Economics of Downstream Oil and Gas Project, Risk, and Decision Analysis

Abstract

The oil and gas downstream sector, which involves refining and marketing, plays a vital role in an economy. Through refining and marketing, refined products are distributed to end users (i.e., consumers, industry, and government and non-government institutions) to support productive activities. Activities in the downstream sector are often associated with several risks, which have the tendency to affect the efficiency of operations in the sector. This chapter of the book examines the various risks associated with the downstream oil and gas sector, the measurement of these risks, key resilient factors, and simulation and decision analysis of downstream oil and gas projects. The chapter identifies the main projects in the downstream oil and gas sector to include oil refinery, distribution, and marketing of refined products. The chapter further identifies the associated risks in the downstream sector to include economic, political, environmental, technical, and energy transition risks. The identified risks are more pronounced in developing countries than developed countries due to poorly developed institutions. These risks are known to exert negative effects on the sector’s market share, capacity, and investment level. Also, the identified risks can impede government revenue and affect the employment generation of the oil and gas sector. For the sector to remain competitive in the long-term, there is the need to develop strategies to mitigate these risks in the downstream sector.