Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities / Commodities / Climate Change
Whilethere is disagreement over its causes – man-made versus natural – the realityof climate change is an incontrovertible fact. The planet is warming, affectingour weather, our oceans, our growing seasons, even our food, as crops fail,causing shortages and price hikes. Storms are becoming more frequent, and moreintense, and droughts are lasting longer.
Forestfires are an annual occurrence in Australia, California and British Columbia,and in the United States and the Caribbean, people live in fear of the nexthurricane that could literally turn their lives upside down.
Mostof us have watched videos of calving glaciers as huge chunks of ice break offmillions-year-old ice sheets and tumble into the sea. They have becomeemblematic of the highly-politicized cause of climate change, or dare we say,“global warming.” Starting with Al Gore's An Inconvenient Truth, theglobal warming alarmists have been on a decades-long crusade against the fossilfuel industry, but few have stopped to think about what are the implications ofclimate change from an investment point of view.
Awarming planet will have a multitude of cascading effects on our resources, andwhile several examples could be given, we feel the most dramatic will be on ourfresh water supplies, and oil operations close to the coasts where higher sealevels could inundate refineries. Rising seas and more frequent storm surgeswill also have an impact on cities. Some – including New York City – have already started taking pre-emptivemeasures so that the damage wrought by a natural disaster like Hurricane Sandyis not repeated. Its $1-billion flood prevention plan includes a $332 millionU-shaped berm that will hug the Lower East Side of Manhattan. What impacts willrising seas have on urban infrastructure that will need to be built to keep thewaters at bay?
The worstflooding in years
Hurricanesand tropical storms hitting the United States have been increasing in frequencyand degree of devastation. Hurricanes Harvey (which mostly affected Houston)and Katrina were the costliest cyclones on record, with Katrina costing $161billion and Harvey $125 billion in damages mostly from flooding. When Katrinareached landfall it caused a storm surge between 10 and 25 feet, inundatingcoastal areas across Louisiana and Mississippi. In New Orleans the levees brokeand the city was at one point 80% submerged. The National Guard was called into help and it is known as the largest displacement of Americans since theGreat Depression.
In2016 Louisiana was slammed again with massive floods. Thirteen people died,40,000 homes were damaged and there were 30,000 water rescues.
According to the BBC most of the eastern part of thestate received 15 inches of rain in 48 hours; the Amite River rose to 46 feet,beating a previous record set in 1983. Between Katrina in 2005 and theLouisiana floods, other recent natural disasters in the US include the 2014Washington State mudslide which killed 43; the tornado in Oklahoma in which 24people died and caused $2 billion in damages; flooding and tornadoes inOklahoma and Texas in 2015; and the 2016 East Coast blizzard which killed atleast 45. In Puerto Rico, the effects of Hurricane Maria are still being felt,with nearly half a million residents still without power four months after battering the US island in the Caribbean.
Canadiansaren't exempt from flooding either. Between 2000 and 2017 there were 80 floodevents, with the worst happening in Calgary in 2013. The cost of damage in thetown better known for rodeos than sandbags was an eye-watering $6 billion (bigfor Canada). Last summer eight communities in Manitoba declared a state ofemergency due to flooding. Earlier this week, overflowing rivers due to heavyrains, snow melt and ice jams forced 5,000 people from their homes in Brantfordand had officials announcing a state of emergency and flood warnings throughoutsouthwestern Ontario.
Whilethe floods in North America have been bad and are getting worse, they'reeclipsed by what's happening elsewhere. As Texans were worrying about wreckedhomes and businesses last summer, heavy flooding in India, Nepal and Bangladeshforced millions from their homes and shut down 18,000 schools. About 40 million were estimated to have been affected bymonsoon rains and 1,200 were killed – putting our ownproblems with floodwaters in perspective.
Thebig question is whether all these extreme weather events are isolated incidentsor whether they are all connected to a warming planet. Scientists say they are, even though they can't prove adirect cause and effect. They say over the past 30 yearsthere has been a pattern of increasing average temperatures across theearth. Rising temperatures, either due to natural cycles or human-causedemissions trapped in the atmosphere, increase ocean evaporation and the amountof water vapor in the atmosphere. The result is more intense rain and snowstorms, and in dry areas, heat waves and droughts. Seventeen of the l8 hottestyears on record have occurred since 2001, according to records dating back to1880; earth's average temperature has risen nearly 2 degrees F since the late19th century.
