The Products of the Oil and Gas Sector in Today's Life - Case Study Example

SUSTAINABILITY THREATS FACING GAS AND OIL BUSINESS by Name Code + Course Instructor Institution of Affiliation City, State Date   Executive Summary This paper focuses on the sustainability challenges in the oil and gas industry. The products of oil and gas sector are essential in today’s life. The products today are being used in transportation and production of primary materials such as fertilizers, pharmaceutical, and plastics. World’s population is rapidly increasing and thus increasing the demand for oil and gas products. As a result, it is becoming a concern due to depletion of the resources and the risks involved such as spills, and the release of methane gas that causes global warming. In addition, this paper looks extensively into the management of ethical risk to reduce accidents in the oil and gas industry. It also uses the example of BP, Exxon Valdez, and the hydraulic fracturing to compare the risks that the oil and industry faces. The paper is concluded by considering the improvement needed in oil and gas industry to protect against the occurrence of environmental calamities. The improvement will be achieved if ethical leadership is applied in all levels of management in risks management.   Introduction Sustainability explores the economic growth while at the same time ensuring the environment is taken care of as well as ensuring social equity. Sustainable growth is attained when a company creates a considerable economic value on its working environment. Consequently, it is necessary to ensure sustainable economic growth do not cause problems in the economy through depleting resources available for generations to come (Anis and Siddiqui, 2015). Exploration of oil and gas is the primary economic driver in many countries today. In the contemporary world, oil has been used in power stations to produce electrical energy through oil combustion to be used in businesses and homes. For example, 40% of United States population uses oil as a primary source of fuel. Also, the products are used in the manufacture of plastics fertilizers and pharmaceuticals (Maslova and Savkin, 2017). Despite oil being used predominantly for purposes of home heating and transportation, the increased fuel consumption can be attributed to an increased production of electricity in several power plants and thus cause harmful effects to the environment. This also results from growing population almost in the entire world. The demand for oil and gas products increases making the resource to be depleted. As companies strive to gain access to oil and gas resources, they come up with unconventional methods including, deep-water wells, tar sands, coal seam gas and shale gas to be their strategies. In this case, the alternative methods raise substantial social and environmental hurdles including the following; spills, greenhouse emissions, safety risks, loss in natural resources, and degradation of land and water (Anis and Siddiqui, 2015). Also, due to reduced risks management by companies, it has prompted an increase in laws and regulations designed for oil and gas industry. In Scotland, the United States, France, and Germany, opportunities in natural gas are of legal challenges, for example, banning of putting moratoriums on fracturing hydraulic (Anis and Siddiqui, 2015). In Australia, coal seam gas is experiencing increased scrutiny by authorities, thus interfering with its growth. These regulations mean that the ability of the company to meet the demand is interfered. Research by the United States Energy Information Administration, it is expected that consumption of natural gas will rise by 44% from 2007 to 2034 (US Energy Information, 2015). These challenges facing sustainability in gas and oil industry are dominant due to ever growing economies that are causing environmental problems, climate change, ocean chemistry and more so water cycle. The challenges can be termed to be either geographical or operational. In operational problems, these are risks due to failure in the processes, systems, and people or those from external forces. They include the following: Carbon emissions that are experienced more in gas and oil companies and it involves the flaring, venting and accidentally releasing methane. Methane gas as a GHG is 25 times compared to carbon dioxide in its potential to cause global warming. Methane causes global warming by forming layers of sheet in the atmosphere that does not allow the ultra-violet rays of the sun to pass through and in return increasing the amount of heat reaching the earth. During the extraction of oils and gas, the drilling involves extensively using of compressors and engines that in return emits substantial GHG amounts (Pawan, 2014). Secondly, land use change and biodiversity, large oil spills have notable harmful results on wildlife. The reputations of oil company can be tarnished by oil spills images and the impacts they have on the natural ecosystem. AS previously seen unfeasible production methods such as hydraulic fracturing, ultra-deep wells, offshore and shale gas causes a risk to land use and biodiversity. An example of how the marine habitat is being threatened