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November 3, 2009

Climate Change Poses Threat to Oil, Gas Industry

About three-fourths of global oil and gas firms say they believe that climate change could cause business downtime, system failures and safety risks, yet just 19 percent say they are taking action.

“Our environment is changing and any impacts will be felt across the world putting consumers at risk of a reduced power supply and an increase in prices,” said Allan Roberts, Industrial Strategy and Change Leader, IBM UKI Global Business Services.

The report (PDF), “Global Oil & Gas – The Adaptation Challenge,” made note of five top industry impacts from climate change:

• Increased pressure on water resources: Concerns over changing rainfall, water shortages, poor water quality, drought and flooding will increase the demand for water, which may cause operational problems for companies which rely on water for oil and gas production. Only 6 percent of respondents reported knowledge of potential civil and geo-political risks.
• Physical asset failure: Many exsisting plants and equipment have been designed on the basis of historic climatic conditions and may not withstand changing environmental conditions. Just 6 percent of respondents said they were taking actions to manage disruptions to off-site utilities, including energy, communications, water and waste treatment.
• Employee health and safety risks: Volatile working conditions in extreme environments and sub standard physical assets may impact the health and safety of employees. In such a case, employer and public liability insurance cover may be compromised.
• Drop in value of financial assets: To meet the growing demand for energy, oil and gas companies need to continue securing investment for new exploration. Potential investors and stakeholders are placing greater importance on the business impacts of climate change as the risks impact cost and revenue drivers. The current reported value of proved reserves may also be affeced by companies failing to take into account the full impact of climate change.
• Damage to corporate reputation: As knowledge and awarenesss of climate change grows, any failure to monitor and report on the impacts of climate change on social and ecological resources is likley to harm a company’s reputation.

The report recommends that companies analyze their non-market strategies and asset lifecycle management to determine how resilient they are to climate change.

IBM based its analysis on 128 responses to the Carbon Disclosure Project’s annual request for investor information from leading oil and gas companies.

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