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Energy Companies Could Feel The Effects Of Climate Change On Their The Bottom Line

Energy companies accused by environmentalists of causing climate change are spending billions of dollars to deal with its consequences.

“The climate is changing because of greenhouse gases, and that has a net negative effect on society and [companies] are doing something about it,” said Ashley Lawson, Senior Solutions Fellow on Policy & Resilience for Washington research giant Center for Climate and Energy Solutions (C2ES).

Each year, C2ES examines the impacts changing weather patterns—increasing hurricanes, wildfires, and droughts—are having on multinational, blue chip companies in the S&P Global 100 Index.

Researchers examine financial disclosures and interview company executives. They gauge company concern about the impact and risks of climate change. They even ask whether the company acknowledges the contentious issue.

“If you’re a petrochemical company in the Gulf Coast, you are worried about hurricanes. If you’re in California, you’re worried about droughts and water access to your operations. If you’re a mining company, and you have operations in the Arctic, you’re going to worry about permafrost melting,” Lawson said.

In its 2015 report, Weathering the Next Storm: A Closer Look at Business Resilience, C2ES president, Bob Perciasepe, and Alexandra Liftman, Global Environmental Executive, Bank of America found that 90% of S&P 100 index companies acknowledged extreme weather and climate change present a risk for their business.

But they also said climate risk is often “too difficult to assess because of the long time frames involved, the lack of location-specific data and scientific uncertainty…It is often difficult to generate the type of black-and-white data needed to drive action.”

Most of the S&P Global 100 companies--84 companies--discuss their “climate risk” concerns in C2ES annual survey.

Forty companies address “extreme weather and climate change” in their financial filings. About 47 address it in their sustainability reports.

All of these numbers are upwardly moving, Lawson said.

C2ES found that climate-related investments are often embedded in other risks companies already manage.

But some investment decisions are clearly linked.

For example, Hurricane Sandy cost utilities in New Jersey about $1.8 billion in repair and response costs.

“Because of [Hurricane] Sandy [in 2012], some [refiners on the East Coast] raised equipment to 500-year flood levels,” said Suzanne Lemieux, a manager in the American Petroleum Institute’s midstream industry operations group.

Some investments are not clearly linked to climate risk.

It can cost $1 billion to $2 billion for a refinery upgrade.

“If you’re making an enhancement in a refinery, it could be for operational efficiency, risk mitigation and/or competitive advantage. Those all factor into a company’s investment decision,” Lemieux said.

API represents 600 companies across the oil and gas industry. Each company will make those decisions about risk mitigation and management internally and they may or may not distinguish what upgrades or changes they are making because of weather events.

Energy and environment go hand in hand

“Disruptive climate change forces energy companies to take a hard look at changes they must make to become part of the solution,” Ben Ratner, senior director with the Environmental Defense Fund’s EDF+Business, said.

EDF says it works energy companies including Shell, Exxon Mobil and Schlumberger to find “innovative, science-based solutions to environmental challenges – and to advance the market for continuous monitoring and mobile methane monitoring technologies.”

Oil giant Chevron Corporation is the largest oil and gas producer in the Gulf of Mexico and no stranger to the cost of increasing weather events.

After hurricanes Katrina and Rita in 2005, the company lost $1.4 billion in the second half of 2006 because of reduced production and added costs for repairs and maintenance for both offshore and onshore facilities.

Chevron admits its Arctic operations have suffered because of increasing global temperatures.

In a report to the Center for Climate and Energy Solutions (C2ES), the company said changes in snow and ice could cause “disruptions to transportation routes in the Arctic…a reduced number of ice roads in the Arctic would reduce the number of days available for construction and transportation of products.” Disruption to transportation would limit production capacity and potentially increase operational costs.

Chevron’s Chairman and CEO, Mike Wirth, is not unclear in the company’s sustainability report. “We proactively consider climate change risks and opportunities in our business decisions,” he writes.

“For example, to protect the facilities against possible storm surges, we spent $120 million on raising a dike at our Pascagoula, Mississippi, refinery and $16.2 million to construct a seawall at our Port Arthur, Texas, lubricants plant,” Wirth said in the report.