by oil spills is the catastrophic oil explosion that took place in Gulf of Mexico leading to a toxic spill of methane, oil and toxic substances. Because of this operation, a formerly productive land in terms of Agricultural production, fishery, tourism becomes less productive leading to a change in land use. Health and safety are another challenge bearing in mind the offshore and onshore activities involved in the extraction of oil and gasses. In geographical challenges, oil and gas industry do not have much regarding earth bodies and landscape. Instead, we look at the forthcoming corruption in this industry. For sustainable development to take place the region's government must be honest and not discriminatory. Corruption is evident in gas and oil industries due to regional operations that are characterized by violence, corrupt practices, and political instability. Consequently, political regimes may ask for payouts considered illegal in various companies. Violating such laws calls for greater fines that are currently common in countries like US and UK (Tsegha, 2013). In oil and gas industry, managing ethical risks is related to accidents reduction since by carrying out ethical transaction practices the company can improve the safety conditions of workers and the environment will be enhanced by reducing the adverse effects and chances of an accident happening. The issue of security arises from the business culture of safety, which is inclined to the way a company reacts risks in ethics. The following are instances in which societies have failed to manage the ethical risks resulting to an increased number and effects of accidents arising from oil and gas operation. For example, Exxon Valdez spill that took place in the United States is widely known since the company failed in its obligation to clean and restore environment wellbeing. Twenty years later, the largest oil spill happened in the US history involving an accident on Deepwater Horizon oil rig under the BP Company. Both incidents occurred as the companies involved failed to manage ethical risks and in some cases the risks they took directly caused the disaster risks (Ferrell and Fraedrich, 2015). Exxon Valdez oil spill and BP Deepwater Horizon oil spill are two incidents in which disasters occurred due to failed management of ethical risks. To reduce the accident and disasters, it is important that the companies manage its risks. The occurrence of the Exxon Valdez spill can be attributed to the failure of the management to manage its ethical issues. Firstly, they allowed Captain Hazelwood to operate the ship knowing very well that it was against the laws by Coast Guard to operate a ship while someone exceeded 0.04 blood-alcohol content. Tests showed that Captain Hazelwood had 0.061 blood-alcohol content and the officials were aware that the captain had been undertaking alcohol decontamination program. After the accident, the Captain in his state tried rocking the tanker despite being cautioned by Coast Guards that it would worsen the spills. In the next couple of days, the oil had spilled all over the coastline killing marine animals including sea otters and seabird risks (Ferrell and Fraedrich, 2015). The response to this incident by the concerned agencies is also seen as a failure and only worsened the situation. The slowness and negligence of concerned agencies led to the increased effects of the accident. After being informed about the disaster, Alyeska Pipeline Service Co was supposed to arrive at the scene immediately with the right equipment to start working towards containing the spill. Instead, the agency took more time to reach the scene and when they arrived, they had not carried the right equipments to contain the spill. Both Alyeska and Exxon had shortages of equipments and chemical dispersants to help contain the spill. The companies could not effectively test whether the dispersants were useful, they used a helicopter and instead its rotor only dispersed the dispersants further thus they did not meet their target. Poor ethical management is seen in these companies’ response to the incident; there was a constant breakdown of the skimmer boats involved in scooping oil from the sea. There was also poor communication between crews operating at the scene and those who coordinated from the shore leading to cleanup efforts being hampered. Over the course of responding to the disaster, it was evident that Alyeska was never prepared to deal with a major catastrophe. The blame did not fall on Alyeska alone, Exxon Valdez was also accused, its Chairman Rawl remained silent for almost six days, and he did not even visit the scene. All this can be attributed to mismanagement of ethical issues risks (Ferrell and Fraedrich, 2015). The disaster continues to pose significant risks to the marine animals even after the cleanup. It was established that toxins leached into the bedrock of the sea and continued to harm marine life. The oil is filtered into the subsurface of the sea forming a semi-solid part underwater. However, this part is less harmful to animals and plants compared to liquid water. Deepwater Horizon Oil spill is another instance in which poor management of ethical issues is seen to cause