GEOPOLITICAL RISKS IN OIL AND GAS MEGAPROJECTS!

Here is a condensed form of the article published in Nov 2016 issue of “Prakalp”; magazine of PMI, Mumbai Chapter and available at:

http://www.pmimumbaichapter.org/download/prakalp_nov16.pdf (Page 30)

To commercialise production of Shale gas, Coal seam gas, Light tight oil, LNG liquefaction, Oil sands, Ultra-deep water exploration as well as the Arctic, companies are increasingly engaging into multi-billion-dollar, technically and operationally demanding ventures called MEGAPROJECTS. Hydrocarbons have the energy to drive the economy of the world and in turn the global political dynamics, economics, topography, climate, demography and natural resources drive the hydrocarbon industry.

However, 64% of MEGAPROJECTS face cost overruns and 73% of the projects report schedule delays.  Further, studies show that 50% of the projects are over budget and behind schedule in the Oil and Gas sector alone.

The article lists the following 4 major root causes that are deterrents to MEGAPROJECTS and elaborates further the Geopolitical Risks that threaten project success:

  1. Inadequate Project Development
  2. Unplanned Project delivery
  3. Regulatory challenges
  4. Geopolitical Risks
    • Diplomatic & security risk
    • Global Economic downturn
    • Commodity market uncertainty
    • Exchange rate fluctuations
    • Development of new energy sources

Further, the article discuses risk Mitigation measures in the Oil & Gas business to monitor and control risks. It presents questions to be periodically asked to check whether the project is in good standing:

  • Have the risks been assessed well? (Business Analysis)
  • Is the performance metrics biased? (Shareholders’ expectations)
  • Money being used optimally? (Cost Efficiency)
  • Is project based on lean scoping? (Lean Project Management)
  • Learning from prior projects incorporated to current project? (Lessons learnt)

To conclude, Geopolitical risks cover aspects and occurrences globally, but the impact differs regionally. Oil & Gas companies need to resist the temptation to generalise and assume that the behaviour of one geography will be mirrored elsewhere.

THERE IS LOT OF ENERGY IN GEOPOLITICS… ENERGY TO CHANGE THE FACE OF OIL & GAS MEGAPROJECTCS!

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