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Energy security is only as good as the sector’s next weakest link

Published 02 November 2018

It’s an event oil and gas executives in WA remember very well. On 3 June 2008, a corroded gas pipeline ruptured, causing a crippling explosion at a processing plant on Varanus Island, off the state’s Northwest coast.

Thanks to a heavy need for gas in industries ranging from manufacturing, to electricity generation, as well as for residential use, it caused WA businesses to cease operation, workers to lose jobs, and a period of enforced emergency energy conservation.

“When Varanus Island blew up, it stopped this state from being able to function at normal levels for quite a long time, “ says Gallagher Perth-based oil and gas specialist Teagan Musgrave. “Though much was learned from that event, both on a state level and on the  level of individual organisational risk, the biggest risk to WA is still pipeline-related risk.”

For the sector – and not just those that own and operate WA’s pipeline infrastructure - it’s a warning of how fragile energy security can be, and the impact falling short can have. “The event is still very relevant, and is a reminder that risk is very real and present in the day-to-day operations of oil and gas companies, and will no doubt be realised again in future,” Musgrave says.

energy insuranceKeeping the lights on

Energy security has been at the top of the political agenda for some time. In fact, it is a primary factor in the recent push to negotiate a National Energy Guarantee (NEG), which aims to secure energy supply across Australia through a mix of energy sources, while also meeting our international emissions obligations.

This is not something anyone in South Australia needs to be told. It was the political firestorm that resulted from its 2016 state-wide blackout (caused by a once-in-100-year storm) as well as 2017 load shedding events that propelled energy security to the forefront of the political discussion in the first place, when even an offer of a mega-Elon Musk-sourced battery was welcomed with relief.

The LNG market has also been a concern, with the government having to step in to encourage producers to sell more gas into the domestic market and find new gas sources to avoid a predicted shortfall in 2018 (averted until at least 2030).

It turns out that keeping the lights on is a complex business, with risks that range from the vulnerability of infrastructure, to the market-wide mechanisms we use to cope with demand. For example, Musgrave says flood remains a key risk for the oil and gas sector in WA, as a flood could prevent access to a refinery, with significant business interruption risks and supply chain interruption.

And then there’s cyber risk, which the local industry is yet to fully mitigate. “Cyber security is the key emerging risk for the oil and gas industry in 2018. We are still coming to terms with the full risk potential presented by growing connectivity and reliance on technology both upstream and downstream, and organisations would be wise to ensure it is high on their risk agenda.”

energy insuranceA maturing market

The oil and gas industry in particular has matured in its understanding of risk, with Gallagher’s clients using a sophisticated approach to risk to their advantage.

“There is always room for improvement, but our experience is we work in a sector that is full of highly innovative people, who have worked in this industry for a long time, been successful with projects all over the world, and who are on the cutting edge doing things that have never been done before,” Musgrave says.

“These are not people who shy away from tackling the hard questions, and that includes turning the risks they face from threatening unknowns into well understood and managed risks, backed by the insurance they require.”

As risks are better understood and managed on an organisational and market-wide level in the energy sector, she says the industry will only get better at keeping the lights on.

“Being on the front foot when it comes to risk management means that, as a result, we are actually doing more to counter events that could cripple our power supply, and the businesses and people who rely on it. This is a great outcome for the sector as well as energy customers Australia-wide.”

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