Changes for the Asia Pacific Oil and Gas Segment

By Timothy J Corbett
Board Member, ERMA Certfication Holder

Asia’s role continues to rise in importance in world energy markets. Since 1985, Asia has accounted for over 70% of total worlds oil demand. Asia-Pacific Region has already surpassed Europe and will soon eclipse North America as the primary region in world oil demand that will continue to rise substantially. There are a number of risk factors and strategies that should be considered with this growth.

Asia Pacific Region Hydrocarbon Consumption
Asia-Pacific Region consumes roughly 25% of world oil, 45% of coal and 10% of the natural gas. Supporting this demand, it is estimated that 80% of Persian Gulf oil production will be exported to the Asia Pacific Region. Several factors are creating changes in the Asian Pacific energy markets including petroleum product specification standards based on more stringent environmental laws, privatization and deregulation. These changes will bring significant adjustments along with new competitors to the Asia-Pacific energy market.

Countries of the Asia-Pacific Region currently accounted for approximately 5% of the worlds proved reserves of oil and gas (equal to nearly 144 billion barrel of oil equivalent (BOE) of proved reserves). Substantial economic growth of the Asia-Pacific Region and the demand for electricity has increased the growth of offshore oil and gas exploration and production. China, Malaysia and India were the top three countries in the region in terms of proved oil reserves size, together accounting for over 26 billion BOE.

Asia Pacific Region Growth
Asia-Pacific Region is expecting continued economic growth of around 7.3% in the current and upcoming years. A significant constraint on the region’s growth is its increased dependence on foreign imports of oil and gas as domestic consumption outstrips current production. In an attempt to decrease import dependency and to boost energy security and independence, the region wants to increase domestic demand as much as possible from home sources. This includes China and India, but also from other regional energy producers, including: Thailand, Malaysia and Indonesia.

New Oil Frontiers
For Asia-Pacific Region to meet the increased energy demand for economic growth, new oil frontiers are being opened in deeper and more remote waters in new regions such as, the Philippines and Myanmar. Independent, National (NOC), and International Oil Companies (IOC) have all been looking to develop the region’s hydrocarbons as a strategic strategy and are expected to expand on current operations. National Oil Companies (NOC) have historically dominated investment in the Asia-Pacific Region including: China’s CNOOC, India’s ONGC, Malaysia’s Petronas, Thailand’s PTT, and Vietnam’s PetroVietnam. NOC’s will remain key players, however, moving forward NOC’s market share is expected to decrease from 43% to 27% with a shift to IOC’s and Independents, particularly: Reliance, Chevron, Shell, Murphy and ExxonMobil driven by the need and experience of deeper water explorations and operations.

Risks and hazards are high in new oil and gas exploration regions. Reliable geological data is needed and there are always concerns regarding changing legal and regulatory systems, corporate governance standards at the country’s state oil company, and officials experience on such projects. Contracting under a legal framework that is changing is a significant risk such as in Myanma, a new region for oil exploration. State-run Myanma Oil & Gas Enterprise has been criticized for its business practices and close ties with the military. Myanmar officials say they are working to address those concerns.

Oil & Gas Risk Management
The oil and gas industry is a complex market segment and risk management is one of the most important issues facing it. The industry must deal with their own set of risks whether natural, man-made or operational as part of their daily activities. The industry is prone to a number of uncertainties and is affected by both global risks such as political, environmental, commercial and legal. Risks are encountered both upstream and downstream that need to be adequately addressed to ensure an oil and gas project is commercial viability.

The goal of risk management for oil and gas projectsis to ensure known and possible hazards are identified and assessed; risks are mitigated to as low as reasonably practicable; and to ensure the identified risk mitigation practices are implemented effectively. Risk management is required at all stages of an oil and gas project including design risks, construction risks and operational risks.

Risk Assessments
One of the first steps is conducting a risk assessment for an oil and gas project. There are different types of risk assessments. Quantitative risk assessments (QRA) examine areas such as the design and leak frequency and equipment failure databases. Qualitative risk assessments are based on peer review examining relevant details and assessing the potential for an event and its consequences. Common qualitative risk assessments include; Hazard Identification review (HAZID), Hazard and Operability review (HAZOP), Risk Scenario Analysis (RSA) and What-if review.

Another method of assessing risk and possible hazards is through an Environmental Impact Assessment (EIA). The EIA process has become formalized with variations and depth depending upon each individual situation and project. EIA can be seen as a regulatory hurdle, however, if used properly can be a valuable tool. The environmental assessment process should begin during the early stages of pre-project planning, and continue, as an iterative process throughout project feasibility and specification phases, design, construction and operations.

Planning Stage
The results of the risk assessments, environmental impact, industry consultation, waste management and broader issues of environmental management now become an integral part of the planning process. By incorporating the results of the assessments, project specific environmental plans and compliance programs can be developed, which include detailed guidance on measures to prevent or minimize adverse impacts and enhance beneficial impacts. Internal standards and targets for waste control, specify site specific operating procedures, establish consultation and communications programs, recommend monitoring programs for the project, and establish a compliance program to ensure statutory requirements are met.

Implementation and Monitoring
The implementation responsibility of the risk and environmental programs rests with line managers of the oil and gas facility. The managers should fully understand and subscribe to the commitments made that include the legal and statutory controls imposed on the operation as well as other corporate commitments.

Monitoring confirms commitments that may take the form of direct measurement and recording of quantitative information such as amounts and concentrations of discharges, emissions and wastes, for measurement against corporate or statutory standards, consent limits or targets. Measurements of ambient environmental quality in the vicinity of a site using ecological, biological, physical and chemical indicators may also be used. Monitoring may include socioeconomic interaction, through local liaison activities or even assessment of community complaints.

Audit, Review and Reporting
Review and audit is a management tool and its application is crucial at the operational level for verification and feedback on the effectiveness of organization systems and risk and environmental performance. Audit serves to substantiate and verify monitoring programs and compliance, and to ensure that site plans; procedures and standards are both effective and fit for purpose. Other benefits of auditing include increased internal and external awareness, communication, and credibility of company activities by demonstrating commitment to and achievement of responsible risk and environmental management.

Increasingly, companies are preparing reports on their risk and environmental performance for a wide public audience including shareholders and financing bodies. The contents of these reports vary greatly with a noticeable tendency to quantify risk and environmental performance and including mention of a range of sustainability indicators such as pollution and safety controls and incidents, greenhouse gas emissions and energy saving along with other sustainable programs measurements. An important audience is also the company employee, who benefits from having the company’s position and activities described in a way that allows him or her to be an ambassador for the company. Reporting is becoming increasingly sophisticated, and more closely linked with the total environmental programs of companies.