Investopedia lists regulatory uncertainty as one of five significant risk factors for the oil and gas sector. Along with variable prices and political upheaval, the possibility of regulation changes severely impacts confidence in the industry.
Predicting trends
Companies are having to exhibit courage in their convictions when ploughing ahead with compliance and risk initiatives. Despite the continued threat that lawmakers and regulators could shift the ground beneath them, companies are compelled to keep driving forward with schemes addressing effectiveness and efficiency. The potential that the programs they initiate might fall foul of new laws, regulations and supervisory expectations are just the chance companies are forced to take.
One way for companies to counter this potential negative impact is to keep up to date with the regulatory trends that seem to concern lawmakers. For instance, there will always be an ongoing concern about pricing and a requirement to report pricing to regulators. Having a transparent and ethical policy in place is sure to counter any potential breaches in the future. Similarly, getting ahead of the rising concerns about data collection, use and storage should be a no-brainer. Regulations on mitigating risk of a data breach and misuse could be anticipated.
Capital Investment
Other areas of regulation are less straightforward and at the whim of political winds. There are rising concerns over the environmental impact of plastics and energy supplies. To anticipate regulation and so respond to the shifting opinion and debate could be costly to the oil and gas sector. However, the shifting trends in environmental concern are also matched by an ageing infrastructure and a need for intense investment in upgrades. This dual concern causes quite the dilemma.
Imagine putting together a future vision for upgrading infrastructure in an environment where the benefits of such investment are unknown. If political opinion shifts toward stringent regulation, then your investment could fail and offer little return. In such uncertainty, it isn’t straightforward to sell significant refurbishment projects to potential funders.
For most companies in the oil and gas sector, the only path they can follow for compliance and risk assessment in infrastructure is to:
- continually assess assets, noting improvements required to align with the latest standards.
- attempt to predict critical failure types and locations and improve the operations and maintenance in this area, directing capital investments to these projects.
- create a risk-based priority map that allows leaders to align strategy for asset investment with the overall business strategy.
Innovation
Innovation is difficult where regulation is uncertain. It is easy to argue that no one can predict the consequences of AI, robotic processes, and blockchain technology on the oil and gas sector. However, while regulators wait to see how this tech develops, it is difficult to propel forward complex and costly schemes for research and development.
To overcome this uncertainty, leaders can prioritise innovation at pain points. The innovation progresses where it is essential for change to take place. A company can also invest in experts who predict future trends and the ethical and legal consequences of these trends. Futurists might sound like fortune-tellers, but they are experts at reading patterns and using data to suggest outcomes. Then, leaders can use the best advice and match this to the company’s capacity to tolerate risk. As long as the thinking and evaluation are clearly communicated to stakeholders, then the impacts of regulatory uncertainty can be managed.
Ex~i Flow is happy to support the oil and gas sector in all future developments, no matter the regulation. Contact us today to see how we can help.
Investopedia reference: https://www.investopedia.com/articles/fundamental-analysis/12/5-biggest-risks-faced-by-gas-and-oil-companies.asp