more accidents resulting from oil spills. Despite being on the forefront in ensuring sustainability was well on course and even being the first company to admit that global warming is real, it failed to prevent an explosion happening in the Mexico Gulf. The company had subcontracted Transocean Limited to exploit oil from the Mexican Gulf before an explosion occurred on April 2010; the explosion killed 11 employees. Crude oil from a damaged rig started to drip into the Mexican Gulf creating an environmental disaster. Without knowing the implication of drilling holes to relieve pressure on the well, oil began to spill along the coasts of Texas, Louisiana, Alabama, Florida and Mississippi, causing havoc upon the livelihood of residents’ dependent on the sea for income (Kiany and Rahimi 2015). According to research, the actions by BP Company increased the vulnerability of the well. The company cut short the means to detect the availability of gas in wells. Experts felt that the way in which the steel pipes were cemented acted as a catalyst causing the explosion as cement could not resist the surging gas and oil that caused the explosion. BP failed to use safer techniques that could have prevented the explosion from occurring and instead opted to use cheaper risky methods. A faulty blowout preventer is another reason that made the disaster wide-scale, they did not seal the pipes completely, and this caused oil leaking. BP blamed this to Cameron International Corp, but it was also speculated that engineers belonging to BP Company ignored the warnings after safety tests were conducted hours before explosion risks (Ferrell and Fraedrich, 2015). It is against the ethics that even after doing negative pressure tests on the pipes the engineers found that the results were confusing but decided to do on with the exploration. To provide adequate energy supply Exxon, BP, fracking industries continues to face various risks. To start with, BP and Exxon have similar risks. Examples of these risks include spills, leakage, and explosions. The risks come into being in case the following processes and systems are faulty. The design installed should be properly done to ensure that they resist the surging of gas and oil that would otherwise cause an explosion. Blowout converter should be present. The steel pipes should be properly cemented. If the above processes and systems are faulty, the BP and Exxon will be exposed to high risks (Ferrell and Fraedrich, 2015). Even after coming up with risk mitigations and precautions, these operations are hazardous, since the products are highly flammable. Most countries having oil and gas reserves are unstable politically and this in some instances is a risk. Also, the prices of oil and gas are volatile, and this makes it difficult when it comes to feasibility assessment of this industry in the long term. Another risk is that this company must deal with their reputation to their customers. This means a loyal customer of oil and gas company will shift to another company if the one he was loyal to do not for example care about the environment. Also, they face financial risk, for instance, BP and Exxon had to use large sums of money in their attempts to clean up the oil spills. If the accidents were avoided, that money could have been employed in other operations. Fracking involves drilling the shale rocks to make fractures so that natural gas is released into the shales. This process is accompanied with risks if not taken care. There have been accusations that fracking releases methane and chemicals into the water surrounding the drilling sites. Methane is a fast-moving gas that is released into the atmosphere (Baxter 2005). Most of these chemicals include diesel, hydrochloric acid, and benzene and pose carcinogenic traits. Drilling Blowouts released by fracking releases chemicals into the land and is ignited when water is lit. Regarding health and safety, the drilling mud is said to be radioactive and toxic making people who encounter it suffer from trouble breathing, inflammation, and migraines. Although methane has a shorter lifetime in the atmosphere compared to carbon emissions, it traps radiations 20 times more and thus making it the primary driver of global warming that causes melting of polar ice and flooding (Smith and Richards, 2014). Ethical risks management in oil and gas industry is useful to the economy of a country and ensures that healthy and safe working conditions are provided. The process of ethics is laid on the values such as responsibility, respect, exemplary behavior and it is focused in certain areas. If a company fails to uphold the human rights, not complying with the competition laws, and tolerating corruption, this can adversely affect the reputations of a company thus undermining the confidence of investors and straining stakeholders’ relationships. Oil and gas industries can manage its risks if it can establish real ethical leadership. In this case, forthcoming risks are prevented by setting controls. Information should be provided to government regulators and to oil rig operators to help in the decision-making process and thus avoid future accidents. Several changes would assist in strengthening the structure of