Risk Management of Petrochemical Industry in Saudi Arabia - Essay Example

?Table of Contents Table of Contents Introduction 2 Risk Management 3 Risk Options 3 Risk minimization in petrochemical industry of Saudi Arabia 4 Discussion on Managing Risk in Petrochemical industry of Saudi Arabia 5 Conclusion 8 Works Cited 10 Student Name Professor Name Course Number Date Risk management of petrochemical industry in Saudi Arabia Introduction The term petrochemical can be defined as the chemical products that have been formed from the raw materials of petroleum and also origins of hydrocarbon are also found in petrochemical products. The industries of petrochemicals have the roles or producing chemicals by using raw materials such as oil and natural gas. The petrochemical industry of Saudi Arabia has a high relativity in the economy of Saudi Arabia (Cordesman and Obaid, 2004). The petrochemical industry in Saudi Arabia is the second largest industry in the country. The top most leading players in this industry are the state owned company Saudi Aramco and the Saudi Basic Industries Corporation (SABIC), their rankings are also at the global level are being one of the largest producers of petrochemical products (Cordesman and Obaid, 2004). The raw materials for producing these products had been available in abundance but now it is being observed that there is shortage being observed in the raw materials and therefore the Saudi petrochemical industry need to work upon their risk management aspects of this industry. Shortages of raw materials from which the products are being produced tend to give rise to high risks in the future therefore it is important to start managing the risk factors beforehand. Risk Management Risk management is usually defined as the elements that cause risk to the organization and accordingly assessments and prioritization of risks are conducted for the purpose of risk management. Risk management plans are made to reduce, minimize, monitor, and evaluate the risks so that opportunities can be maximized. Risks can be faced from the financial markets uncertainty, from the failures of projects, from legal liabilities, from the factors of credit risk, and other such factors (British Standards Institute, 20). Risk Options There are many types of risk options that can be used for the purpose of managing risk in the organizations. They are as follows (British Standards Institute, 73): Developing new processes of business so that the level of risk can be controlled Risks should be reassessed on a periodic basis Transferring of risks to external organizations such as insurance companies The avoidance of risks by closing down the business units that cause risk Many of the other petrochemical industries operating in Saudi Arabia are planning on with the establishment of acrylic acid complex plants so that any type of downturn in the industry can be overcome in the future. This is due to the changes in the success level trends observed in the country that new business units need to be developed so that the future challenges that are present in the industry forecast can be overcome by the industry. Risk minimization in petrochemical industry of Saudi Arabia The main aspects that should be carefully reviewed towards minimizing risk in the petrochemical industries of Saudi Arabia are (Athearn, Schmit, and Doerpringhaus, 80): 1. Management: All operations should be reviewed, maintenance and engineering operations should take place accordingly, check and control should be maintained for the fire safety and security features of the organization. 2. Procedures: all work operation operations should be carried out under the approved engineering standards so that while insurance premiums are opted for, no loopholes remain for them to gain benefits in times of risk. 3. Plants: the plant design should be according to standards as well, as well as the process controls in the plants and their housekeeping. 4. Protection Hardware: all hardware equipment being used in the plants of petrochemical organizations should be of proper quality. The higher amount of risk may be observed from the personal errors that are faced by the organization. The insurers tend to allot a higher level of weight to the management and the procedures of the organization instead of the hardware equipment and the plant.  The petrochemical industry in Saudi Arabia has been facing a lot of challenges recently since the previous times. Now as it has been observed that the major challenge being faced is the growth of petrochemicals in the country, Saudi Arabia. Discussion on Managing Risk in Petrochemical industry of Saudi Arabia The following factors are prevailing factors that increase the risk element in the petrochemical industry of Saudi Arabia. Shortage of raw materials (ethane, propane and butane) Consolidation The interruption exposures have increased The regulatory pressures are increasing with time Competition at a global level The loss in the industry needs to be reviewed and accordingly the risk management should be made applicable so that the industry remains in a stable situation and they reduce the level of exposure of risk. The above mentioned risk factors should be dealt with at an early level so that the industry can remain stable on a continuous mode. Also, since the petrochemical industry of Saudi Arabia is a high contributor towards the domestic GDP of the country it needs to apply all measures so that the risk of the industry can be minimized. The risks involved in this case are the economic slowdown that is being observed at the global level and the financial crisis worldwide. The petrochemical industry of Saudi Arabia is observed to be having an increasing trend towards the expansion level of their capacities but they tend to remain dependent upon the chemicals used for the commodities in the medium term time frame. This risk is being managed