the oil and gas industry, they think pound signs. Our industry is inevitably going to be linked with money, as there are often stories in the news of people discovering oil in their back garden and earning tens if not hundreds of thousands. However, it isn’t all plain sailing when it comes to oil and gas investments and developments, there are always areas of risk, be they hidden or blindingly obvious.
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The downstream industry is a capital intensive sector that is, as we have all seen in the last decade, very vulnerable to changes in the economy. Our industry is susceptible to price volatility, and the surges in the price of a barrel of oil during 2011 in response to the uprisings in Libya and the Middle East were clear indications of this, and the current unrest in Egypt and Syria are the most recent examples. However, at the moment, the industry is benefitting from the low natural gas prices that are being encouraged by the volume of unconventional gas resources in the US, and this at least, for the short term, is providing a good outlook. Also, while we are looking at capital I cannot neglect to mention human capital of which there is a deficit. The knowledge gap has been increasing for years and surely a lack of qualified, knowledgeable and experienced staff is going to have a hard impact on some operations, which, in itself poses a risk for everything from safety to throughput levels.
Governmental compliance and policy is forever changing and is another risk that needs to be considered when investments are being made. The continuous state of flux over policy, be it environmental, taxation related or political, doesn’t leave much room for stability and security when it comes to setting aside and budgeting for related expenses. The increasing levels of tax on petroleum products such as petrol is also a burden as it does have an impact on consumer’s purchasing decisions, which has been noted mainly by the US summer driving seasons. Under this category of compliance also falls the competition with new technologies that are cleaner and greener and in many instances subsidised and backed by government money. The continuing pressure from political influences as well as increasing public pressure is forcing downstream facilities to invest more and more heavily in cleaner technologies to compete with the ever growing renewables sector which is providing an alternative source of power to the masses.
However, despite the above, it isn’t all bad. Yes, there will always be risks when investing in the oil and gas industry, but isn’t there with everything from start up companies to dabbling in the stock market? At a time when the world is changing dramatically a cautious eye needs to be kept to ensure that we keep up with the latest technologies and remain in a competitive position, but, oil and gas isn’t a resource that the world can do without just yet, so, investments are going to be made, developments are going to continue and so (hopefully) are returns on investments.