safety control and in return prevent the occurrence of oil spills in future. The company should offer incentives to alter the safety culture, safety management teams, involving safety engineers in decision making and increasing industrial standards. The occurrence of some accident is attributed to companies failing to come up with safeguards that are essential in protecting their employees, suppliers and local communities. As an aftermath of Exxon Valdez, the company management should have created awareness regarding the risks associated with offshore drilling, and it also had an obligation of coming up with safeguard to help protect the environment (Ferrell and Fraedrich, 2015). The company should be able to learn from the previous accidents and therefore implementing various protection to prevent or reduce the disaster scope. To restore the reputations of the oil and gas industry they must stop the risk-taking culture. All the employees should be equipped with skills in ethical leadership, compliance programs, and practical ethics. As a result, the employees learn to stop mischief that would lead to accidents taking place. Most accidents can be prevented if the existing policies and ethical codes are followed to the letter. It is worth noting that to manage these occurrences of disasters moral leadership is key to achieving this. In summary of what entails risk management, training and certification are important in risk management. From the Deepwater Horizon incident, it was noted that workers had minimal training and the certification required was microscopic. In this case, if risk management is to be the effect change is inevitable (MIT Energy Initiative, 2017). Conclusion It is evident that the world’s population is increasing day by day meaning an increased rate at which oil and gasses are consumed. In modern day oil and gas are being used in the production of electrical energy to a great scare and commercial production of plastics, fertilizer, pesticides and pharmaceuticals. Due to this dependence on gas and oil significant challenges has emerged. The demand is so high that the oil reserves are being depleted at a much rate. Also, oil and gas industry is faced with many risks starting from water pollution resulting from drilling operations and spillage. Other environmental risks include the production of greenhouse gasses such as methane that in return causes global warming. Global warming has substantial effects on the environment too as it leads to melting of polar ice, flooding and can result in the occurrence of skin diseases. Financial risks in which the involved companies used a lot of money in the cleanup process and, they were fined for the disaster. It became evident that most of accidents in oil and gas industry happens because of some factors. Safety leaders lacking essential commitment to do their jobs right. Poor communication and systems of reporting, many accidents happen despite unsafe conditions being noted before the real accident but since the communication is poor the accidents end up happening. In response to these risks, most oil and gas industries came up with procedures to ensure safety, reduce the impact on the environment and for disaster prevention. However, most companies have failed in providing ethical leadership leading to some environmental disasters taking place. For example, the Exxon Valdez spill that happened in 1989 and BP Deepwater Horizon spill that occurred in 2010. Furthermore, the industry needs to advance their safeguard to offer protection against environmental calamities which could be harmful not only to people but also to all living organisms. Moreover, to provide risk management techniques, the industry needs to focus on ethical leadership and responsibility at all levels of management. Ethical leadership in this case involves, provision of right incentives to improve the culture of safety, increasing the level of industrial standards such as those regarding cementing of pipes to prevent leakages. It also involves incorporating safety engineers while making decisions on the industry’s operations. They also need to learn from the events that happened before in order to ensure the learning process is improved. This will play a key role in promoting oil and gas business while at the same time, safeguard the welfare of entire population across the globe and eliminate harmful effect that could have dire consequences to the current and future generations. References List Anis, M. and Siddiqui, T. (2015). Issues Impacting Sustainability in the Oil and Gas Industry. Journal of Management and Sustainability, 5(4), p.115. Baxter, M. (2005). Global Challenges Facing the Oil and Gas Industry. Journal of Petroleum Technology, 57(04), pp.14-15. Ferrell, O.C., and Fraedrich, J., 2015. Business Ethics: Ethical decision making & cases. Nelson Education. Kiany, D., Rahimi, G., & Jokar, M. S. (2015). Gas Exporting Companies forum, Past, and Future. Research Journal of Recent Sciences, 4(5), 89-94. Maslova, O. and Savkin, S. (2017). THE FUNDAMENTAL CHALLENGES FACING OIL AND GAS INVESTMENT PROJECTS. Oil and Gas Business, (2), pp.196-207. MIT Energy Initiative. (2017). 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