Water Risks Could Dry, or Drown, Carbon Assets

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By Andrea Vittorio

Aug. 31 — Worsening water risks could dry, or drown, billions of dollars’ worth of fossil fuel projects, according to the nonprofit CDP.

Many fossil fuel assets require water to extract, refine and use them, but a stable supply of good-quality water is no longer a given in many regions of the world. That could eventually force energy companies to write off investments.

“Assets don’t need to be stranded in all cases,” Cate Lamb, who leads the CDP’s water program, said in an interview from World Water Week in Stockholm. She said companies could prevent issues by paying earlier and closer attention to water as they plan and develop projects.“Failure to do so means those projects will be costlier, they’ll be riskier, and they’re likely to take much longer,” Lamb said.

Watching Water Risks

Policies to combat climate change are the most talked-about cause of potential financial risks to carbon-intensive assets and companies.

“Quite often with climate and carbon, it can be into the future,” said Monika Freyman, who directs a group at Ceres that is developing guidance by and for investors on how to better integrate water analysis into their decision-making. “But we’re finding examples already of water stranding.”

Water-related issues already have had a detrimental impact on more than 40 percent of the energy companies that responded to the CDP’s 2015 water survey. What the organizations finds worrying is they remain relatively opaque on the subject, with the lowest response rate among sectors.

As investors become more water-aware, they also are concerned by the lack of disclosure.

Oil and gas companies, electric utilities and coal companies were the target of almost half of all water-related shareholder resolutions filed in the U.S. between 2003 and 2014, according to an analysis by Ceres. Many of the resolutions called for sustainability reporting or risk disclosure related to hydraulic fracturing.

‘Drying’ vs. ‘Drowning.’

A lack of water availability could curtail shale development in many places around the world, research from the World Resources Institute shows. Water challenges also can turn into financial losses for power projects in countries like India, where the think tank says more than 70 percent of power plants are located in areas that are water-stressed or water is scarce.

It is not just a matter of “drying assets,” Lamb said, but “drowning assets” too. Australia’s coal exports, for example, took a hit a few years ago after massive floods in its main coal-mining state.

With energy’s water consumption expected to climb 85 percent globally by 2035, the International Energy Agency said it is increasingly clear that the sustainable use of water will become critical to ensuring reliable and affordable energy supplies in the future.

“I think the industry is seeing these problems and they are starting to pay attention to this issue,” said Tianyi Luo, an associate in WRI’s water program.

Most energy companies, including CONSOL Energy Inc., told the CDP that they have integrated water into their business strategy, though less than a quarter report a companywide risk assessment. Noble Energy Inc. and Hess Corp. are among few respondents that have assessed water risks at a basin level.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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