Climate change strikes oil & gas industry: Tragedy in the Caspian Sea

Climate change strikes oil & gas industry: Tragedy in the Caspian Sea

Farhad Mukhtarov
Climate change is a reality, with extreme weather events striking more intensely and more often in the areas least expected. On Dec. 4, one of the strongest storms ever recorded struck the Caspian Sea near Azerbaijan. As the wind speed reached 38-40 meters per second, and waves amounted to 8-10 meters in height, one of the gas pipelines on an Azerbaijani offshore oil rig in the Guneshli oil field exploded. The escaping natural gas ignited from a spark and created a huge fire, which still continues to burn.

This was the second major offshore disaster in Azerbaijan, the first occurred on Nov. 21, 1957, with even stronger winds and higher waves, and claimed 21 lives. 

In general, energy operating companies are well prepared against such storms, and the Caspian Sea is far from the harshest hurricane-struck areas. For instance, the Gulf of Mexico experiences dozens of storms per year, and although serious accidents still occur, such as the destruction of 113 offshore platforms and severe damage to 163 other platforms during hurricanes Katrina and Rita in 2005, they claim relatively few casualties. This has to do with elaborate safety procedures followed by the industry. However, the careful estimation of storm patterns when building and securing offshore infrastructure is still an issue worldwide. In the case of the tragic event in Azerbaijan, we need answers to two questions: Why did this tragedy happen, and what can be learned from this tragedy?

The tragedy happened for two reasons. The first and most obvious reason was the lack of disaster preparedness by the State Oil Company of the Azerbaijan Republic (SOCAR) for extreme weather events. Contingency plans need to be in place over evacuation of the personnel, the response to various disasters and recovery planning. This is not limited to offshore rigs alone, but extends to onshore areas of oil refinery and storage, which could be flooded in the future with stronger storms. The climate proofing of Chevron in the Pascagoula refineries in Mississippi became a success in the face of Katrina and proved that preparedness pays off.

The second reason for the tragedy is more structural. With climate change and the more frequent storms, both the infrastructure and safety procedures of SOCAR will need to adapt with the changing climate. According to climate scientists, the area around the Caspian Sea is likely to see an increase of 1.5 degrees Celsius to 1.6 degrees Celsius in mean temperatures between now and 2050. Simply put, it means that when storms pass over the increasingly warm waters of the Caspian Sea, they will gather more strength and reach ever-faster speed and destructive power.

Recent studies, such as one by Mark Kaiser, have noted the financial impact of climate change on the offshore oil industry. As the oil industry waits for storms to pass, the financial costs of not extracting oil increases. With climate change causing stronger and more frequent storms in the Caspian Sea, following safety procedures will inevitably mean financial losses for SOCAR and others. It may be hard for the oil and gas industry to accept this reality given the low oil prices. However, it is a necessary price to pay in order to avoid large-scale human losses. 

In the longer-term, the oil and gas industry will have to adapt to climate change structurally. As Ana Maria Cruz and Elisabeth Krausmann wrote in their 2013 article in scientific journal “Climatic Change,” “climate change and extreme weather events represent a real physical threat to the oil and gas sector, which needs to take climate change seriously, assess its own vulnerability, and take appropriate measures to prevent or mitigate any potentially negative effects.” 

Cruz and Krausmann also make important recommendations. First of all, SOCAR needs to re-evaluate the adequacy of its infrastructure designed decades ago for storms with expectation of one in a hundred years. Such storms, alas, occur more often. Some design measures SOCAR can take include the installation of extra anchors on its rigs and running a comprehensive risk assessment exercise followed by the analysis of the costs and benefits of updating infrastructure. Any structural and procedural adaptation to climate change will be a balancing act between the shorter-term costs and longer-term benefits. Secondly, the government of Azerbaijan may facilitate this upgrading with stricter safety regulations. Thirdly, oil and gas companies may be better off by getting their infrastructure internationally insured now, before the insurance industry accounts for climate risks and puts their premiums at higher rates. 

*Dr. Farhad Mukhtarov is the research fellow at the Earth System Governance Alliance at Lund University, Sweden.