Climate-Related Risks and Opportunities

Climate-change-related risks and opportunities are integrated into OMV’s Enterprise-Wide Risk Management (EWRM) process aimed at identifying, assessing, and managing business-related risks. The short- and medium-term risks are analyzed for their impact on the Company’s three-year financial plan. The effects of long-term risks are evaluated based on a semi-quantitative analysis, taking into account a wider range of uncertainty. Climate-related risks and opportunities have already affected our business plans and objectives in the medium term (three- to five-year horizon) considerably – and therefore our financial planning. The most substantive climate-related changes in the oil and gas industry are expected to arise on a longer time scale – in particular with regard to revenues. Nevertheless, management pays close attention to climate-change-related long-term risks and opportunities and takes these into account in strategic decision-making.

The OMV climate change risk management approach aims to meet the TCFD recommendations as well as the double materiality perspective proposed by the EU Non-Financial Reporting Directive. This new approach is being implemented gradually throughout the organization. Climate change risks are growing in importance in light of the oil and gas industry’s significant direct impact. The following climate-change-related risks and opportunities are taken into account on this basis:

Physical Risks

Chronic physical risks, such as periods of low or no precipitation on surface or subsurface water supplies would lead to an inability to access water for normal operations (internal consumption) in areas of low water availability. Intensified water scarcity due to changes in precipitation, more frequent drought periods, and increased water stress could be a long-term risk to OMV Upstream exploration and production activities, e.g., in Tunisia, Yemen, and other countries in the Middle East and Africa region, which are already experiencing a certain level of water stress. 

Acute physical risks, such as the increased severity of extreme weather events like cyclones and floods, e.g., risk of landslides in Romania, are generated by a higher frequency of extreme weather events like intense rainfall, rapid snowmelt, and sharp fluctuations in ground-water levels leading to soil erosion.

Transition Risks

Potential future restrictions on the carbon intensity of feedstocks, political and security risks in the countries of origin of our feedstock, and any other supply limitations pose a threat to sufficient refinery feedstock supply. There is a risk of imbalance between certificates allocated and Company-required emissions volumes, resulting in higher costs due to the uncertainties about the allowance demand and abatement costs. The potential financial impact on OMV is estimated at EUR 125 mn, or 0.8% of total OMV Group revenues in 2020.

The risk of decarbonization policies forces OMV to operate on a net carbon-neutral basis. Current and emerging regulations in line with international public-sector initiatives, such as the Paris Agreement, and their subsequent transposition into national law in the countries in which OMV operates result in limits on GHG emissions by the energy industry. This process of decarbonization will change the energy mix and will lead to a reduced demand for fossil fuels with a high carbon content. OMV’s target for the overall product portfolio is a share of at least 60% of low-/zero-carbon products (including gas) by 2025.

There is a risk that demand for refined fuels may decrease due to less carbon-intense substitute products coming onto the market. Emissions regulations, energy efficiency regulations, and regulations on the increased share of renewables in the energy mix are expected to result in a slight decrease in gasoline and diesel production in accordance with European regulations, a new car registration trend toward gasoline and battery-powered electric/hybrid cars, and a decrease in our heavy products production.

Potential regulatory limitation of flaring of associated gas will affect OMV assets that still have continuous flaring and venting practices in place, e.g., in Yemen, Romania, and Tunisia. In the very unlikely worst-case scenario, assuming that assets with routine flaring/venting in Romania, Yemen, and Tunisia have to interrupt production for six months to implement technical measures in line with the requirements under zero flaring regulations, the potential financial impact on OMV is estimated at EUR 364 mn, representing 2% of total OMV Group revenues in 2020.

Reputational risks stem from the increasing number of investors who include a company’s environmental and social responsibility as a high-weight criterion in their investment decision-making process. This can be for reasons of internal policy or due to regulatory pressure for public investment transparency regarding sustainability issues.

Transition Opportunities

Decarbonization will create opportunities for OMV based on the increased demand for lower- or zero-carbon fuel (natural gas, CNG, LNG, hydrogen, biofuels, e-mobility).

Polyolefins produced by Borealis are used to make products that are important for the energy transition, such as solar panels and cables for transmitting renewable electricity.

A key opportunity for OMV when it comes to the supply chain and/or value chain is to supply refineries with innovative feedstock, such as synthetic crude. Synthetic, recycled crude reduces the dependence on fossil resources and improves carbon intensity.

For more information on our climate-related risks and opportunities, see our CDP response.