According to a new Acclimatise report backed by IBM, climate change could have a serious impact on the oil and gas industry’s assets, operations and safety. While most are aware of these risks, only a small proportion of them have taken the necessary steps to address them.
A new Acclimatise report backed by IBM, entitled Global Oil & Gas – The Adaptation Challenge has identified top five impacts of climate change to the oil and gas industry. While three quarters of the world’s oil and gas companies surveyed believe climate change could impact their business, only 19 percent are taking action as noted in this Acclimatise report.
According to Alan Roberts, IBM’s Industrial Strategy & Change Leader, oil and gas companies are typically run well, but they have been exposed to problems with their major projects and operations in the past. The following are the top five impacts identified by the report that oil and gas companies may face.
The report titled “Global Oil & Gas – The Adaptation Challenge” is based on the Carbon Disclosure Project’s annual request for investor information that was sent to the world’s largest 128 oil and gas companies globally (based on market capitalization).
The Top Five Industry Impacts of Climate Change
- Increased Pressure on Water Resources
- Physical Asset Failure
- Employee Health and Safety Risks
- Drop in Value of Financial Assets
- Damage to Corporate Reputation
Of the companies surveyed, 96% did not realize the risks from potential civil and geo-political unrest stemming from water shortages, poor water quality, drought and flooding and 97% did not recognize the adverse risks for local communities. Only 6% of respondents indicated they were taking actions to manage disruption to off-site utilities (energy, communications, water and waste treatment). This could be problematic as many existing plants and equipment were designed based on historic climatic conditions and may be damaged from changing environmental conditions.
The survey showed only 1.5% of respondents have incorporated climate change considerations into their health and safety risk assessments, which may compromise employer and public liability. Insurance costs could potentially rise due to a greater chance of physical plant damage, resulting in changes to the disclosed value of reserves with major financial implications.
Finally, failure to monitor and report the impacts of climate change on social and ecological resources will likely harm a company’s reputation.
What are the Drivers for Change?
According to the report, there are three main drivers for the oil and gas industry to use their ability to innovate and incorporate changes in practice for the common good. As a major business employer the industry contributes to society being both providing for energy needs and jobs. This is still good for the economy, if not always good for the environment. These drivers for change will be influential on the level and rate of innovation.
- Cost/Revenue Drivers – operating costs could increase in response to changes in design standards
- Stakeholder Pressure – Investors/stakeholders are placing pressure on companies to address climate risks and opportunities
- New Regulatory Landscape – greater certainty is needed about future regulatory policies
Of the three drivers, better understanding of regulatory policies will encourage companies to invest in alternatives to fossil fuels and develop cleaner and sustainable energy sources. This corporate social responsibility (CSR) action will result in the increase in trust by both stakeholders, investors and the general public.
What Opportunities are Available for Improvement?
- Companies should start by conducting a high-level assessment of how climate change can impact their business model.
- Next the need to analyze the individual areas, such as Non-Market Strategy and Asset Lifecycle Management, that could have the greatest material impact on performance.
- Finally companies should adapt reporting and performance management to incorporate risks arising from climate change.
Paul Simpson, Chief Operating Officer, Carbon Disclosure Project, said, “This report shows how important it is for the oil and gas sector to plan for a changing climate. Issues such as water shortages and changing weather patterns and temperatures will impact infrastructure, operations, revenues and costs. As a result, investors want to know how oil and gas companies are dealing with these risks and planning for them in the future. This report helps answer those questions.”
© 2009, Janet Palma. All rights reserved. Do not republish.