The seais rising
Thewarming of the earth's surface has caused a widespread retreat of the glaciersat both poles. According to NASA between 2002 and 2006Greenland lost 60 cubic miles of ice; in Antarctica it was 36 cubic miles from2002-05. All of this melting ice has caused sea levels to rise, from betweenseven and eight inches over the last 117 years, NASA states, with the most riseoccurring since 1993. The expansion of ocean water as it warms also causes highersea levels.
Thelatest International Panel on Climate Change report predicts sea levels risingbetween 52 and 98 centimeters by 2100 if nothing is done to stop risingtemperatures. An increase of 65 centimeters, or roughly two feet, is expectedto cause significant flooding in coastal cities. Satellite images show sea levels rising 3.2 millimeters a year, with the last measurement, taken in October 2017, recording a rise of 84.8mm.
Effectson cities, urban infrastructure
Whatwould happen if the earth warmed by 3 degrees, just one more degree thancurrently? According to scientists the effects would be calamitous. With eightout of the 10 largest cities near a coast, several millions would be at risk offlooding, shoreline erosion and storm surges. According to a recent Guardian article,the worst-hit cities would be in Asia, including Shanghai, Hong Kong and Osaka.Rio de Janeiro, Miami, The Hague, and Alexandria are also included among themost populated, at-risk cities. Osaka in a 3-degree world would disappearunderwater, while in Alexandria, the Egyptian city's beaches would be submergedand 8 million people would be flooded out.
ClimateCentral ranked the 25 US cities most at risk of coastal flooding and sea level rise. It found that New York is most likely to have problems,with Miami second. Twenty-two of the 25 cities are in Florida. Another reportssays the most vulnerable areas are in the mid-Atlantic and south-Atlanticstates and the Gulf Coast due to their low-lying topography, high economicvalue and high storm frequency. Parts of New England are also at risk, whilethe West Coast with the exception of Puget Sound and San Franciso Bay is lesslikely to get flooded. According to an executive summary:
The impacts of sea-level rise will vary by location and dependon a range of biophysical characteristics and socioeconomic factors, includinghuman response. The primary impacts of sea-level rise are physical changes tothe environment. These changes, in turn, affect human uses of the coast such astourism, settlement, shipping, commercial and recreational fishing, agriculture,and wildlife viewing. The most serious physical impacts of gradual sea-levelrise on coastal lowlands are (1) inundation and displacement of wetlands andlowlands; (2) coastal erosion; (3) increased vulnerability to coastal stormdamage and flooding; and (4) salinization of surface water and groundwater.
Ifno safeguards are put in place, we can expect $1 trillion in damages every yearin 136 of the world's largest cities. A 2008 study quoted by Scientific American found 2,400 miles of major roadways would be underwater along the Gulf Coast ifthe ocean rises four feet. Three airports, 246 miles of railways and three quartersof freight facilities would also be submerged.
Thankfully,some cities, states and companies are taking matters into their own handsbefore the storm waters come. After Hurricane Irma, the largest power company,Florida Power and Light, saw outages to 90% of its customers. But the grid was restored within two days due to the state'spower companies earlier strengthening the grid. Hardeningmeasures included concrete power poles, enhancing main lines, and installing“intelligent” devices that detect power problems. Duke Energy spent around $2.4billion to strengthen its grid including replacing 802,000 power poles.
Asmentioned earlier, New York is working on several flood-prevention projectsincluding a U-shaped berm around the Lower East Side – thus shielding 10 milesof coastline with salt-resistant vegetation – a breakwater on Staten Island,and a flood prevention plan for Southern Nassau County.
InRotterdam, the Dutch city has for the past 56 years been building up a seriesof dikes, dams and drains to curb flooding. But the most impressive points out Mashable, are the floodgates.At 72 feet wide and 688 feet long, the floodgates were built in the 1990s, andautomatically open and close to allow ships through. Closing the gates preventsflooding and storm surges. Da Nang, Vietnam helped residents to build moreflood-resistant homes; in Surat, India, the city developed a flood warningsystem; and in Semarang, Indonesia, a flood forecasting system predicts whenfloods will likely occur and where.
Companiesthat specialize in flood prevention measures like floodgates, early warningsystems, and earthworks (for example in the Maldives, islands at risk of searise are being gradually raised) could stand to benefit from these floodprevention measures. Other firms that are more into “soft” versus “hard”prevention (ie. building marshes and water-absorbing land forms versus wallsthat deflect waves into other vulnerable areas) are also likely to be in highdemand. States NBC News:
Salt marshes and mangroves trap sediment and organic matter,allowing them to grow in elevation. That affords rising protection againstinundation... And according to National Oceanic and Atmospheric Administration, just 15 horizontal feet of marshy terrain can absorb 50percent of incoming wave energy.
