Climatechange2013

www.ipieca.org

Addressing adaptationin the oil and gasindustry

The global oil and gas industry association for environmental and social issues

5th Floor, 209–215 Blackfriars Road, London SE1 8NL, United KingdomTelephone: +44 (0)20 7633 2388 Facsimile: +44 (0)20 7633 2389E-mail: info@ipieca.org Internet: www.ipieca.org

© IPIECA 2013 All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in anyform or by any means, electronic, mechanical, photocopying, recording or otherwise, without theprior consent of IPIECA.

Addressing adaptationin the oil and gasindustry

Photographs reproduced courtesy of the following: cover, top left: Bikeworldtravel/Shutterstock.com; cover, topcentre: jan kranendonk/Shutterstock.com; page 2: WIANGYA/Shutterstock.com; Figure 3, bottom right:Tracing Tea/Shutterstock.com. All other photographs courtesy of Shutterstock.com.

IPIECA

Contents

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

Executive summary 1

Introduction 2

Risk identification 4

Risk evaluation/assessment 6

Risk management 8

Reflection 11

Workshop programme 12

References 14

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

1

As responses to climate change impactsextend beyond greenhouse gas (GHG)emissions mitigation, governments andcompanies increasingly recognize the need tointegrate adaptation planning andimplementation into balanced risk

Executive summary

Summary of key observations

1. Risk management is integral to business decision-making frameworks in the oil and gasindustry.

2. Adaptation in climate risk management involves:• identification and evaluation of risks;• development of risk mitigation and management strategies; and• implementation of strategies.

3. Oil and gas companies continue to adapt to climate risks.

4. The oil and gas industry assesses a range of current and future climate change-related risksto its operations, infrastructure and value chains. These include risks such as climatevariability, floods, sea level rise, extreme events, species migration shifts, permafrostthawing and water availability.

5. As many impacts are local and projects unique, local adaptation assessments enable theidentification of appropriate design and operational action.

6. Projections indicate that changes to climate and climate variability over the next 30–40years will be similar regardless of mitigation scenarios. Over this timeframe, adaptation toclimate change will likely take place in addition to, or regardless of, any mitigation efforts.

7 There is uncertainty over climate variability and significant divergence in projectionsbeyond 2040–50. Flexible and robust design coupled with adaptive management practiceswill be critical for managing climate risks and adapting to a range of impacts.

8. Adaptation measures are being implemented by private actors; the private sector is bestplaced to adapt its own infrastructure and operations to manage climate risks.

9. Lessons learned, and long shared within companies, are now being reported externally viastakeholder disclosure processes. Sharing with other industries, governments and societycan broaden recognition and understanding of climate change risks, and can highlightadaptation options which may be easer to implement.

10. Governments have an important role to play in developing and protecting criticalinfrastructure and land use, promoting research to enhance climate science understandingand engineering solutions, and strengthening observation networks for weather andclimate variations.

management strategies. This report examinesoil and gas industry awareness of climatechange-related risks, and identifiesappropriate responses and ways in whichthese responses are being integrated intobroad risk management frameworks.

Introduction

IPIECA

2

Structured to provide an overview of theadaptation planning process, the reportincludes: examples of climate risks identifiedby the oil and gas industry; an outline of risk-evaluation processes related to specificpotential impacts; and in-use examples of riskadaptation and management.

To help inform risk management processes acrossthe industry, IPIECA organized a workshop thatbrought together experts from academia, theinsurance industry, a GHG emissions disclosureorganization, engineering consultants,government research organizations, and the oil

While a significant amount of attentionsurrounding climate change has been focusedon mitigation strategies, a growing perspectivehas re-emerged on the necessary role ofadaptation for climate risk management, in thecontext of society, infrastructure and

ecosystems. Understanding climate changerisks and opportunities, and ways toincorporate them into broader riskmanagement systems, is an integral part ofthe oil and gas industry’s framework forbusiness decisions.

and gas sector. Participants discussed the roleof adaptation in climate risk management forsociety, ecosystems, and the oil and gas industry.This report builds on the workshop’s findings.

The workshop and this publication are part ofIPIECA’s long-term initiative to promote bothclimate change understanding andengagement in developing solutions formitigating risks to society and to the oil andgas industry. The workshop presentations—and all other IPIECA publications on climatechange—can be downloaded from the IPIECAwebsite at www.ipieca.org.

