1. How does managing ethical risk in the oil and gas industry relate to reducing accidents?
2. Compare, the risks that BR Exxon, and the fracking industry continue to face in providing an adequate supply of energy?
3. How can ethical leadership help the oil and gas industry to manage risk?
Environmental Hazards Associated with the Oil and Gas Industry
The drilling of gas and oil had adversely affected the environment even though the world is almost entirely dependent on them (Odell, 1975). The current demand for these commodities on a daily basis is alarming. This is because most of the petroleum products are universally used across all industries including the manufacture of insecticides, plastics, and sparingly in the medical world. Due to the heavy dependence of oil products, there is fear of depletion of the natural resources even though the particular time frame for the same has not been determined (Kruyt et. al, 2009). The fear has led to research and the use of alternative sources of energy to cure the total dependence on oil and gas as the primary source of energy. Also, the risks associated with the oil and gas industry has fuelled the desire for alternative energy sources.
The environmental hazards associated with the drilling of oil and gas poses a significant threat to this source of energy. Water is polluted during drilling; greenhouses are emitted to the atmosphere causing global warming hence melting of the ice cap which leads to loss of life through flooding. Because petroleum reserves are mostly found under large water bodies, the oil spills that occur during drilling cause considerable damage to the aquatic life and the life of human beings who have to use the water in one way or another (O'Rourke &Connolly, 2003). The magnitude of these risks has led to the adoption of safety precautions during the extraction and processing of oil and gas to prevent further environmental damage (Berry & Rondinelli, 1998). However, the precautions have not successfully been implemented due to ethical lapse on the management part. As a result, the Exxon-Valdez spill in the United States was the first oil spill ever to be recorded in the American history because of its impact on the environment and the costs incurred by the companies in cleaning and restoring the mess (Peterson, 2001). After two decades the Deepwater Horizon oil caused the greatest oil spill in the history of U.S. (White et. al, 2012). The primary cause of these disasters can be attributed to neglect of ethical factors and poorly calculated steps towards taking risks.
Therefore this case analysis outlines the environmental hazards associated with the oil industry by examining particular cases that have sparked the campaign on the responsibility of the industry on sustainability. The Exxon-Valdez oil spill of 1989 and the Deepwater Horizon oil spill of 2010 are outlined, and the risks and causes explained. Lastly, the case analysis emphasizes the need for oil and gas industry to exercise ethical leadership as a way to manage and control risks associated with the industry.
Exxon-Valdez oil spill
Managing ethical risk in the oil and gas industry plays the key role in reducing accidents (Van den Hove et. al, 2002). For instance, in the Exxon Valdes disaster, the third mate should not have steered the tanker ship since he was not licensed to do so even though he had no ill intentions. The act of the third mate was as a result of an unethical behavior of the licensed captain who was sleeping on the deck below after drinking copious amounts of alcohol. The blood alcohol content of 0.061 found in the captain against the accepted minimum of 0.041 rendered the captain unfit to control the ship as he tried to maneuver it to release the tanker after it hit the iceberg (Bardwick, D.S., 2000). This action only made the situation worse causing an extensive spillage more so after neglecting the advice from the coast guard. The ethical lapse on the Exxon officials about the Coast Guard regulations regarding the blood alcohol content of the captain significantly contributed to the accident. The Alyeska Pipeline Service Company which was in charge of the terminal shipping together with the Trans-Alaska pipeline at Valdez was not equipped to handle any spillage emergency. It took hours to assemble the tools, and it was uncertain which equipment to use a barge or tug since they had not been tested before and proved to be damaged after the trial. Thus a lot of time was wasted before the Alyeska Pipeline Service Company could start the work of regulating the spillage. Not only did both companies had the faulty equipment to fight the spill, but the available options also kept breaking down. Communication breakdown between the crews and those at the ground extended cleaning time. Exxon and Alyeska were unable to marshal the nearby private boats to assist in the clean-up, and yet they were very much willing to help. The Coast Guard were not strict regarding some essential safety features, and thus they ended allowing the Alyeska to proceed with business without these functions on their tankers. The Coast Guard also underestimated the required time for controlling the spill.