Effectson water
Losing power and being forced toevacuate your home in the event of a flood are usually temporary inconveniences(unless your home is ruined), but an even more troubling effect of rising seascaused by global warming involves our water supplies. A natural disasterusually has cascading effects. Water inundation causes power failure, likeduring the Japanese earthquake when seawater knocked out power to the nuclearreactors, causing the fuel rods to heat up and release radiation. DuringHurricane Sandy around 11 billion gallons of sewage was releases intowaterways, due to treatment plants either losing power or being flooded.Hurricanes Katrina and Rita in 2005 damaged a number of public servicesincluding drinking water supply and sewage treatment plants. During Katrina,thousands of evacuees crammed into the Superdome were not given enough bottledwater or food, causing
hunger and dehydrations. Toilets brokeor ran out of water. The unhygienic, unsafe conditions led to chaos and crime.In the aftermath, legislation was passed to repair storm-damaged sewagetreatment and drinking water plants and to provide hurricane assistance toLouisiana, including $5 billion for water infrastructure projects. According to a Congressionalreport, over 1,220 drinking water systems andover 200 wastewater treatment facilities were affected in Louisiana,Mississippi and Alabama. Drinking water and sewage service for over a millioncustomers was severely disrupted in New Orleans.
Anotherless-known effect of coastal flooding is saltwater inundation. Saltwaterinundation is what happens when ocean water infiltrates fresh water aquifers,which can lead to contamination. Imagine drawing a glass of tap water and whenyou take a sip, the water is salty. Saltwater inundation can occur whengroundwater aquifers run dry and the fresh water is replaced by salt water thatmigrates into the aquifers from the ocean. Primary causes are overpumping offresh water, a lack of rainwater flowing into aquifers, and storm surges causedby rising sea levels.
Areaswhere saltwater inundation is a concern include New Jersey, Savannah Georgia,Miami, Tampa Bay, and Los Angeles. In Florida the ocean is already starting toseep into swamp land, which weakens the plants from their peat bedding. “When we start to lose the structure of the plants,essentially this peat, which is otherwise held together by roots, becomes asoupy pond,” explains a University of Florida researcher in an NPRarticle. Millions of people in South Florida get their freshwater from the Biscayne aquifer in the Everglades.
Theproblem is also reportedly occurring in China, the Phillipines, andAustralia. Salt water from the Bay of Bangladesh haspenetrated over 100 kilometers inland, due to sea levels rising higher thanthan elsewhere, thereby increasing the risk of water contamination andhypertension caused 
by drinking high-salinity water.High river and soil salinity in Bangladesh is also predicted to reduce rice crop yields, affect the productivity offisheries, crack road surfaces, and increase poverty.
Climatechange is depleting the world's fresh water resources in other ways, too. Asthe snow cap declines in areas where rivers depend on the freshet, those riversare shrinking. The best example is the Colorado River, where warmer weather and lack of precipitation have reducedflows by nearly 20% between 2000 and 2014.
A study by the University of Arizona predicts that climate change will pull groundwater out of four economicallyimportant aquifers at a higher level than they can be recharged. This is because the Southwest region in particular is expectedto become drier and hotter. They include the aquifers of California'sCentral Valley, and the central and southern portionsof the High Plains and Arizona’s San Pedro aquifers.
Ofcourse, climate change alone can't explain aquifer decline, much of the reasonfor declining groundwater is due to overuse. For example the Ogallala aquifer,the vast underground reservoir that irrigates fields and towns across eight USstates, is gradually depleting. Scientific American notes that ifspread across the US, all 50 states would be covered in 1.5 feet of water. Butif it's drained, it will take 6,000 years to refill. The evidence shows thatthis is happening. The source of the breadbasket of America, responsible for afifth of American's annual harvest, is being sucked dry at an annual volumeequivalent to 18 Colorado Rivers. In a lengthy feature article, NationalGeographic writes that the aquifer's decline will be exacerbated by climatechange, which will make farming days hotter and longer, andcause more frequent droughts:
Already, warmer-than-average evening temperatures in feedlots insouthwest Kansas mean that beef cattle drink more water than they did in cooleryears. As more farmers return to dryland farming, large farms are likely toswallow smaller family farms, because dry farming, with lower yields, requiresmore land to be profitable. Irrigation will disappear from most places, so moresmall towns will fade away. Countless towns across the Plains already teeter onthe brink of extinction.