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

3

Developing an adaptation plan as part of aclimate risk management strategy requires firstidentifying and evaluating the projections ofpotential impacts, the uncertainty involved,and how these projections modify currentoperating environments (see Figure 1). At thecompany level, a multidisciplinary team ofstakeholders must be engaged inunderstanding vulnerabilities, evaluating risk,and providing feedback on the applicability ofthe proposed implementation plans. Whilstuncertainty surrounding projections fromclimate science will likely remain for theforeseeable future, investment decisions willneed to be made by industry in the interim.With appropriate information, the oil and gasindustry can conduct an assessment toevaluate where climate risks exposevulnerabilities in business operations andassets. Understanding these vulnerabilitiesleads to the development and implementationof adaptation strategies aimed at managingthe risks. Subsequent efforts to monitor and

evaluate risks, as well as apply adaptivemanagement responses, allow for the continualmanagement and mitigation of risk. Inpractice, there may be iteration between thesesteps as learning increases about the risks andthe effectiveness of the plans and actions.

Identification ofrisks and

vulnerabilities

Planning, assessmentand selection

of options

ImplementationMonitoring andevaluation

Revision of strategyand research; sharing

lessons learnedStakeholderengagement

Figure 1 Generalized adaptation process

Sour

ce: B

ierb

aum

, et a

l.20

12

tem

pera

ture

incr

ease

rela

tive

to 1

980–

1999

(°C

)

0

2

3

4

7

1950 2000

5

6

21002050

1

The bars to the leftrepresent uncertaintyranges around the2090–2099 globalaverage temperature

RCP8.5

RCP6.5

RCP4.5

RCP2.6

IPIECA

4

Climate change poses risks to society,infrastructure and ecosystems that vary acrossregions and arise from a diverse set of climatefactors. Despite uncertainty in climate variabilityand diversity of future projections, indicationsare that additional changes to climate and itsvariability over the next three to four decadesare inevitable regardless of mitigation scenarios(see Figure 2). Over this timeframe, adaptationto changing climates is likely to take placeanyway irrespective of, or in addition to, anymitigation efforts. Identifying the risks of climatechange to industry operations and assetsprovides an opportunity to develop businessplans aimed at minimizing disruptions.

While temperature variations are the primaryconcern associated with climate change, theimpacts associated with these changes, whichinclude water scarcity, flooding, extremeweather and temperature events, sea level riseand food security, will likely be some of the mostimportant effects for the oil and gas industryand society at large. The uncertainty in

projecting future climate change, includingchanges in temperature and weather extremes,remains substantial, particularly for work thatseeks to inform adaptation options on a localscale. Identification of climate risks thereforerequires utilizing the range of projectedoutcomes, which may or may not have acommon directionality to it (and which will varyby region of interest), to formulate amanagement plan.

Risk identification

Figure 2 Historical and projected global surface temperatures for a range of future emissions scenarios

Source: adapted from a figure in Rogelj et al.,

2012 (doi:10.1038/nclimate1385):

www.nature.com/nclimate/journal/v2/n4/full/

nclimate1385.html?WT.ec_id=NCLIMATE-201204

Changes in climate

Changesin temperature

Global and localsea level rise

Regional changes inice/snow/permafrost

Exploration

• Subsidence• Wave loading• Loss of surface

water access• Delays due to

species migration

Production

• Early season delays• Pad damage• Loss of surface

water access• Production

interruptions• Ice road—decreased

tundra travel

Transportand terminals

• Ice-load variation• Damage to

coastal facilities• Shipment

interruptions• Improved or

reduced shippinglanes or seasons

Pipelines

• Thaw subsidenceand frost jacking

• Wildfires

Refiningand processing

• Loss of accessto water

• Flooding• Loss of peak

cooling capacity

Neighbouringcommunities

• Loss of speciesand habitat

• Water• Storm impacts on

key infrastructure

Potential risks

Changes inprecipitation

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

5

The oil and gas industry is identifying a rangeof risks from current and future climatevariability (e.g. floods, sea level rise, extremeevents, migratory shifts of species, permafrostthawing, water availability, etc.) to theiroperations, supporting infrastructure and thevalue chain (Figure 3). Examples include:● reduced window of time for tundra travel

due to increased permafrost melting;● increased lightning strikes in northern

latitudes, potentially causing damage toinfrastructure and impacts on communities,particularly where electrical grounding islacking or there is a greater susceptibilityto wildfires;

● increased coastal erosion leading to adegradation of coastal barriers;

● changes in storm strength leading toincreased wind speed and wave loading onoffshore facilities;

● regional changes in precipitation patternand frequency, altering the availability ofwater resources for operations andsusceptibility to flooding of infrastructure;and

● reduced certainty regarding assumptionsmade about the efficiency of equipment,such as gas turbines.

