Safety tops risk agendas according to oil and gas executives

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Tuesday 28 May 2013 — Oil and gas companies’ health, safety and environment (HSE) and regulatory compliance remains on top of the industry’s risk agenda according to Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013 and beyond, a new report released today by EY.

Dale Nijoka, EY’s Global Oil & Gas Leader, comments: "The oil and gas industry is undergoing an intense focus on safety and environmental risk preparedness and mitigation. In light of corporate social responsibilities, economic challenges and regulatory pressures, it has become increasingly clear that managing these risks is vital for long-term sustainability.” Price volatility and the increasing challenge associated with accessing reserves and markets are ranked second and third respectively by oil and gas industry executives in the report.

Cost escalation and inflation risk rises in the rankings

Russell Curtin, EY’s Oceania Oil & Gas Leader, says cost escalation and inflation, ranked fourth, is a particular concern for operators in the Australian market.

“There are multiple factors affecting cost escalation and inflation in the Australian market. The huge volume of capital project activity has had a big impact and the persistently high Australian dollar has had a material impact on projects in Australia,” says Curtin.

Skills shortage, alternative fuels key risks

Curtin says skills shortage (ranked at seventh globally) and competition from new technologies and alternative fuels (ranked at eighth) were also key issues in the Australian market.

“The high number of concurrent projects has put huge demand on the Australian oil and gas workforce. All projects have had long run programs to build up a skilled workforce, both in the construction phase and in then in the operation phase,” he says.

“While challenging conditions in other parts of the economy, such as manufacturing, and closures of some south-east Australian refineries might suggest an easing in the skills shortage challenge, workforce mobility remains an issue with limited interest in relocation.”

Emerging market demand tops opportunity agenda

Increasing emerging market demand now leads the opportunity ranking, which has moved up three places since EY’s 2011 report.

Curtin says: “Rising emerging market demand is why we have a booming oil and industry in Australia. The continued growth of the world’s emerging economies will drive energy demand in these countries and will create more opportunities for oil and gas companies to expand in these markets. And, countries on our doorstep that are currently gas exporters are likely to need to import gas in the future.”

Innovation, R&D remain important

Investing in innovation and R&D is the number two ranked opportunity.

“In oil and gas, innovation is necessary not just to remain competitive, but also because the industry as a whole is undergoing a fundamental shift in focus. The wide array of potential unconventional sources means that companies without immediate access to the right technologies risk being left behind,” says Curtin.

The importance of innovation was highlighted in a joint EY and University of Queensland Business School study which found organisations in the Australian oil and gas industry that innovate are 40 times more likely to deliver productivity increases.

Curtin concludes: “Technological advancement and regulatory change has never been greater and the need to have a clear view of the risks and opportunities across the oil and gas sector is critical to future success.”

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EY Australia
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