Visualise your climate change risk exposure at an asset-level

What percentage of your hydrocarbon production and reserves are vulnerable to climate change?  Which specific assets are particularly exposed to extreme climate change risk? And how does this affect social responsibility?  

This article will help you:

  • Visualise your climate change risk exposure at an asset-level
  • Benchmark yourself versus your oil & gas peer companies
  • Facilitate proactive planning, possible mitigation and targeted engagement with local communities

The IPCC's special report released in October warned governments that the globe could reach the critical 1.5 degree above pre-industrial threshold as soon as 2030, accelerating extreme climate events.  For oil and gas companies eager to grasp their inherent risk exposure to climate change, our new Corporate Exposure Tool (CET) generates a quick asset-level view and facilitates benchmarking with peer companies. 

Using the CET, we generated a heat map of Climate Change Exposure Index at a portfolio-level.  We identified the country exposure to the physical impacts of climate extremes and future changes in climate over the next three decades.

Climate change risk exposure with a corporate lens

Quickly assess your climate change risk exposure for your entire portfolio with a few clicks using our CET.

Highest levels of risk: Smaller companies that were geographically concentrated in areas registering extreme climate risk exposure. Oil Search, for example, is currently only producing in Papua New Guinea.

Low inherent risk: Conversely, companies such as YPF and Gas y Petroleo de Neuquen in Argentina, scored minimal risk because of the low inherent risk registered where they operate in South America. 

Medium levels of risk: Larger companies that are more diversified or operating in areas with less inherent risk to climate change exposure, recorded medium risk such as Wintershall and ConocoPhillips.

Climate change risk exposure – distribution by corporates

Climate change risk exposure by corporation

For firms in parts of the world exposed to high or extreme climate change risk, the subsequent effects are connected and complex. Gaining a view of local natural hazard conditions at the asset-level is critical.

Case study: Hurricane Harvey

Hurricane Harvey triggered record rainfall and subsequent flooding in August 2017. Not only were offshore operations in the Gulf of Mexico affected, but also onshore tight oil plays in the nearby Eagle Ford formation in South Texas. According to our sister company Wood Mackenzie, at its peak, 800 mb/d of oil production was shut-in as well as over 3 bcf/d of gas. This cascaded into financial impacts for operators and in some cases, legal implications.  Residents in the town of Sweeny sued a refinery and petrochemical plant alleging that the company re-directed waters away from the facility which exacerbated local flooding in the area.

Such incidents can quickly escalate into reputational and social risk issues for exposed companies.   

Case study: Colombia's Llanos Basin

In the case of drought, we identify the assets most vulnerable in a company's portfolio that will exacerbate concerns about water use. Colombia's Llanos Basin experienced an acute drought in 2014 following El Niño, which resulted in local unrest and added scrutiny on oil and gas companies operating in the Casanare area. Colombia's NOC, Ecopetrol, was particularly exposed with 3% of their oil and gas fields located in extreme risk, while 50% are in high risk drought-vulnerable areas.  Awareness of your risk at an asset level can lead to better water stewardship and improved communication with locals in anticipation of more frequent droughts.

Drought Hazard exposure – Ecopetrol

Drought Hazard exposure – Ecopetrol

Given the global data and analysis required to anticipate and manage risks related to climate change, oil and gas companies are well-positioned to take the lead on educating and engaging with local stakeholders.  Our CET can help you identify the specific climate change vulnerability at an asset-level to facilitate that conversation with communities. And identifying the inherent risk exposure is the first step to successfully mitigating these emerging risks.  Read more about meeting investor demands on climate change

RoseAnne Franco

Head of Oil & Gas Research