Operational Risk Management In The Petroleum Industry

In today`s competitive markets, operational risk management has been a significant and daunting task on daily basis. Risk is recognized as unusual opportunity of facing undesired consequences such as damage, loss or injury that may occur during business operations. Though operational risk is better viewed as risk arising from the execution of an institution`s business functions, it is defined as a risk consequential from derisory or failed internal processes, people and systems, or external events. Therefore, operational risk management requires proactive team to evaluate and, if necessary, to control sources of exposure and operational risk.

Most petroleum filling stations present a unique characteristic of containing large quantities of hazardous materials. However, continuous occurrences of hazard at filling stations designate weak operational risk management. Typically, poor risk management affects sales, market share and bring about contractual penalties for the parties involved during the operations. Therefore, risk management excellence is a chance for the energy operators to create competitive advantage over their competitors. One important way to reach excellence is make sure that risks are handled and mitigated. Hence, companies involved in the supply chain for petroleum products need to have effective risk management processes to be able to mitigate the operational risks.

The petroleum industry operations are globally classified as upstream and downstream operations. The upstream operations include: exploration, evaluation and appraisals, development, production and transportation of crude oil and untreated gas. Whereas, downstream operations are crude oil refining, transportation, storage, distribution and product retailing. Though research attention tends to focus more on accidents emanating from the upstream operations, the downstream operations specifically at filling stations equally cause hazards to human safety and the environment. The much attention given to the upstream risks may be attributed to the perceived importance of the upstream subsector and involvement of big multinational companies but the accidents that occur at filling stations within the downstream operations lead to major economic losses and serious safety and environmental consequences.

According to GoM (2010b) 2008 statistics, about 90% of Malawians use wood for fuel and charcoal production, thus accounting for 88.5% of the country`s energy requirements, 6.4% comes from petroleum, 2.8% from electricity and 2.4% from coal. In recent times, Government of Malawi embarked on a number of programs in order to improve the energy sector by increasing the imports of some energy products in form of oil products and coal. This is because total energy produced in Malawi is less than the energy consumed. Therefore, it is apparent that fuel distributing centers should be outfitted to handle the operational risks that come with the increased petroleum imports.