An important consideration is to understand theclimate risks to neighbours and communitieswho are outside the fence of a given company’soperations and facilities. Oil and gas operationscan be reliant on community infrastructure,

Figure 3 Potential risks to oil and gas operations from changing climate

Sour

ce: a

dapt

ed fr

om J

an D

ell’s

pre

sent

atio

n

clim

ate

varia

ble

past present futureimplement adaptationmeasures

planning time horizon

critical threshold

stationary climate changing climate

coping rangeplus adaptation

coping range

vulnerability

IPIECA

6

including electricity systems and infrastructurefor water, transportation and communication atregional and urban scales. Investments to adaptinside the fenceline may have limited value ifsurrounding communities and infrastructure are

not resilient. Working with local government inidentifying vulnerabilities in the surroundingcommunities is also important from a staffingperspective, as this is where employees andtheir families usually reside.

Risk evaluation/assessment

Climate projections suggest that the futureclimate will be one in which various thresholds(e.g. temperature) will be exceeded on a moreregular basis (Martin Parry’s presentation—IPIECA, 2012; NOAA, 2012), thereby puttingsociety at a greater risk of experiencing variousoutlier1 events. (See Figure 4.) The oil and gasindustry currently operates in a range ofenvironments that are subjected to extremes(e.g. the arctic, deep water, hot arid regions,

etc.). Therefore, it is valuable for the industry toassess how climate change may alter the riskspresented by these already challengingenvironments.

While climate change may have local benefits insome regions, adaptation planning is generallyfocused on understanding the risks frompotentially hazardous situations. The process ofrisk assessment will involve understanding how

Figure 4 Coping ranges, critical thresholds and vulnerabilitySo

urce

: Ric

hend

a C

onne

ll pr

esen

tatio

n

1 Outlier events are those considered to be beyond the extreme, i.e. events that are greater than two or three standard deviations from the average.An example would be the 2003 European summer heatwave, with temperatures a full six standard deviations from the norm.

vuln

erab

ility

high

med

ium

low

low frequency/severity

medium frequency/severity

high frequency/severity

adaptationplan

climatechange

risk = hazard x vulnerabilitylow high

hazard severity

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

7

climate change will alter the severity of a givenhazard by changing its severity frequencyand/or intensity (see Figure 5). The remainingcomponent of such an assessment is thedetermination of a project’s vulnerability to thehazard. The climate risk is then characterizedby combining the hazard severity due toclimate change with the asset’s vulnerability tothis hazard. The associated adaptationresponse would therefore attempt to reduce therisk due to a change in climate by reducing thevulnerability of an operation or facility.

Impacts are local and projects are unique,hence risk assessments and adaptationplanning should be performed at the local levelto identify design and operational actions.Important parameters that can go into anassessment of climate risks include:● the location of the operation and/or facility;● the type of facility (e.g. offshore platform,

pipeline, refinery);● facility design (e.g. appropriateness of

codes and standards);● the project lifetime;

● current environmental baseline conditions(e.g. ecosystem status; water availability);

● historical and current observations ofclimate variability; and

● the projected change in climate andenvironmental conditions, and the rate atwhich this will occur.

Figure 5 Climate risk assessment matrix

Sour

ce: a

dapt

ed fr

om A

lison

Bro

wn’

s pr

esen

tatio

n (s

lide

11)

IPIECA

8

The oil and gas industry develops and deploysrisk management practices for many of therisks, both above and below ground, that areubiquitous in business operations. Changes inclimate could add another dimension ofcomplexity to these risks. Climate riskmanagement therefore looks to developadaptation plans that will mitigate and managethe risks identified and evaluated as beinghazardous to business operations and facilities.

The process of identifying and assessing climaterisks associated with a project can lead to adetermination of ‘no-regrets’2 adaptation plans.These no-regrets plans can define low costactions to design resiliency into new projectsand existing operations. As already noted, theuncertainty ranges of future climate projectionsincrease significantly beyond the next three tofour decades. Therefore, flexible but robustdesigns, together with adaptive management

Risk management

For example, a local change in precipitationfrequency in the future may alter local wateravailability and the potential for flooding, but ifthe project lifetime is short, the associated riskmay be lower than a specified threshold.Alternatively, the current change in lightningstrikes at high latitudes, coupled with a lack ofelectrical grounding or susceptibility to wildfires,may be identified as a high risk to regionaloperations for a relevant location and timescale.

