Businesses could pay for failure of oil and gas companies to adapt to changing climate

The report – produced by climate change adaptation specialists Acclimatise, and backed by IBM – shows that, while more than three quarters of the world's oil and gas companies believe climate change could impact their businesses by increasing downtime, system failures and compromising safety, just 19 per cent are taking action to deal with the issues. 

Disruption of oil and gas supplies caused by climate change could have implications for all of us, according to Allan Roberts, industrial strategy and change leader, IBM Global Business Services, UK and Ireland, who said: “The oil and gas industry is an important contributor to our society and economy, so if anything impacts the industry it could well impact people at home, at work, on the move, or even their personal finances.”

He added: “Evidence in the report shows companies may not be fully appreciating the risks posed by climate change or have in place responses which are robust.”

Increasing pressure on water resources is identified by the report as one of the five main risk areas. It suggests growing competition for available resources could create operational problems for companies that rely heavily on water for oil and gas production.

The ‘risk landscape’ for oil and gas companies could also change if their demands on dwindling water resources puts them in conflict with local communities and other water users throughout the world, the report says.

Yet hardly any of the companies covered by the report appear to recognise these potential risks – only six per cent reported knowledge of potential civil and geo-political risks and three per cent identified adverse risks for local communities.

The risk of physical asset failure is another big issue for oil and gas companies. Many existing plants have been designed on the assumption that historic climate conditions will prevail, and they may not be capable of withstanding changing environmental conditions, the report claims.

Only six per cent of respondents indicated they were taking actions to manage disruptions to off-site utilities – such as energy, communications, water and waste treatment – caused by physical asset failure as a result of climate change.

The report notes that disruptions to transport links due to permafrost thaw are already having a significant impact, with companies having to hold and maintain larger on-site spare parts and materials stores, which in turn has an impact on operational costs.

“It is difficult to justify the position taken by any company that fails to assess the vulnerability of existing and future assets to acute and chronic changing climatic risks, given the information we now have,” said John Firth, ceo of Acclimatise. 

“Companies that develop an integrated approach, recognising that we no longer have a stable climate, will be the winners. This is not merely an environmental issue, it is about bottom line consequences and the future viability of oil and gas companies.”

The good news, according to the report, is that the oil and gas industry has demonstrated in the past its ability to innovate and adapt and “there is no reason why it will not continue to be a major contributor to society and the economy of the future”.

However, the rate of innovation will be determined by a number of factors, including the impact of climate change on operatinal costs, pressure from stakeholders and whether companies are given a strong legislative lead, the report says. 

The Aclimatise report 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 capitalisation).