Saudi Aramco, the company that could become the world's most valuable following its Initial Public Offering (IPO) next month, faces climate change risks, according to a recent report published by French consultant Callendar.
Aramco produces one in every eight barrels of oil in the world and is set to have a $1.65 trillion market valuation after its IPO on the Saudi stock exchange Tadawul in December. However, the company is vulnerable to climate change up to 2035, Callendar said in the report titled Saudi Aramco: Climate Risk Initial Screening.
The report detailed that some of the risks that Aramco operations face in Saudi Arabia and worldwide involve extreme heat in the working environment and in equipment with temperatures exceeding the optimal range for refining and transport infrastructures. Rising sea levels on low Saudi coasts that would increase flood risks, and greater competition for fresh water resources are also other risk factors.
While rising sea levels could damage coastal facilities and permanently submerge the firm's infrastructure, high rainfall and floods could damage and shutdown facilities, and the rise in temperatures could negatively impact turbine performance and condensation capacity, it said.
Rising temperatures are expected to especially impact Saudi Arabia's resources onshore in oil-rich areas like Ghawar and Khurais on the east, and Shaybah in the southeast, the report said.
Saudi Arabia has gone some way to address these high temperature risks and has taken regulatory measures to prevent work when temperatures exceed 50 degrees Celsius, it said.
"This once rarely reached threshold is expected to be exceeded several times a year by 2035 on the eastern coast where a large part of Saudi Aramco's operations are located," it added.
Although Aramco said in its IPO prospectus released on Nov. 10 that climate change concerns could cause the firm to incur costs and have a negative impact on the demand for and price of hydrocarbons, according to Callendar's report, the company failed to provide "further details on the nature of the risks and their magnitudes."
The report found that Aramco should examine the vulnerability of its coastal facilities, start adapting its operations for the future impact of climate change, and study indirect risks that could affect the company through its stakeholders.
By Ovunc Kutlu