The changing climate is a business risk

 By Mike Scott

The flooded streets and oil refineries of Houston seen earlier this year as Hurricane Harvey dumped unprecedented rainfall on the hub of the U.S. oil and gas industry are a stark reminder that when it comes to oil and gas and climate change, it is a two-way street…

Not only do fossil fuels contribute to the changing climate, it is becoming increasingly obvious that climate change presents business challenges in the shorter term as well.
These include the physical risks from extreme weather events, which scientists predict will become more frequent and more extreme as the concentration of greenhouse gases (GHGs) in the atmosphere continues to rise.
Hurricane Harvey caused refineries and ports to shut in Texas and Louisiana, taking off line about a quarter of U.S. refining capacity, and there were fears of fuel shortages in Latin America after the hurricane shut in around 1 million barrels per day of U.S. gasoline and diesel exports typically destined for countries such as Mexico.
Climate change affects the industry in less direct and less obvious ways as well – in 2003, for example, a heatwave in Europe caused French and German nuclear power stations to shut down because the river water used to cool them was too hot for them to use.
A recent report from the Global Canopy Programme found that, while oil and gas companies in Texas were relatively unaffected directly by drought, their earnings were at risk from severe droughts in other parts of the U.S. because these droughts reduced economic activity and subsequently demand for fuels, just as this year’s hurricanes – and typhoons in Asia – have done.

The wider push to tackle climate change, driven by the Paris Accord and its calls to seek to limit average temperature rises to “well below 2°C,” is set to leave many oil and gas projects as stranded assets, says the Carbon Tracker Initiative, an NGO that deals with the financial implications of climate change.
It said, in a recent report, that five of the world’s six largest listed oil companies risk wasting more than 30 percent of possible spending on upstream projects that are high-cost and surplus to supply needs in a 2⁰C world. In total, it finds that $2.3 trillion of projects – roughly a third of business-as-usual investment to 2025 – is inconsistent with international objectives and rapid advances in clean technologies reducing demand.
Oil and gas companies must make their facilities and operations more robust to deal with the impacts of climate change, but they also need to make their business strategies better able to deal with disruptions to demand as well as supply.
There are signs that this is starting to happen with companies buying into clean energy and power storage technologies, and the Oil and Gas Climate Initiative, a group of 10 of the world’s largest energy groups, starting to put to work its $1 billion fund with its first three investments – in carbon capture and storage, low-emission cement production and high-efficiency engine technology.

READ MORE: The carbon climate solution by Michelle Leslie

about the author
Mike Scott
Journalist. Environment, Sustainability, Climate Change, Investing, Energy, Supply Chain, Transport, Circular Economy, Stranded Assets, ESG, Smart Cities, Wealth Management, Family Offices, Asset Management, EU.