by SABIC petrochemical industry of Saudi Arabia which is planning to enter into the business of polyurethanes plants and also have future plan possibility of developing plants of methylene di-paraphenylene isocyanate (MDI) and toluene diisocyanate (TDI) (Cordesman and Obaid, 2004). Modern use of technology, using all process controls in a computerized way, and imposing quality materials of construction and also finding out alternatives of raw materials used in petrochemical products can result in controlling the element of risk in the petrochemical industry of Saudi Arabia. In the modern era, all types of business processes and operations have the use of advance technology so that they can produce faster and effective results in the industry. The ethane supply in the country is facing a high level of shortage and this is creating problems because this is used in the production of petrochemical products. Massive investments are being made by the state owned company Saudi Aramco of oil and gas for the purpose of gas exploration so that the problems can be resolved. Along with ethane, the prices of propane and butane have also imposed major growth challenges. These are all crucial products for the production of ethylene derivatives in the kingdom. These products have been forecasted to have a shortage and therefore this is a sign towards finding out suitable alternatives that may be used for the formation of petrochemical products. As this period of shortage is expected in the coming years, the Saudi Arabia petrochemical industry has to strongly work upon developing their risk management plans so that they can secure their future. Plans can include importing the necessary raw materials and also the establishment of plants that produce the required raw materials. Various sources and consultants have analyzed this situation of diversifying the risk in petrochemical industries of Saudi Arabia. It has been discovered that Naptha is an extremely suitable raw material for the developments of petrochemical products in Saudi Arabia. Important news is expected to be delivered in the coming years about the pricing factors of ethane, propane, Naptha feedstock. Naptha feedstock has been resulted because of the natural gas being available on a limited basis and also because the country has a strong desires to have a high amount of diversification at the downstream level (Cordesman and Obaid, 2004). The risk management factor also focuses on the petrochemical industry towards investing in different projects so that they can generate a suitable level of revenue for their other business units. Investing in different projects also allows widening the range of businesses of the particular organization and this increases the profitability and success level of the firm. There have been shortages been observed in the feedstock of ethane gas. Only the state owned petrochemical industry has the privilege left of ethane cracker expansions so that the remaining allocation left can be utilized and they will achieve this by their joint venture that is formed with the state owned organization. The petrochemical industry of Saudi Arabia has more inclination towards the export oriented side. They have a large focus towards the upstream level of production and diversification. To diversify their risk they need to focus their attention towards the downstream level of production as well and is diversification aspects too. The risk is being diversified by developing Naptha feedstock by around 3 million tonnes per year for the production of various aromatics and production derivatives of the petrochemical industry (Cordesman and Obaid, 2004). Supplies for getting new projects are getting extremely difficult with the shortage of ethane. The prices of ethane, propane and butane are expected to be worked upon in the coming year for this situation. It is hoped by the Saudi government that the step of producing a broad range of petrochemical products there will be experienced an expansion in the industries of downstream manufacturing and more employment will be available for the youths by this implementation. The downstream refineries are being located at different areas so that maximum amount of Naptha feedstock can be availed. More opportunities for private petrochemical organizations may increase due to this as analyzed by different consultants (Cordesman and Obaid, 2004). Conclusion Saudi Arabia petroleum industry has a great role in the economic well being of the country. It contributes highly towards the gross domestic product of the country and also towards diversifying the economy at a national level. The risk factors are increasing for the petrochemical industry because of experiencing the shortage of raw materials that are used for the production of petrochemical products such as ethane, butane, and propane. This therefore increases the risk of facing a downward trend in the industry that may impact the economy of the country as a whole. The management of this risk is highly important and therefore suitable alternatives (such as Naptha feedstock) and relocations of plants of the industry need to be undergone so that a stable position can be achieved. Also the petrochemical industries operating in Saudi Arabia need to implement all the standard operating procedures in their management function as well as their plant operations such as their site maintenance, quality of hardware equipment being used and other such factors so that their level of risk can be minimized. Works Cited Athearn, Pritchett, Schmit, and Doerpringhaus. Risk Management and Insurance.St. Paul: MN,1996. Print. British Standards Institute, "Risk management - Vocabulary - Guidelines for use in standards," ISO/IEC Guide 73 (2002). Print. Cordesman ,A. H. and Obaid, N., "Saudi Petroleum Security: Challenges and Responses," Center for Strategic and International Studies (2004). Print. Read More