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Friday, April 26, 2013

The increasingly risky business of fossil fuel exploration and production


The risk of “relatively low-likelihood” but potentially "catastrophic" disasters from deepwater oil exploration, Arctic drilling – and shale gas development -  demand that energy exploration and production (E&P) companies adopt more sophisticated risk management strategies, says a paper from the global insurance broker Marsh.

Managing Risk on the New Frontiers of Energy Exploration reviews the financial, environmental, political, and reputational risks of these activities and finds that “one misstep could sink an entire industry.”

Of shale gas, March says that the “risk exposures derived from shale gas production are significant,” mentioning political and NGO opposition, public concerns, and bans and moratoria  on drilling.  It says, “Shale gas exploration remains contentious because it can be intrusive for local communities.”  

The report recommends these actions for shale gas E&P companies:

1.  Where shale gas exploration is under consideration, companies should pay due attention to their strategy for managing stakeholder relations. Consultation and engagement with communities local to reserves will become necessary for proactively managing reputational risk.

2.  Emergency response plans and recovery strategies for dealing with an unplanned incident should be well developed and rehearsed. The manner in which local communities and the media are responded to will be critical in the event of an unforeseen incident.

This list appears to me to be a bit, shall we say, thin.  Perhaps it should include minimizing – and perhaps eliminating – risks with new technologies, best practices, landscape-level planning, and embrace of strong regulations



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