www.advisian.com

Climate Change Adaptation and ResilienceWater in the Oil & Gas Sector

OutlineDefinitionsClimate change background Hazards, risks and opportunitiesDrivers for changeKey principlesAdaptation actions and resilienceIPIECA's support to industry

DefinitionsAdaptation makes changes to prepare for and negate the effects of climate change.Resilience is the desired outcome of adapting to cope with the effects of climate change.Mitigation deals with the causes of climate change and works to reduce man-made effects on the climate system.

Climate change – the "new normal"• Climate change has become a

reality• 2016 was the hottest year

on record, globally• 16 out of 17 of the hottest

years ever recorded have occurred since the year 2000

• Failure of climate change mitigation and adaptation was identified as the global risk with the greatest potential impact in 20161. Impacts of water crises ranked third.

Observed global mean annual (top) and decadal (bottom) surface temperature changes between from 1850 to 2012. Changes are relative to the mean of 1961−1990 (IPCC AR5, 2013).

1World Economic Forum (2016): Global Risks Report 2016

Two challenges: mitigation and adaptation• Mitigation through emission reduction will not be

sufficient on its own. • Adaptation to climate change will also be required to

achieve resilience.

• Increasing temperatures over land and sea

• Increasing risk of heat waves• Decrease in water quality• Rising sea levels• Changing rainfall patterns• Increasing storm intensities - storm

surge, wave heights

CONF

IDEN

CEHigh

Low

Climate change hazards

Flood riskGround stabilityDrainage capacityAsset integrityHVAC efficiencyEquipment reliabilityStorage/transportationProductivityEmergency planning

Water supplyGround stabilityPower supply

Transportation

Workforce H&S

Water supplyWater qualityVector borne diseasesCommunity health

Discharge limits

Water qualityErosionCoastal habitatsRegulation

Moving waterHeatingCooling

Power outagesHydropower

Risks and opportunities O&GAssets and operations

Logistics and supply chains

Community impact

Environmental performance Energy demand

Beyond Fenceline

In Fenceline

Wider Stakehold

ers

Risks and opportunities O&G

Advisian / 8

Area benefitting from adaptation actions

Area at risk pre- & post-adaptation

New area at risk post-adaptation

Flood riskCritical to understand impacts of adaptation actions.Adaptation actions should provide wider benefits:• Sustainable drainage

systems (SuDS)• Compensatory

storage• Flood storage

reservoirs can be used to enhance water supply

Drivers for change: water

Increased water security and competition for resources

Increased costs of water supplies

Costs associated with water efficiency measures

Costs associated with asset protection

Ensuring security of supply chain

Drivers for change: waterIncreased costs of water:• Water tariff increases 3.6% globally (large variation)1

• Penalties increased seven fold 2015-20162

1Global Water Intelligence’s 2016 Global Water Tariff Survey2CDP 2016 Annual Report of Corporate Water Disclosure

Impact of climate change: Projected annual losses from fluvial and pluvial flooding in OECD countries (Source: OECD (2016) Financial management of flood risk)

Drivers for change: water

Water scarcity: 30%-70% decrease in groundwater recharge by 20503 in semi-arid zones>50% of global population will be living in areas of severe water scarcity by 20501

Competition: Demand will be 40% greater than supply by 20302

Food security: Agriculture main user of water comprising 70% of withdrawals

Asset protection: Increased likelihood of extreme events (droughts and floods) affecting supply, business continuity and worker safety1Metals & Mining: a sector under water pressure, CDP 2013

2Sustainable Insight: Water Scarcity a dive into global reporting trends, KPMG 20123United Nations World Water Development Report 4. Volume 1: Managing Water under Uncertainty and Risk, 2012Konikow, 2011, Contribution of global groundwater depletion since 1900 to sea‐level rise Geophysical Research Letters, Vol. 38

Drivers for change: investors“Investors need to know that their holdings in water-intensive value chains in water-stressed regions are able to generate robust cash flows into the future.”HSBC, Water: resilience in a thirsty world, January 2013

5818

617

Number of countries with miti-gation and adaptation frame-

work laws or policies

Mitigation & adaptation frameworksMitigation framework onlyAdaptation framework onlyNone

CERES Investor Handbook for Water Risk Integration– Aqua Gauge financial risk tool

Key principle: coping ranges, critical thresholds and vulnerability

After Willows and Connell, 2003

Identifying coping ranges and critical climate-related thresholds is a vital step in understanding vulnerabilities and planning for adaptation

Key principle: climate extremes vs. incremental changes

Impacts of incremental, small, relatively slow changes should not

be ignored.