Assessment of climate risks allows companies toplace the potential for business interruptionsdue to changes in climate alongside the otherrisks inherent in the oil and gas industry. Thepotential for overlap in these business andclimate-related risks may make an integratedapproach preferable. However, whether theseassessments are run concurrently with otherstandard risk assessments, or as a stand-aloneclimate assessment, should be decided by theindividual company.

With the arrival of new science, the assessmentof climate risks will continue to be updated inthe context of the criteria listed above. Animportant connection could be made betweenthe atmospheric and oceanographic scientificcommunities and the classification societies(e.g. Det Norske Veritas—DNV) to facilitatehow the science may influence rules andstandards for infrastructure that could applyacross the industry.

2 ‘No-regrets’ activities are those which offer mitigation of the risk, but would still be a chosen option even if the risk does not materialize.

diversification

risk management system

emergency/crisis planning

economic evaluation of projects

project design and location planning

maintenance/operating plans

water management

insurance hedging

supporting research

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

9

practices will be critical for managing climaterisks and adapting to a range of impacts.

The oil and gas industry continues to adapt toclimate risks by employing a myriad of riskmanagement strategies (Figure 6), for exampleidentifying alternative personnel and supplytransportation methods to avoid disruptions. Abroader form of energy supply diversification isoccurring across the oil and gas industry withthe development of new shale gas and tight oilresources, in a wider number of geographicalareas, that can mitigate supply disruptionsassociated with severe weather events offshore.

Project design planning for offshoreinfrastructures could incorporate ‘metocean’projections of future climate conditions (e.g.

Figure 6 Incorporating climate change risk into key business decisions and practices

Source: Michelle O’keeffe (CDP) presentation, based on CDP Questionnaire response. Qualitative responses were analysed for a set of commonly identifiable ‘practices’, thenthe number of occurrences of each practice counted across all responses. NB: any single company response may have mentioned a number of different practices.

IPIECA

10

wave and wind speed conditions) at the outsetof development. These could inform not only thedesign of the assets, but also their mostappropriate location and the emergencyprotocols required to keep personnel safe andavoid incidents. Insurance against weather-related risks may be a viable option for smalleroil and gas companies. Risk managementsystems can incorporate protocols andprocedures to deal with unforeseen incidentsand to periodically re-evaluate climate risks.

Companies responding to the CarbonDisclosure Project (CDP) disclose the strategies,both undertaken and in development, to dealwith current and future climate variability.According to the 2011 results, 75% ofresponding oil and gas companies identified(one or more) significant physical climatechange risks, with 96% of those physical risksbeing seen to have an impact on thecompanies’ own operations (and the rest onthe supply chain). Physical risks from cyclones,

sea level rise, and snow and ice were mostcommonly identified as high significance risks.Oil and gas companies stated that theyintegrate climate risks into their businessstrategy, although most of the companies didnot specifically mention ‘adaptation’.

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

11

Reflection

The oil and gas industry is continuing to adaptits operations, facilities and risk managementpractices to deal with climate risks. Climate riskmanagement and implementation of adaptationactions will require increasing internalcapability, as well as enhancing the knowledgebase of management personnel, designengineers and contractors. In addition, it mayalso require significant capital investments (forexample plant modifications), particularly in thelonger term. Adaptation planning for climaterisk management involves identifying andevaluating risks, developing strategies tomitigate and manage risks, and subsequentlyimplementing these strategies. Given theuncertainty and evolution of knowledgeregarding climate impacts, the industry willcontinue to re-evaluate its preparedness tomanage climate risks alongside the otherinherent risks the oil and gas industry faces ona day-to-day basis.

Adaptation actions are being taken up byprivate actors, and the oil and gas industry isbest placed to adapt their own infrastructureand operations to manage climate risks.Lessons learned and best practices are beingshared within companies, and are now beingreported externally via stakeholder disclosureprocesses (for example the Carbon DisclosureProject). Sharing with other industries,governments and society can broaden eachorganization’s recognition and understandingof climate risks, and avoid missing easyadaptation options.

Beyond private actors, governments will alsohave important roles in adaptation planning.Certain critical infrastructure (for example

roads, bridges, water infrastructure) and landuse development are in the domain ofgovernment regulation, and will thereforerequiring planning, coordination andimplementation by the relevant governmentauthorities. Scientific research (receiving bothgovernmental and non-governmental support)should prove valuable for enhancingunderstanding in climate science as well asdeveloping engineering solutions. Continuedsupport of observational networks of weatherand climate variables should be important forboth short- and long-term predictability ofclimate-related risks.