Exxon focused on profit and not the environmental consequence of not constructing the second hull for Exxon Valdez which could have helped minimize the damage. Moreover, the response from the chief executive after six days and his absence from the accident scene were more damaging in addition to the crash. The adamant insistence of Exxon to stop its clean-up operations prematurely is indeed unethical and only serves to show how unwilling they are to manage ethical risks. However, due to pressure from the public and the government the president of the company returned to clean-up activities for further four years.
Deepwater Horizon oil spill
The proper management of ethical risks could have helped to control the Deepwater Horizon oil spill which greatly caused the loss of human life and wildlife. The absence of a shut-off switch remotely controlled could have stopped in alleviating the effect of the discharge even though such a feature is not a legal requirement. The precautionary measures of BP in the contingency plan contained a lot of errors. For instance, the death of the emergency responder before the accident had not been replaced. The safety measures of BP in place before the crash proved to be helpless because BP took months to at least contain the leak. All these moral inconsistencies served to show how unprepared BP was to handle emergencies regardless of their assurance. According to investigators, BP contributed to the explosion. For instance, actions by BP caused the weak points in the well. The necessary procedures intended to detect gas in the well were not followed such as testing the quality of the pipes. To avoid the explosion, The company should have used a more durable material which could hold back the pressurized oil and gas during the installation of the pipe at the final stage. Also, the less expensive well design adopted by BP was riskier. The design was inexpensive and easy to install but easily gave way for the gas to escape the pipe (Brown, 1976). Such a move though not illegal side-lined safety precautionary measures that could have prevented the accident. Cameron International Corporation was contracted to design and manufacture the blowout preventer which was discovered to be faulty during investigations. Had the contractor of the blowout preventer considered ethical management risks while constructing it perhaps the accident could not have occurred because the blades of the blowout preventer stuck in the pipe instead of completely sealing the pipe thus creating space for oil spillage. Moreover, if the BP engineers had not overlooked the warning signs generated from safety tests the accident could have been detected before the occurrence. The engineers went ahead with drilling even with confusing test results from two of their colleagues.
BP, Exxon and the Fracking industry operate in the oil industry but with different technologies. There exist risks that cut across these companies and which they continue to undergo as they endeavor to provide an adequate supply of energy. BP and Exxon release poisonous gases such as sulfur dioxide and mercury to the atmosphere whereas fracking releases natural gas which is thought to be friendlier. All the companies are known to release dangerous chemicals into the water body during drilling, and this affects both the aquatic life and the life of people dependent on economic activities surrounding the water body. The banning of fracking and drilling activities by countries and specific regions as a result of the complaints from individuals due to the environmental damage has continuously marred the image of the companies and thus causing a high risk of investment. Health and safety concerns are also risks experienced across the three companies. The workers in the drilling and freckling fields end up suffering from various complications due to the exposure of toxic and radioactive chemicals and are paid for the complications which will sometimes remain permanent (Henderson, 1983).
Risk and Causes
The drilling and fracking activities negatively affect the environment. For instance, the death of animals on a farm near the fracking operations and the death of aquatic life in drilling has also changed the attitudes of the loyal customers towards the petroleum products of given companies. For instance, a regular customer of BP realized that oil spills are dangerous to the aquatic life and thus decided to shift to Shell oil because the petroleum product doesn’t harm the marine life. If that happens to 10 per cent of loyal customers then the affected company will experience financial outflow that can only be reversed by ethical management. Also, both companies undergo political and fiscal risks. Most of the activist groups influenced by the political class exert pressure on the companies regarding the adverse effects of their activities and even end up instituting laws that ban them from carrying out their work in given regions and countries (Conner, H., 2015). Additionally, most of the lawsuits against the companies for the effects of drilling and fracking are usually political. For example the ban on fracking activities in France, Texas, and California and the prohibition of the supply companies from issuing infrastructure and equipment to fracking companies. Perhaps the expensive part of the risk is financial; the cost incurred in trying to clean up the oil spills, leaks, and even explosion is way too high. For example, in the spillage by the Exxon Valdez, Exxon spent over $2.2 billion for refunds to the state and clean-up accompanied with several legal suits. BP underwent a daily loss of 2.5 million gallons of oil due to a leakage, $36 billion for clean-up and a penalty of $18 billion, the largest recorded fine in history.