Theproblem is global. According to two studies led by the University ofCalifornia, Irvine, using data from NASA satellites, a third of the world's aquifers are being rapidlydepleted by human consumption. The three being diminishedfastest are the Arabian aquifer (a water source for 60 million people), theIndus Basin aquifer of northwestern India and Pakistan, and the Murzuk-Djado Basin in northern Africa.
Effectson oil
Despitethe shift to renewable energies and all the hype over electric vehicles, theworld still uses a lot of oil – over 35billion barrels a year according to the IEA, which predictsthe current 97 million barrels a day will rise to 100 million bod by 2021.
Whatis the connection between oil and climate change? The answer is probably easiestto see by playing with the maps locatedhere.
Themajority of US refining capacity is clustered along the Gulf Coast and theNortheastern Seaboard, which also happen to be the area’s most prone to sealevel rise and storm surges either caused or made worse by a warming planet.That's because refineries need to be built close to ports and tankers. A fewexamples: Valero Energy, the largest US refiner, has nine refineries on UScoasts. Of the 11 refineries owned by Phillips 66, three are on coasts. ExxonMobil has three major refining facilities on the US Gulf Coast, one of which –Baytown, TX – was shut down during Hurricane Rita.
A 2015 report from the US Department of Energy found that “climate change is likely to substantially increase thevulnerability of many energy facilities in the coming decades. As recenthurricane events have demonstrated, this study found that an extensive amountof U.S. energy infrastructure is currently exposed to damage from hurricanestorm surge.” By extensive, the study means up to 34 refineries, or 8% ofcurrent capacity, are currently exposed to storm surge inundation from Category3 hurricanes. The report says that the Strategic Petroleum Reserve is highlyvulnerable due to its proximity to the Gulf of Mexico, and 80 to 100% of USrefining capacity is exposed to storm surges.
The Union of Concerned Scientists urged oil companies tobe more transparent about their risks from climate change and said investorsshould press companies to consider such risks and to take measures to preventthem, including getting refineries to conduct risk assessments, according to a2015 report.
However E&E News, which reported on the dangers of floodingto refineries the same year, said none of the refinersmentioned in the Union of Scientists report discussed the impact to itsoperations from climate change in filings with the US Securities and ExchangeCommission – despite calls from investors to do so.
Whilemany oil companies are staying mum about their plans to address sea rises andother unsavory climate-change-related topics, at least one has taken action. In2014 the Delaware City Refining Company stated that its shoreline is rapidlydisappearing, due to tidal encroachment. The solution? Build a protective ringof buoys “that has the resilience to deal with SeaLevel Rise (SLR) for at least 50 years,” Gawker reported. However, in anamusing twist, a later article stated that the company was trying to get taxpayers, through afederal program, to pay for shoreline protection.
Conclusion
We know that planet earth is warming, and we've shown that theseas are rising, slowly but surely. We don't need or want to get into thereasons why, but the fact is that climate change will have an effect on ourwater, and likely our oil supplies, in coming years. We've already seenrefineries shut down during major hurricanes, which affects supply and hikesthe prices of refined oil products like gasoline and heating oil. We've alsowitnessed the devastating effects that these storms have had on our waterinfrastructure. Damaged water and sewer pipes took weeks to repair, leavingsome of the poorest and most vulnerable citizens lacking basic sanitation anddrinking water. Fresh water is also depleting due to saltwater inundationcaused partly by rising sea levels, while farther inland, aquifers are beingdrained due to overuse – a problem that will be exacerbated as temperaturesrise.
We don't mean to be alarmist, but a further consequence of climatechange could involve money, or more to the point, access to funds. As citiesflood, due to storm surges or rising seas, more residents will be driven out oftheir homes and could even become refugees, as we saw during Hurricane Katrina,when thousands of people were stuck in a crowded stadium without adequatewater, food or sanitation.
Calamitous times call for safe havens, and what better safe haventhan gold? Gold doesn't require cash machines, it isn't affected by inflation,and it is highly portable and tradeable if cash suddenly becomes scarce.
Like everyone else I'm watching and listening to the evidence ofglobal warming, but I'm not running for the hills. Rather, I'm looking forother investment opportunities that might profit from climate change. And I’vegot a few on my radar screen. Do you?
If not, maybe it should be.
By Richard (Rick) Mills
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