Cross-border oil and gas pipeline risk and sustainable mitigations

Abstract

Global demand for internationally traded oil and gas is increasing. In order to meet this increasing demand, oil and gas transportation, including by cross-border pipeline, is clearly critical. This article examines risk factors associated with cross-border oil and gas pipelines and will argue that the likelihood and consequence of risk could be greatly reduced if certain actions are taken at the international and state (policy) level and at the pipeline company level. Fifty-five cross-border pipelines (in development and operational) are examined to provide evidence for sources of risk based upon concrete case studies. The article will first explore two of the most acute geographical constraints encountered when trying to secure supplies of oil and gas: maritime ‘chokepoints' and the movement of production from landlocked countries via cross-border pipelines. These constraints reveal deficiencies in existing public international law—a key source of state-to-state risk to cross-border pipelines. The article will then examine other sources of risk (seven in total) within a comprehensive analytical framework. The various sources of risk identified are categorized as either internal (relating to enterprise risk management deficiencies in the pipeline company) or external (relating to the company's interface with host governments, commercial counterparties, local people and communities or hostile third parties) and ranked. The article further examines the dynamics of risk allocation within a government-to-government, government-to-company, company-to-commercial-counterparty and company-to-local community context. It will also examine risk factors during the two key stages of a pipeline project's life cycle (pre and post-completion). Recommendations will be offered on the development and negotiation of bespoke agreements to allocate state-to-state, state-to-company and commercial risk. Managing hostile third-party risk requires that measures are taken by public security forces in coordinattion with private (pipeline company) security and consistent with international security standards including the Voluntary Principles on Security and Human Rights. Other forms of external (community-based) risk require that pipeline companies rigorously adhere to applicable law and internal systems of enterprise risk management. At a minimum, these standards should include prevailing international environmental, safety and social standards as well as the UN Guidelines on Business and Human Rights.