Understanding the 7 Most Common Risks in the Energy Sector
The Energy Sector spans from coal mines and oil rigs to power plants and wind farms making it one of the most global industries in the world. This sector is characterized by its changing regulations, technology, and solutions to change. These conditions make staying in compliance a difficult and complex process when the involved organizations do not have the right tools to track certificates.
While Energy Companies face higher risks, many oil and gas explorers and producers still find it hard to get essential coverage for key areas of their operations. This year, the Global Head of Willis’s Natural Resources Industry, Nick Dussuyer, examined the risk challenges faced by energy companies and suggests solutions to help deliver the protection needed. “Energy Companies face increased and increasingly complex risks, including the crash in oil prices that has disrupted business models, the move toward drilling in more remote and environmentally sensitive areas, and attacks from cyber criminals. With budgets under pressure following the collapse in oil prices, companies are also likely to be addressing the risk management challenge with fewer resources.”
In this post, we dig deeper into this reality and detail seven of the most common risks the energy sector faces. We also talk about how organizations can keep track of these risks to help avoid economic loss and external attacks.
The Biggest Energy Sector Risks
The United States energy system is becoming increasingly complex. It is the engine of the American economy that is facing a period of unprecedented change. The energy sector marks the implementation of recent technologies, requirements, and vulnerabilities that are transforming the system.
In 2021, the challenge is to transition to energy systems and technologies that address the nation’s most fundamental needs while supplying better energy services.
Energy security, economic competitiveness, and environmental responsibility are the goals of these new and advanced energy technologies. With new improvements, increased cost, and performance come new challenges. Here are the most common risks in the energy sector in 2021 and how to avoid them.
1. Evolving Regulations
Over the past 200 years, the predominant source of energy supply in the United States has changed several times. How companies generate power and send it off is constantly changing and, sometimes, this causes controversy. Because of the nature of these conflicts, the US Department of Energy regulates how companies generate and transmit power.
Many smaller oversight boards oversee diverse types of power on the federal, state, and local levels. In consequence of the number of oversight boards for the energy sector, regulations are always changing and organizations in the industry need to try to keep up with changing regulations to stay in compliance.
2. International Tariffs & Trade Restrictions
Tariff and trade restrictions affect the entire Energy Sector, but this is especially true for steel imports used in the sector. This raw material is important for drilling, refineries and pipelines, power plants, and more.
Tariffs on steel cost the energy sector millions of dollars a year. Because of this cost, organizations need to make sure they have a plan in place for what to do when it increases.
3. Cyber Liability
The energy sector is working to modernize the power grid for things like improved reliability, but these upgrades bring threats.
The energy industry affects people worldwide, so as a result, it is one of the most highly targeted industries for cyber-attacks. These attacks include situations like stolen information, power outages, and even blackouts.
With the implementation of modern technology on the power grid, organizations are working to ward off cyber-attacks. Even with this increased security, organizations in the industry need to make sure they have a plan in place to get the grid back as soon as possible when an attack occurs.
4. An Industry Going Through Changes
The Energy Industry changes faster than any other industry. Innovative technology is entering the market all the time and increased regulation in some areas and deregulation in others.
Because of the rate at which things change in this industry, it is almost impossible to keep up with compliance standards for recent technology or local regulations, if you do not have a system in place to help.
5. A Changing Workforce
The industry is seeing a crisis in its workforce, as many employees are reaching retirement age. Here are some reasons there is an employment gap in the sector:
- Not enough skilled or trained workers.
- A lack of technical skills for a constantly changing industry.
- Competition for a shrinking number of petroleum engineers.
There is no simple answer to solve these workforce problems, but each organization in the industry needs to make sure they have a plan for gaps in employment.
6. Increasing Number of Catastrophic Events
The energy sector is great at responding to catastrophic events, but they are on the rise and there is a fear that the industry will have a challenging time keeping up. For example, this year in Texas and other parts of the South, widespread power outages due to historically low temperatures put a huge strain on the power grid.
According to Forbes, the top catastrophic events that increased concerns in the sector last year were:
- Natural Disasters: Hurricanes, wildfires, and tornadoes.
- Human Actions: Terrorist attacks, Cyber-attacks.
- Technological Dependence: Technology failure and data loss.
7. Climate Change
A large part of catastrophic events affecting the energy sector has to do with climate change. The biggest factor contributing to climate change is fossil fuels, which come from the energy industry. Because of this, the sector has more regulation than ever before and must ensure they are doing what they can to protect the environment.
A recent example is Hurricane Harvey, which dumped trillions of gallons of water on Houston and surrounding areas, the hub of the US energy industry, paralyzing businesses and resulting in large losses.
For every Risk there is Insurance
Due to the nature of the places where oil and gas are found, the Energy Sector has always been exposed to a wide variety of risks beyond this list of the most common.
For corporations of any size, it is crucial to find the risks that pose the biggest threat to operations and where Effective Management will create the biggest opportunities to improve the business.
After identifying risks, the best way to mitigate them is through insurance compliance. Having an insurance policy in place covers the risk and assures damage control for businesses to continue running when one of these events occurs.
By having a Certificate of Insurance (COI) tracking and compliance management software in place, it is easy to track and watch compliance status.
To learn more about this technological solution that saves time and money, visit SmartCompliance and learn how we help organizations easily stay in compliance.