Addressing adaptation in the oil and gas industryAn IPIECA Workshop, London, UK, 9 October 2012

IPIECA

12

Workshop programme

● Welcome

Chair: Rebecca Heaton, Shell

● Introduction

Workshop Chair: Billy Landuyt, ExxonMobil

● Session 1: Adaptation and climate change risk management

Chair: Billy Landuyt, ExxonMobil

• Impacts of climate change and the challenge for adaptation (Martin Parry, Grantham Institute, Imperial College)

• Economics of adaptation (Richard Tol, University of Sussex)

• Discussion

● Session 2: Assessing risks and opportunities for the oil and gas sector

Chair: Laura Verduzco, Chevron

• Impacts to industry and oil and gas (Jan Dell, CH2M Hill)

• Impacts and strategies for energy infrastructure (Tom Wilbanks, Oak Ridge National Laboratory)

• Discussion

● Session 3: Managing risks to the oil and gas sector

Chair: Mark Johnston, BP

• Risks of physical climate change (Andreas Spiegel, SwissRe)

• Approaches to adaptation (Michelle O’Keeffe, Carbon Disclosure Project)

• Building climate resilience in the oil and gas industry: practical experiences(Richenda Connell, Acclimatise UK)

• Adapting to climate change: a regional climate model study of the Caucasus(Ralf Toumi, Imperial College)

• Discussion

ADDRESSING ADAPTATION IN THE OIL AND GAS INDUSTRY

13

● Session 4: Industry case studies

Chair: Rebecca Heaton, Shell

• Gulf coast and arctic asset studies (Karl Fennessey, ConocoPhillips)

• Research and development initiatives on impact vulnerability adaptation (Chris Campos, Petrobras)

• Assessment of risk of impacts to assets (Alison Brown, Shell)

● Discussion panel

Chair: Arthur Lee, Chevron

• Participants: Alison Brown, Shell; Chris Campos, Petrobras; Richenda Connell,Acclimatise UK; Jan Dell, CH2M Hill; Karl Fennessey, ConocoPhillips; Richard Tol,University of Sussex; Tom Wilbanks, Oak Ridge National Laboratory.

All presentations are available from the workshop webpage:

www.ipieca.org/event/20120621/addressing-adaptation-oil-and-gas-industry

IPIECA

14

References

IPIECA (2012). ‘Addressing adaptation in the oil and gas industry’. An IPIECA workshop.www.ipieca.org/event/20120621/addressing-adaptation-oil-and-gas-industry

NOAA (2012). National Oceanic and Atmospheric Administration (NOAA), U.S. Climate ExtremesIndex 2012, National Climatic Data Center. www.ncdc.noaa.gov/extremes/cei/graph/1/01-12

Bierbaum, Rosina et al. 2012. A comprehensive review of climate adaptation in the United States: morethan before, but less than needed. Mitigation and Adaptation Strategies for Global Change, March2013, Volume 18, Issue 3, pp 361-406. http://rd.springer.com/article/10.1007%2Fs11027-012-9423-1#

IPIECA also has an active global network of oil and gas industry association members.Please refer to our website for a full list.

Members

Addax Petroleum

BG Group

BP

Chevron

CNOOC

ConocoPhillips

EDF

eni

ExxonMobil

Hess

Hunt Oil

Husky Energy

INPEX

KPC

Mærsk Oil

Marathon Oil

Nexen

Noble Energy

NOC Libya

Occidental

OMV

Petrobras

Petronas

Petrotrin

PTT EP

Qatargas

RasGas

Repsol

Saudi Aramco

Shell

SNH

Statoil

Talisman

Total

Tullow Oil

Woodside Energy

IPIECA is the global oil and gas industry association for environmental and social issues. Itdevelops, shares and promotes good practices and knowledge to help the industry improve itsenvironmental and social performance, and is the industry’s principal channel of communicationwith the United Nations.

Through its member led working groups and executive leadership, IPIECA brings together thecollective expertise of oil and gas companies and associations. Its unique position within theindustry enables its members to respond effectively to key environmental and social issues.

www.ipieca.org

IPIECA5th Floor, 209–215 Blackfriars Road, London SE1 8NL, United KingdomTelephone: +44 (0)20 7633 2388 Facsimile: +44 (0)20 7633 2389E-mail: info@ipieca.org Internet: www.ipieca.org

© IPIECA 2013 All rights reserved.