A flood gate and seawall that will be increased is shown near a refinery Thursday, July 26, 2018, in Port Arthur, Texas. The oil industry wants the government to help protect some of its facilities on the Texas Gulf Coast against the effects of global warming. One proposal involves building a nearly 60-mile “spine” of flood barriers to shield refineries and chemical plants. Many Republicans argue that such projects should be a national priority. But others question whether taxpayers should have to protect refineries in a state where top politicians still dispute whether climate change is real. (AP Photo/David J. Phillip)

 

Late last month, Chevron launched Chevron Technology Ventures to dole out the initial $100 million from its new Future Energy Fund, which the company says will invest in “breakthrough” and “disruptive” technologies across the energy landscape that would help lower carbon emissions from production and development.

This month, Chevron’s new group and Saudi Aramco Energy Ventures helped Clark Valve raise $15.5 million to build industrial shutter values that are smaller, lighter and a fraction of the cost of legacy valves to capture fugitive methane emissions from natural gas facilities.

“To prepare for the future, the work starts now,” Chevron Technology Ventures president, Barbara J. Burger, said in a statement.

New York v. Exxon Mobil

This week the New York attorney general filed a lawsuit accusing oil giant Exxon Mobil of downplaying the risks of climate change on its business, but the company has been addressing climate risk for years.

According to C2ES 2015 report, Weathering the Next Storm: A Closer Look at Business Resilience, resilience is embedded in Exxon’s corporate ethos.

“And while the current scientific understanding of the likelihood, magnitude, frequency or geographic distribution of weather events resulting from climate change presents planning challenges, Exxon Mobil’s systems enable the company to manage a wide variety of possible outcomes over the coming decades,” C2ES researchers wrote.

 

Exxon Mobil Chairman and CEO Darren Woods says as much in the company’s 2017 Sustainability Report and in his blog last year where he supported the U.S. staying in the Paris Accord.

And this year, the company began publishing an Energy and Carbon Summary to show shareholders company progress on managing climate risk and responding to shareholder concerns.

The oil giant’s chief executive talks a lot about emerging technology to improve production and delivery of resources, and he joined the Climate Leadership Council and signed onto the Climate and Clean Air Coalition’s global Methane Guiding Principles.

Going farther together

While some companies are weathering the storm alone, others are joining coalitions.

Chief executives from 13 global oil and gas companies which represent 30% of global production have raised more than $6 billion for low-carbon technologies and R&D.

They’re part of the Oil and Gas Climate Initiative (OGCI), a voluntary group that wants to meet the goals set out in the Paris Accord. They want to do three things—reduce methane leakage, reduce CO2 and recycle CO2 in the form of carbon capture, utilization and storage (CCUS).

And the bottom line

C2ES Lawson said companies and industry have not aggregated the cost of climate change risk adaptation, but the dollars are in the billions.

C2ES said Hurricane Isaac in 2012 damaged Entergy’s distribution infrastructure, and restoration costs were nearly $400 million.

After Exxon Mobil’s pipeline beneath the Yellowstone River in Montana was damaged by flood debris, it spilled oil into the area, all of which cost the company $135 million in property damage.

Because of Tropical Storm Karen in 2013, Hess suspended production on one of its Gulf Coast platforms, a step that reduced production by 130 thousand barrels of oil equivalent, with a market value of about $9 million.

C2ES plans to issue its next report with updated numbers this fall.

This month, the Intergovernmental Panel onClimate Change (IPCC) warned the world that rising global temperatures and sea levels and melting Arctic ice caps would continue to wreak havoc on the world in the form of frequent and intense storms.

In its report“Global Warming of 1.5 degrees C,” nearly 100 authors and reviewers from 40 countries said the energy industry must reduce emissions and transition to curb the effects of climate change, which is costing these companies and energy consumers millions of dollars each time there’s a major storm or wildfire.

The Securities and Exchange Commission said companies should also report what they’re doing in that regard.

In February 2010, the SEC issued “Commission Guidance about Disclosure Related to Climate Change” which assumes companies’ business plans and bottom lines do suffer and should respond to the risks of climate change.

The SEC said its guidance is “intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors.”

But not all companies report climate risk the same way, and the degree of detail varies drastically among those that do, Lawson said.

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