By Salma Essam
Beyond oil prices and energy market volatility, efficient and effective infrastructure facilities are essential components for the welfare of the oil and gas industry. The potential increase in global energy demand poses serious challenges, common in infrastructure development, which the world governments would need to address.
Environmental Considerations
Energy infrastructure development should occur in a manner that minimizes the environmental footprint. In this sense, technological advancement and governmental energy policies are key to protecting the ecology, enabling world governments to provide and sustain oil and gas supply. Infrastructure investment decisions should be based on firmly anchored environmental plans and integrated energy initiatives adopted by the government. Climate change policies, therefore, should be optimally developed, strictly addressed and enforced. This will help provide a degree of certainty for infrastructure investment decisions.
There are regional constraints that withhold huge effects on infrastructure developments. Canada’s Energy Future: Infrastructure Changes and Challenges to 2020 report published in 2010 set an example for imposing rules on governments on building new international power lines. In efforts to lessen dependence of electricity generated from burning fossil fuel plant, the report suggests that renewable energy can be replaced for power generation requirements. In turn, investment decisions in infrastructure can be diverted to solar power plants rather than the international power lines.
Although environmental measures have been firmly adhered due to the active role environmentalists have played, many oil and gas companies try to overlook them. Establishing infrastructure that complies with ecological standards is deemed costly and needs advanced technology. In some cases, applying environment’s standards require companies to abandon areas replete with oil wealth either because they bear serious effects on the nearby inhabitants or they withhold negative impact on the surrounding nature.
On its part, offshore drilling operations have triggered controversial debates between legality and oil greed. Environmentalists have championed campaigns worldwide demanding the ban of drilling in the seas in efforts to preserve the marine life. As a matter of fact, offshore operations effects on the marine ecosystem range from disorders of marines to chemical and toxicological effects, which threatens the biodiversity of the marine life. This has prompted several states such as the US and Mexico to issue strict laws to offshore oil and gas developments.
Even though the energy market has been maintaining progressing behavior towards the environment, the oil and gas industry is still its major energy. In this regards, IOCs have no other option but to invest their technological capacities into the infrastructure facilities and understand to cost to environmental compliance.
Safety
Indeed, Safety is an issue of primary public interest and should be included on governments’ agendas. Research paper – Attacks on Oil Transport Pipelines in Nigeria: A Quantitative Exploration and Possible Explanation of Observed Patterns, published by Elsevier in July 2010 explained that “in countries with insufficient investments in infrastructure and weak environmental governance, oil leakage from pipelines often occurs as a result of poor management and maintenance.” If storage facilities, oil tankers, or pipeline break down or explode, the accident will deliberately have massive impact on the field workers. A famous example in history is the oil spill of Gulf Mexico that killed a number of 11 people aboard due to oil rig explosion. This is in addition to the huge harm it had on sea animals.
Incompliance to safety is gross and can lead to health issues. Not only does it endanger the environment, it further agitates the inhabitants who find the oil and gas exploration activities risky. Blowouts caused by pipeline leakage have dangerous effects on the people as toxic gases are transferred through the air causing heath complications. Indirect impacts related to seafood consumption from affected offshore areas are matters of concern. Ocean Portal’s report on Gulf Oil Spill stated that “the chemicals in oil that are of most concern to humans are called polycyclic aromatic hydrocarbons (PAHs). Some of these are known to cause cancer.”
Inadequate investment in infrastructure, in fact, risks the Social License to Operate (SLO) of the IOCs, making the sustainability of their business unlikely. In addition, safety of personnel working at the sites should be highly considered. Poor infrastructure can result in oil spills which in turn are the main reason behind offshore arsons. So before ensuring the firefighters measures are being maintained, infrastructure should be more efficient and effective.
It is, therefore, important to ensure that IOCs adhere to safety of the employees, the public, and protection of property that may be significantly affected with the construction, design, and operation of these facilities.
Security
One of the main challenges infrastructure developers encounter is securing their pipelines and facilities.
As the energy development have become indispensable in today’s world, several countries, particularly heavy oil producers, have witnessed attacks on its infrastructure facilities due to companies’ non compliance with safety measures. Nigeria, for instance, has eyed frequent attacks on its pipelines and oil facilities throughout 2016. In the midst of a global oil price downturn that has brought the giant OPEC member into a serious economic conundrum, Nigerian President Muhammadu Buhari has been challenged by the rising threat of the Niger Delta Avenger militants. The militant group is in the business of vandalizing IOCs oil infrastructure, launching explosives and blowing up pipelines. The group is driven by economic and environmental concerns, demanding a greater share of Nigeria’s oil wealth to be given to impoverished regions and oil spills to be cleaned up.
