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Fawzia Sheikh

Fawzia Sheikh

Fawzia is a contributor to Oilprice.com

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Oil and Gas Industry Weathers Shifting Climate

Often the green movement’s whipping boy, the oil and gas sector has no chance of escaping the scourge of climate change, an issue that everyone from international leaders to even Osama bin Laden are bemoaning these days.

From the conference halls of Copenhagen in December, to somewhere near the Afghan-Pakistani border in recent days, critics are sounding off about what the crossroads of lax industry ways and weak government rules has done to the environment.

While the oil industry itself “gets blamed” for helping to spur these dramatic climate shifts, “it’s a little unfair just to point the finger at them,” argued Sarah Ladislaw, a senior fellow in the energy and national security program at the Center for Strategic and International Studies in Washington.

In November, the advisory firm Acclimatise issued a report, supported by IBM, which knocked oil and gas companies for not taking the threat seriously enough.

Only 19 percent of firms are taking action against the harm incited by out-of-whack weather patterns on their business, even though more than three-quarters believe it may mean more downtime, system failures and safety problems, the assessment  charges.

The report’s main findings drew mixed reactions from experts, as some argued the petroleum industry has moved leisurely while others said it has indeed battled the problem.

Thawing slabs of ice and sun-drenched days can take their toll, and the oil giants are certainly not oblivious. But preparing for an evolving climate is a task unlike dealing with the oil patch’s usual brand of risk.

Certain long pipelines in typically cold places like Alaska, Russia or Siberia are at stake, Ladislaw noted, adding that melting permafrost weakens infrastructure.

Offshore drilling, too, leads to questions about whether the rigs and other facilities will “stand up to increasing storms, different sea-level rise,” she said.

And hot, arid locales, she added, have made water shortages an operational
headache for oil and gas companies.

Still, the upside is that oil and gas players have a reputation for being the ultimate risk-takers, venturing where other private-sector counterparts will not -- a mindset that has indeed toughened them.

From drilling in the North Sea, to operating in deep water in “offshore Brazil,” to learning how to tackle environmentally sensitive places “close to the Amazon,” the petroleum sector does not shy away from dicey situations, Ladislaw noted. Companies already consider their evolving operating environment since they are involved in projects for the long haul, she added.

In spite of the oil industry’s attention to climate-related hazards, it is still taking baby steps in gauging risk, contended Ladislaw. In some places, the petroleum sector has gathered an arsenal of information on trends, namely in northern climates like Russia, but not so in other areas with offshore drilling operations, she said. Companies are still hampered because they rely on climate models focused internationally rather than on a region “specific or relevant to a company,” she explained.

“I think it’s an emerging issue; I don’t think it’s a tremendously serious one for them yet,” Ladislaw argued, explaining swift investment decisions on the environment are unlikely when political concerns are still front and center. But, she said, this will change as insurers and investors clamor for more details about managing risk.

Yet, others counter this kind of thinking has already been embraced. The oil business has been preparing for several years, said Samantha Gross of IHS Cambridge Energy Research Associates in Washington, but added she would “hesitate to put a number on it.”

Some oil and gas firms now factor in a carbon price while analyzing projects, “even in places where there isn’t one,” as a way to inject concern about climate change into their businesses, explained Gross. “They’re using it to make decisions.”

Not only are oil giants shielding themselves from shifting weather conditions, they are also bracing for government environmental policies, Gross noted. She questioned how potential regulations will affect demand for oil and gas in the future.

The bottom line is these companies are making investments that will last for decades, forcing a long-term view on how they investigate and produce from a new oil field, Gross maintained.

That said, the oil and gas business may well bear the brunt of Mother Nature's moodiness better than most.

Anaylsys by. Fawzia Sheikh for OilPrice.com




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