Risks and Opportunities
Effective management of climate-related risks and opportunities is paramount to ensuring the long-term resilience of our business. To this end, MedcoEnergi conducted a comprehensive qualitative climate scenario analysis in 2021. This analysis aimed to identify and assess potential impacts on the Company, encompassing both transition risks and physical risks alongside any associated opportunities. A summary of our approach is provided below:
MedcoEnergi recognizes that climate change presents a significant threat, potentially impacting our operations across the business and physical landscape. A key implication identified is the accelerating transition towards a low-carbon economy. This transition is accompanied by increasing stakeholder pressure and the implementation of stringent regulations for greenhouse gas (GHG) emissions reduction.
Physical Risk
Building upon the qualitative analysis conducted in 2023, MedcoEnergi undertook a more comprehensive climate scenario analysis, incorporating a quantitative approach. This pilot analysis focused on Block A and the non-operated asset, JOB Tomori. The selection of these assets aimed to strengthen our understanding and implementation of the climate change risk assessment (CCRA) requirements mandated by Equator Principle 4 (EP4). The exercise yielded comprehensive findings from the physical risk assessments.
Furthermore, the anticipated rise in the severity and frequency of extreme weather events associated with climate change could have long-term repercussions for MedcoEnergi's asset infrastructure. This could translate into increased maintenance expenditures and disruptions to production.
Transition Risk
Our comprehensive assessment of climate-related risks is ongoing, with quantitative transition risk assessments currently in progress. However, we have proactively examined the potential impact of carbon pricing on our business by leveraging our independently verified 2023 greenhouse gas (GHG) emissions data.
The emergence of carbon pricing mechanisms within our host countries presents a potential cost factor for both operational and capital expenditures. This necessitates strategic investments in new technologies and processes to optimize emissions reduction.
In recognition of the inherent uncertainties associated with regulatory implementation, we adopted a conservative approach, estimating potential financial impacts under a worst-case scenario. This assessment, based on the gross operational control approach and leveraging our best available information, encompasses all our domestic and international oil & gas and power assets. Utilizing our verified 2023 GHG emissions data, the potential financial impact of carbon pricing on our business could reach USD 11.7 million.
Further reading on the approach, methodology, findings, and mitigation measures for our 2021 climate change qualitative risk assessment can be found in our TCFD report.