Crystal balls and current affairs: the financial challenge of a changing climate to the oil and gas industry
Adam DavisKPMG.
The APPEA Journal 55(2) 490-490 https://doi.org/10.1071/AJ14125
Published: 2015
Abstract
Despite debate, the fact remains that the climate is changing. When considering the factors that determine potential financial impacts and losses that upstream oil and gas business could suffer due to a changing climate, the issues may primarily appear to be related to weather and geography. On closer examination, the factors that determine the severity of the impacts and losses are largely determined by the design and interdependencies of the financial and economic mechanisms of risk management. There is an increasing consensus in the insurance industry that the challenge presented by climate change, along with the increasing power of climate models, will result in far-reaching changes to the presently accepted practices of risk transfer. This extended abstract describes the increased power of climate models and the improved understanding of the present levels of under-adaptation when viewed from the position of investors in large-scale and long-lived oil and gas assets in Australia. It then looks at risk transfer models and examines potential limitations that have been identified due to the focus on ad-hoc post-disaster recovery when compared to a cost-effective pre-disaster resilience approach. The extended abstract then discusses how changes in the risk transfer approach could affect the financial aspects of an oil and gas business, such as the cost of borrowing, self-insurance, capital allocation and planning.
Adam Davis is an associate director and head of climate adaptation and resilience as part of KPMG’s climate change and sustainability services team. He is a certified environmental practitioner and member of the Environment Institute of Australia and New Zealand and a Green Star Accredited Professional with more than 20 years’ industry experience. Adam holds a Masters in Environmental Management from Macquarie University, Sydney, and a Bachelor of Applied Science from the University of Western Sydney. Adam is a practitioner in climate resilience planning and preparedness. He has provided advisory services for a number of resource, infrastructure, property, finance and government sector clients on the risks and opportunities associated with climate change; these include resilience of operations, value chains, assets, products and services, network interdependencies, key stakeholders, strategic direction and investments. Adam is a non-executive director on the board of Green Cross Australia, as well as being engaged as Green Star faculty member for the Green Building Council of Australia as their climate resilience subject matter expert. |
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