Ethical leadership can help manage risk in the oil and gas industry by working in cooperation with trustworthy organizations such as IPIECA. Such an organization can represent you by airing your issues which would lead to winning the confidence of public once more. Also having the junior and senior management levels take accountability of the issue will assist in managing the risk. Ethics are the guidelines of conduct about a particular group of human actions or culture. Ethical is an adjective that is concerned with morals relating to right or wrong demeanor. Therefore moral leadership is a type of leadership that is aimed at leading in a way that honors the rights, personality, dignity and judgment of other people.
Managing Ethical Risk in the Oil and Gas Industry
Moral leadership implies that the company must be willing to suffer loss at the start to win the confidence of the citizens. For example, the group CEO must be prepared to accept the fact that the drilling or fracking activities negatively affect the environment by emitting carbon gases. This implies that the company has to limit its production and survive in lower oil price but reduce the carbon emission (Jackson, 2004). Ethical leadership also will help businesses to learn from their previous mistakes and work with the community towards a shared future (Macalister, 2015). Ethical leadership can also contribute to managing risk in the oil and gas industry since it emphasizes on accountability and self-development. Thus leadership training should be conducted across the board not only the top management but also the technical team. Ethical leadership, therefore, emphasizes on moral maturity, transparency amongst colleagues and consistency in actions. This kind of leadership is unique and works in the exact opposite of the top-down leadership (Tran, 2014). Ethical leadership focuses on the long term and not short term profits. For instance, the leadership esteems the assurance of the stakeholders and the trust of the customers highly. In the event of accidents, the society and potential investors do not quickly shift to the competitors thus this approach of leadership helps in managing risks when they occur (Kaplan & Mikes, 2012). For example, Tony Hayward the CEO for BP lacked relational responsiveness and exhibited inconsistency in action (Nyberg, and Sveningsson, 2014). His leadership required the spiritual link and situational difficulty which made him unable to contain the 2010 disaster (Veil, et al. 2013). The loss of reputation of BP can be blamed on Hayward due to his reckless statements and arrogance (Wolf, & Mejri, 2013).
The petroleum industry has a poor reputation in the society due to the past events that have taken place and thus to restore this image a culture of an ethical organization needs to be fostered with consideration of the risks involved (Dong & Burritt2010). Historically, most of the companies have failed to protect their employees and the general community because of laxity in implementation of health and safety policies. For instance, the Exxon Valdez crisis could have created awareness of the dangers of offshore drilling and thus initiate safety precautions against any repeated environmental damage. This is why BP failed to learn from Exxon so as to implement measures that may have dealt with the loss but instead BP was self-sufficient.
Risks Experienced Across the Industry
Therefore the restoration of the reputation of the gas and oil industry demands ethical leadership and well outlined ethical programs so as to avert the present reckless risk taking (Ortiz & Crowther, 2008). All the workers need to be held accountable for any action while at work and this education need to be conducted so as to avoid the avoidable accidents. As already discussed, the crises above are mainly as a result of neglect of observing the professional ethical policies that already exist. The industry has a daunting task of providing governance in safety and sustainability. This calls for the organizational will and the administrative expertise to convert commitments into actionable operations.
This report does an excellent job of demonstrating the significance of ethical leadership in sustainability and safety leadership. Because each company in the report experienced a different disaster and the point of weakness are clearly outlined. This is a good work and serves as a reminder to the oil and gas industry on the effect of leadership on the success or failure of the company. I was very pleased to see the historical background of the disasters and the extent of damage caused. The writer further argues that all the affected companies did not learn from the previous accidents but instead ventured to work on projects with casual risk-taking attitude. I believe this is a very reasonable and balanced report for it concludes by offering the way forward in regaining the lost reputation in the oil and gas industry.
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