Interpretations of Sensitivity & Probability Risk Analysis of Oil and Gas Project in Developing Country

Abstract

Risk management is an essential part of project assessment. Identifying possible risks involved during the construction and development of petroleum projects, is a vital to its financial and economic viability. It is also necessary to measure the effect of those risks on project economic parameters. These methodologies also known as quantitative risk analysis and qualitative risk analysis. Analysing those risk by calculating their impact on the project cash flow and economic indicators would give project sponsors, promoters and decision makers an important tool to assess these risks and subsequently follow them closely during to offset and mitigate them. This paper explains the effect of risks on petroleum project’s cash flow and economic parameters using the western Libyan gas project which transport natural gas to Italy as case study. It aims to explain how to relate these risks to project’s parameter which is subsequently will be effected the most during project life time. Probability and sensitivity risk analysis will be discussed to explain the methodology behind them when executing petroleum projects in developing countries. The paper also introduces base, best worst case scenario for risks to highlight their significant.