The dispute between the group and the government has been on the rise which helped slump Nigeria’s crude output to its lowest level in decades. The attacks presented serious challenges to major international operators in the African country. In May 2016, Energy giant Eni confirmed that one of its pipelines in Nigeria was sabotaged. At Nigeria’s largest oil terminal, namely Qua Iboe, operations carried out by Exxon Mobil had been disrupted on the same month. On their side, Shell and Chevron have evacuated their staff in early 2016 following attacks on Chevron’s Okan offshore platform and Shell’s Forcados oil pipeline which the Niger Avengers claimed responsibility for.
Attacks on infrastructure that happen on a frequent basis signal potential future subversions, a fact that prompts foreign investors to halt oil and gas activities. This challenge jeopardizes huge revenues for countries whose economies heavily rely on energy industry as a profit generator. In mitigating this risk, the governments must draft elaborative strategies that strictly address infrastructure vandalism. It is therefore recommended that governments would join forces with experts to develop security standards that will handle the management of security risks and further prevent them. These standards will help contain the negative impacts on people, property, the environment, and most importantly the economic stability.
Canada presents a model for security measures in the energy industry. Canada’s Energy Future – Infrastructure Changes and Challenges towards 2020, an energy market assessment report published by the National Energy Board (NEB) explained that “the NEB produced a security brochure which promotes the reporting of suspicious activity around pipeline facilities.”
This came in collaboration with the Royal Canadian Mounted Police, Public Safety Canada, Natural Resources Canada, the Canadian Energy Pipeline Association and the Canadian Association of Petroleum Producers” the report stated.
Financing
Rising commodity prices of pipeline steel and tight labor markets in the energy industry has posed huge cost pressures for the investors over the past few years. Couple this with the fact that the sector has been going through a period of recession following the global decrease in oil prices since 2014. In essence, bringing large infrastructure projects to table burdens investors, particularly because of the steady rise in the cost prom the time of project conception to construction.
Financial markets, additionally, have experienced uncertainties and stricter credit requirement in 2008 and 2009 on the upheaval of the world’s economic crisis. This has had its impact on the new investment projects related to large infrastructure plans and developments as the business environment was less appealing to bring cash flows for projects. In addition, the situation in the financial market has made it more difficult for investing in infrastructure. New projects need massive financial backing and commercial arrangement more than it required in the past. Canada report stated that “for the most part, large energy companies in Canada with solid financial ratings have been able to obtain financing for the projects that are currently being built. One challenge may come in the form of securing commitments from shippers, if shippers have difficulties obtaining financing.”
Remoteness of New Energy Sources
As the energy industry evolves, the search for new energy sources to satisfy demand often becomes increasingly distant from the consumption areas and more widely dispersed. This makes the transmission of oil, gas, and other petroleum derivatives, more demanding to advanced infrastructure facilities. For instance, oil and gas drilling in remote locations and difficult terrain can require big cost in resource work. In climate challenging environments such as remote north poles, drilling is seasonal, unlike southern fields where operations can take place all year. The challenge arises with the high cost of moving heavy equipment to distant locations in addition to building roads and accessing building materials.
But the high expense of transferring equipments to these areas is not the only problem operators face. The uneasy access to fresh water in remote location poses another challenge. This is beside the limited supply for the sand used in hydraulic fracturing, access for electricity to generate power for some activities. Even worse, consuming the little resources of small communities in remote areas can be pressuring and may lead to serious issues between the operator and the inhabitants.
The decisions to invest in huge infrastructure projects will need to be made in a timely manner to provide the sufficient time needed to accommodate regulatory processes. Today’s energy market should adopt a collaborative approach among regulatory bodies and government offices. Coordination among involved partners gives room for a more efficient streamlining for the regulatory process, which further helps well-timed decisions to be made and enables the development of sustainable infrastructure. Despite the challenges inherent in establishing infrastructure projects, governments espousing an effective approach are poised to meet the energy demands with safe, secure, and environment-friendly infrastructure.
