Climate change risks & opportunities
A decade ago, the BDO Natural Resources practice conducted a survey to assess the top 20 risks affecting the oil and gas industry.
Environmental guidelines were certainly toward the top of oil & gas executives’ concerns a decade ago. They worried about tighter safety and environmental regulation leading to higher compliance costs. However, this did not specifically mean climate change – it mostly related to ecological impact.
The one risk that was, and still is, universally recognized is material vulnerability to extreme weather conditions. Even in 2012, some 75% of oil & gas CDP survey respondents acknowledged physical climate risks posed the potential for substantial negative impact on their business.
It was widely understood that climate change and extreme weather could result in construction delays, production downgrades, blow outs or increased decommissioning costs, if poorly managed.
The table on the right shows the % agreement on climate risks identified by oil & gas executives in 2011. Percentages show the proportion of companies that cited a risk factor, and those highlighted in blue those that allude to climate change risks. However, only one risk explicitly mentions climate change. The next page features a summary of climate-related risks and their related opportunities.
Regulatory - Regulatory changes and increased cost of compliance - 100% - Environmental restrictions and regulations - 94% - Inadequate or unavailable insurance coverage - 87% - Impact of climate change and greenhouse gas legislation - 69%
Demand - General macro-economic concerns - 91% - General industry competition - 87% - Decrease in demand for oil or natural gas - 76% - Competition from alternative energy sources - 72%
- Volatile oil and gas prices - 100% - Inaccurate reserve estimates - 96% - Inadequate liquidity or access to capital, indebtedness - 95% - Credit or financial risk of partners, customers, vendors or suppliers - 75% - Increased operating costs - 67%
Operational - Inability to expand reserves or find replacement reserves - 98% - Natural disasters and extreme weather conditions - 96% - Operational hazards including blowouts, spills and injury - 97% - Reliance on third-party transportation and processing - 83% - Ability to attract or retain key personnel - 78% - Failure to properly execute corporate strategy - 73% - Shortage of rigs, equipment and personnel - 72%
Summary of oil & gas climate-related risks and their related opportunities
