TOP 5 CHALLENGES OF THE OIL AND GAS INDUSTRY
When you think global energy production, you think oil and gas. The oil and gas industry is one of the widest industries in the world. It is a critical part of the world’s functionality because the world thrives on power and energy production. In this civilized phase of life, every sector depends on energy for optimal functionality, hence the importance of the oil and gas industry.
This broad industry, also known as the Petroleum industry, involves the global processes of exploration, extraction (upstream), refining, transportation (midstream), and marketing of petroleum products (downstream). These encapsulate the main sectors of this broad industry.
SECTORS IN THE OIL AND GAS INDUSTRY
To correctly understand the challenges in the oil and gas sector, you should have a firm understanding of the sectors of the petroleum industry.
The upstream sector includes exploration, drilling, and extraction.
Exploration involves the search for underwater and crude oil fields. Geological surveys will be carried out to ascertain that a particular area of land holds a good quantity of petroleum products that can be extracted and refined.
Drilling involves the boring of holes in the surveyed areas of land. It allows you to reach certain depths beyond the earth’s surface to access underground reservoirs containing oil and natural gas.
Extraction is the last phase of the upstream sector. It involves the removal of the underground reservoirs containing oil and natural gas. It involves the pulling out of these materials from the earth to be processed into useful energy and power resources.
The midstream sector plays a crucial role in the oil and gas industry, focusing on the transportation, storage, and refining of petroleum products. It bridges the gap between the upstream sector (exploration, drilling, and extraction) and the downstream sector (processing and marketing). The midstream sector ensures the efficient movement of these resources through pipelines, thus maintaining a steady supply of petroleum products and energy across different regions of the world.
The downstream sector functions in the processing and purifying of extracted crude oil and natural gas resources. It also involves the marketing of these products, ensuring they are readily available for end users.
CHALLENGES IN THE OIL AND GAS INDUSTRY
The oil and gas industry is a crucial component of the energy sector that powers everything from transportation to industrial processes, yet it is no stranger to economic highs and lows. As large as it is, this industry faces numerous challenges ranging from continuously fluctuating prices to very stringent regulatory monitoring. Such challenges and more threaten the existence of the oil and gas industry.
However, the best approach to surviving in any sector is by identifying the unique challenges in that sector and setting up effective risk management schedules to ensure you stay afloat.
Some of the major challenges facing the petroleum industry are;
- High volatility
- Environmental and strict regulatory issues
- Skills shortage
- Cyber Security threats
- Geological challenges
HIGH VOLATILITY
Volatility, one of the biggest challenges in the oil and gas industry is largely responsible for the disruptions in operations, making it very difficult to attain stability. The fluctuations are partly due to global supply disruptions, changes in demand, environmental factors, geopolitical strife between two or more major producing regions, shifting alliances, and trade disputes. A notable example is the Russian-Ukraine war, which has resulted in price spikes since 2022.
However complex the challenges may seem, the oil and gas industry can surmount these by implementing effective risk management strategies and investing in technological advancements. Volatility may persist in the petroleum industry, but embracing innovation and flexibility can better position the sector to navigate the ever-evolving energy landscape.
ENVIRONMENTAL AND STRICT REGULATORY ISSUES
The upstream sector of the oil and gas industry has a significant impact on the environment. Processes such as drilling, land surveys, and even pipeline constructions often result in the pollution of the environment, either water or land. This invariably leads to a disruption in the ecosystem resulting in soil contaminations, and high emission of gases if not properly controlled.
There’s a high risk of the destruction of aquatic life and organisms when these activities are carried out offshore. These challenges place the petroleum industry under strict scrutiny by the residents and regulatory bodies.
Regulatory bodies help combat climate change and reduce air and environmental pollution that harms public and aquatic health. While carrying out these duties, they indirectly reduce the productivity levels of the oil and gas industry, restricting them in ways that affect productivity and output.
However, the oil and gas sector understands that regulatory restrictions function in the best interest of the environment and the general population, so there’s an effort made to ensure strict compliance with regulatory requirements while recording productivity.
Without compliance with regulations, the petroleum industry faces the risk of lawsuits and litigation charges, which impairs activity and productivity.
SKILLS GAP
It’s quite surprising that the oil and gas industry is facing the challenge of a declining workforce. One would assume that a lucrative industry like this will have thousands of applicants waiting in line to be taken in. However, the petroleum industry is very peculiar and requires a particular skill set to ensure maximum productivity and continued business.
The energy sector report revealed that about 43% of skilled workers are leaving the industry due to digitalization such as artificial intelligence and the Internet of things. This creates a skill gap in the industry where the available workforce does not have the exact skill set needed by the industry.
As the industry embraces digitalization, the needed skill set of the industry shifts. This results in a skill gap. This challenge can be tackled by organizing comprehensive training schedules that expose staff to the skill set required to take the petroleum industry forward.
CYBERSECURITY THREATS
The petroleum industry plays a vital role in the global economy, making it a target for cyber attacks. As the industry embraces digitalization and technological advancements, it becomes even more vulnerable to cyber-attacks. If a cyber attack becomes successful, it leads to severe damage, production disruptions, and financial losses. A disgruntled employee with access to critical systems may directly or indirectly compromise systems and data necessary for the industry’s safety leading to data theft. Other cyber threats are Denial of Service attacks, industrial espionage, infrastructure sabotage, outdated technology, supply chain vulnerabilities, and facility terrorism.
GEOLOGICAL CHALLENGES
In the past, oil and gas deposits were easily assessable due to the fact that they were found in large underground deposits, making exploration and extraction very easy. However, continuous drilling has significantly depleted these reserves , making it difficult for geologists to locate new potential sources. As a result, the industry is tilting towards unconventional production techniques to boost oil and gas production beyond what it currently is.
Extraction through these unconventional methods is usually more complex and doesn’t always guarantee high yields. This significantly increases the workload of geologists who must conduct frequent tests to determine whether a site can produce sufficient quantity of oil or not. The difficulty in extraction and the likelihood of small reserves than expected are the basic geological challenges in the oil and gas sector.
In conclusion, the petroleum industry does experience challenges just like every sector. However, there are risk management strategies and effective communication between clients and companies have already been put in place to ensure that these risks are well managed to enhance productivity across the sectors of the industry.