Key principle: flexible adaptation planning in the face of uncertainties

Flexible or “adaptive” solutions can work to limit risk

over timeAcceptable level of

risk

Time2017 2050 2100

Risk

Adaptation and resilience measuresEcosystem based adaptation

Engineered/hard structural solutions

Combination of green and grey measures

Changes in processes and procedures, developing emergency response plans

Data collection, research, monitoring, awareness raising

Stakeholder engagement, water stewardship

Updating design standards

Building adaptive capacity Delivering adaptation actions

Adaptation actions and resilienceProject examples

Engineering Solutions (Design)Location: Middle EastSector: HydrocarbonsRisk: Construction of critical assets and infrastructure in areas at risk of flooding.Approach: Quantification of impacts of climate change on future flood events. Assessment of impacts on critical infrastructure. Adaptation of design and emergency planning procedures.Outcomes: • Asset protection through hard engineering

(flood bunds and ground re-profiling) and land use planning (movement of at-risk assets)

• Emergency planning• Incorporation of actions in Environmental and

Social Management Plan

Economic securityLocation: Central AmericaSector: InfrastructureRisks: Strategically important port and a critical regional traffic hub at threat from climate change impacts across entire value chain –flooding, sedimentation, trade/economic impactsApproach:• Hydrological and oceanographic analysis of

future conditions• Financial and economic analysis of adaptation

(NPV)• Prioritization of adaptation actionsOutcomes: Adaptation plan

Training and GovernanceLocation: GlobalSector: HydrocarbonsRisks: Physical risk to assets and operations. Reputation.Approach:• Portfolio wide risk assessment and

adaptation plan• Revision of risk management policies and

codes• Training of key staffOutcomes: Adaptation plan

Location: Middle EastSector: HydrocarbonsRisk: Decrease in water quality and availability with climate changeApproach:• Evaluation of changes in future water

requirements and users• Determination of Total Economic Value of

water over 20 year timeframe• Assessment of investment case into re-useOutcomes: • Policy initiation - no groundwater abstraction

Water governance

Location: Southern AfricaSector: HydrocarbonsRisk: Construction of LNG terminal required resettlement of villagers. Future water availability at proposed locations a key consideration.Approach: • Assessment of climate change impacts on future

water availability and quality• Determination of saline intrusion potential and

extent• Development of water quality and quantity

mappingOutcomes: • Identification of exclusion areas for resettlement

based on future water availability

Water availability

Water availabilityLocation: North AfricaSector: HydrocarbonsProblem: Climate change projections indicated reduced water availability that may not meet unconventional gas project demandApproach: • Extrapolation of climate change predictions on

precipitation to impacts on water availability• Water demand prediction for two specific

exploration blocks • Climate change sensitivity analysis with water

balance prediction for three climate change case scenarios out to 2060

Outcome: • Groundwater wellfield• Resilience through additional source (dam);

engagement with catchment stakeholders

Location: EuropeSector: UtilitiesRisk: Notable risks to assets from climate change identified including flooding, erosion and impacts to supply chain.Approach: Development of climate risk mapping tool using high, medium and low emissions scenarios.Outcomes: Tools to support decision making on risk management relating to:• River bed and bank erosion exposing pipelines• Flash flooding impacting bridges carrying gas

mains• Flooding of assets• Impacts on critical supply chain• Contaminant mobilisation and migration

Masterplanning

Integrated planningLocation: South-East AsiaSector: Cross-sector initiativeRisk: Flooding and water security risks for an urban centreApproach: • Development of a waste management plan • Assessment of shallow water supply and soil

infiltrationOutcomes: • Control of waste management to prevent

blocking of drains and pollution of rivers• Community plan for ‘biopore’ (small bores

filled with leaf litter) installation to reduce run-off

Hydropower operationLocation: Latin AmericaSector: UtilitiesRisk: Operational and financial risk to assets from changes in hydrological behaviourApproach: Develop hydrological scenarios and statistical analysis to quantify risks and contingenciesOutcomes: • Risk matrix and scenarios of future outcomes

- Spillway capacity- Revenue changes (+/-)- Dam safety requirements- Normal and Emergency Operational

Procedures

Adaptation and resilience summary

Building adaptive capacity Delivering adaptation actions

Focus to date around hard engineering

Continual emergence of

drivers

Contact Details:

Mike Lelliott | Practice Lead Water Solutions

Email: Mike.lelliott@advisian.comDirect: +44 (0) 208 326 5231 Mobile: +44 (0) 7785 277176

Contact Details:

Dr Richenda Connell | CTO

Email: r.connell@acclimatise.uk.comDirect: +44 (0)1865 554466 Mobile: +44 (0)7909 840731

Discussion:

How can IPIECA support the industry?

How can IPIECA support the industry?

Suggestions

Common approach to climate change scenarios considered in design

Facilitating sharing of best practice with regards to climate change adaptation and resilience

Providing guidance on approach to incorporating climate change into operations

Providing guidance on reporting standards (e.g. on resilience, sustainable use of water, climate risk disclosure, etc.) WHAT

ELSE?

DISCLAIMERThis presentation has been prepared by a representative of Advisian.The presentation contains the professional and personal opinions of the presenter, which are given in good faith. As such, opinions presented herein may not always necessarily reflect the position of Advisian as a whole, its officers or executive.Any forward-looking statements included in this presentation will involve subjective judgment and analysis and are subject to uncertainties, risks and contingencies—many of which are outside the control of, and may be unknown to, Advisian. Advisian and all associated entities and representatives make no representation or warranty as to the accuracy, reliability or completeness of information in this document and do not take responsibility for updating any information or correcting any error or omission that may become apparent after this document has been issued.To the extent permitted by law, Advisian and its officers, employees, related bodies and agents disclaim all liability—direct, indirect or consequential (and whether or not arising out of the negligence, default or lack of care of Advisian and/or any of its agents)—for any loss or damage suffered by a recipient or other persons arising out of, or in connection with, any use or reliance on this presentation or information.