ExxonMobil being connected to global climate change will surprise no one. Though generally, the connection is seen as one of cause (Exxon) and effect (global climate change) with society being the victim. While it is unclear to me if more guilt should be attached to the producers, or to those who pay the producers, it is evident that both society and corporations will be negatively affected by climate change’s impacts. Ironically, the impacts of global climate change will have an extremely negative impact on ExxonMobil’s ability to profitably produce oil. The corporate impacts of climate change have been categorized as Physical (e.g. damage to infrastructure), Prices (e.g. cost of infrastructure), Product (e.g. loss of demand), Ratings (e.g. cost of capital), Reputation (direct or indirect), and Regulation (governmental)1. In addition to Reputational risk, ExxonMobil and its supply chain will be greatly affect by a large Physical risk.
The physical risks are incredibly diverse as a result of lengthy oil and gas supply chain. A significant portion of ExxonMobil’s oil production is offshore. These production facilities will be under increased threat of changes to Hurricane activity that result from climate change2. In addition, even pipelines are feeling the strain. Pipelines in Alaska have needed numerous modifications to avoid sinking into the melting permafrost3. Most crude oil inputs are shipped from international locations with lengthy loading, transit, and discharge times will be heavily influenced by changing weather patterns and sea levels. Refineries are generally close to the water and operations will be greatly influenced by weather patterns2, freshwater availability4, and sea level rise5.
Fighting Climate Change: Courage and Contradiction
Attempts to limit the impact of climate change can be broadly clumped into two categories: those that seek to prevent climate change from occurring and those that attempt to mitigate the impacts of climate change. ExxonMobil has made some limited strides to preventing global climate change from occurring. In the past few decades the company has moved from discrediting the science of climate change6 to admitting that climate change exists and pushing for a more rigorous carbon tax7. As well, Exxon has created a dedicated Environmental Engineering team that is working to decrease methane emissions from pipelines8. This being said, far more of Exxon’s actions are reactive instead of proactive.
The effort to decrease methane came years after awareness of the damage of methane in the atmosphere. Instead of waiting till problems manifest and then trying to solve the emergent issues, ExxonMobil should work to institutionalize environmental findings and best practices. Unfortunately, the actions of the ExxonMobil Political Action Committee (PAC) seem to contradict the evolving environmental focus of the corporation. Last year the PAC contributed to efforts to decrease the ability of counties to implement legislation affecting fracking9.
Supply Change Impacts: Sailing Ships and Sinking Pipes
In addition to attempting to limit the severity of global climate change, ExxonMobil needs to make increased efforts to mitigate the impacts of climate change. Exxon has made some limited short-term efforts to decrease its supply chain exposure. In the U.S. they have decreased their dependence on foreign oil which greatly simplifies the supply chain. Domestic crudes are generally transferred via pipeline which avoid many of the potential delays associated with shipping (with the exception of the Alaskan pipelines2).
ExxonMobil’s limited preparation will not be enough to mitigate the impact global climate change still poses. Focusing on the U.S. Gulf Coast (where ExxonMobil refining is primarily focused), the company has done little to improve outdated infrastructure. This has, and will, result in refinery disruptions10, particularly in extreme weather events. In an effort to decrease capital expenditures, Exxon has also limited its crude oil and product storage capabilities. Even in the absence of flooding or weather events this has led to a decreased refinery throughput in certain events. This refinery underutilization will only become more pronounced as climate change progresses, particularly as climate change puts strain on pipelines and shipping. Just as with the Alaskan pipeline, Exxon’s efforts have been more reactive than proactive in nature.
Will The Climate Change Exxon?
While ExxonMobil has evolved over the years to become increasingly involved in the climate change discussion, it still has work to do. The company characteristically underestimates the impact that climate change will have on its own operations. Ironically, the corporation’s risk averse culture (in no small part a result of the Valdez) limits its ability to spend capital to prevent future disruptions. Many questions remain. How much do you impact current profitability to prevent possible future disruptions? And is it the responsibility of governments or markets to remove negative externalities?
- Risky Business Project, Risky Business: The Economic Risks of Climate Change in the United States (2014)
- United Nations Environmental Programme, GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector (2013)
- Gledhill, R., D. Hamza-Goodacre, and L. Ping Low, “Business-not-as-usual: Tackling the impact of climate change on supply chain risk,” PWC – Resilience: A Journal of Strategy and Risk (2013)