New report by Marsh calls for “more sophisticated risk management strategies”

Shale gas/ 'fracking' rig

The failure to mitigate the risks associated with the new frontiers in exploration and production could potentially jeopardise future economic growth.

A new report by Marsh said energy firms need to adopt “more sophisticated risk management strategies” in order to counter the odds of low-likelihood but “potentially catastrophic” disasters linked to the new frontiers – arctic exploration, ultra-deepwateer drilling and shale gas extraction.

Marsh Global Energy Practice chairman Andrew George warned: “The global energy sector is driving struggling countries out of the economic mire, while sating surging demand for power in China, the Middle East and North Africa. However, myriad financial, physical and political risks are converging to create a risk landscape that is perhaps the most complex – and challenging – in the sector’s history.

“A single event, such as another deepwater incident in the Gulf of Mexico, has the ability to transform the fortunes of the entire sector; political volatility globally has created a fragile operating environment for many organisations and their personnel. The sector also requires significant capital investment due to rapid project inflation costs and the financial outlay associated with pursuing challenging reserves. Stakeholders need to be increasingly focused not only on ensuring the required return on investment is achieved, but that the associated risks are managed appropriately.”

The report, Managing risk on the new frontiers of energy exploration highlighted a number of risks associated with arctic exploration, ultra-deepwater drilling and shale gas extraction.

It says that the risk exposures to companies from deepwater exploration and production have not changed over the past decade and include well blowout; environmental liability; supply chain disruption; regulatory compliance; and environmental tax.

Ice blocks, storms, engineering and electrical communication complications are among some of the risks associated with arctic exploration; and shale gas extraction has been linked to allegations of contaminating water tables and claims that it induces earthquakes.