Question

Research the energy industry that Magnus Energy Group operates in. Using the information researched, identify and explain six risk factors affecting the energy industry in general.

Answer 1

Risk factors affecting the energy industry are :

Contingent risks represent unexpected and accidental risk events leading to emergency. Among them are

(1) energy supply disruptions caused by war, revolution, terrorism, rioting or any other political incident in major oil producing (or energy supplying) and consuming countries and

(2) those triggered by accidents, natural disasters or unexpected events in some part of the overall energy supply chain. The second group represents various risks including accidents involving energy production and shipment facilities, transportation infrastructure and the final consumption stage.

Contingent risks include not only the above mentioned two groups but also

(3) consumers’ panicky behaviors. These panicky behaviors’ impacts cannot be ignored, given price hike acceleration and market confusion attributed reportedly to Japan’s panicky energy procurement in the international market amid the oil crises in the 1970s. Panicky behaviors that accelerate market confusion further represent a grave risk to energy security.

Structural risks include problems contained in the energy supply and demand structure, international politics and economy, and energy markets and institutions. These problems are not unexpected but formed through some passage of time. They range wide, including

(1) politically imposed economic sanctions and embargoes over fixed periods of time,

(2) supply-side market power,

(3) depletion of resources,

(4) longer-than-expected continuation of demand expansion,

(5) investment shortages restricting supply expansion and

(6) energy supply bottlenecks caused by environmental regulations, market deregulation or other institutional factors.