Climate Change Management

Challenges, Risks, and Impacts

Climate change is a critical global concern, evident in the United Nations Sustainable Development Goals (SDG 13: Climate Action) and regularly addressed at the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP). Thailand is committed to achieving the long-term goal of Net Zero GHG Emissions by 2065. This commitment is accelerating efforts for both public and private sectors to manage greenhouse gas emissions more effectively through the drafting of the National Climate Change Act, or Global Warming Act, which will take effect soon. Additionally, there is a strong emphasis on national clean energy production and utilization to respond to the forthcoming changes in consumption patterns and stakeholder expectations in the energy sector. Thaioil Group has recognized these challenges and considers them as risks and opportunities for the Company to determine the most effective targets and long-term strategies.

Commitments and Targets

The Board of Directors and executive management of Thaioil Group and its subsidiaries have acknowledged the importance of steering future business towards a clean energy business and a low-carbon society. The Company has established a policy in alignment with the Paris Agreement and Thailand’s Nationally Determined Contribution (NDC). The Company focuses on feasibility studies of new businesses, including high-value environmentally friendly products and process optimization for maximum efficiency. Moreover, the Company has determined tangible strategies and established long-term targets in line with national commitments.

Targets

Management Approach and Performance 

1. Governance and Oversight

The Board of Directors conducts an annual review of corporate climate change strategies and adopts risk management process as a tool to assess climate change’s impact on future business operation. Climate risks are monitored on a quarterly basis. The Board also tracks climate-related key performance indicators including Energy Intensity Index and Greenhouse Gas Intensity, which are part of the Corporate Key Performance Indicators, to evaluate the performance of management executives and employees.

In 2023 strategic review, the Board endorsed the Net Zero GHG Emissions Pathway 2026–2060 and considered budget and investment approach in low carbon technology, such as studying the installation of Carbon Capture technology in production unit, studying Blue and Green Hydrogen business, and studying Sustainable Aviation Fuel (SAF) production.

The Board of Directors has assigned the Corporate Governance and Sustainability Committee (Board level) to oversee and monitor the progress on a semi-annually basis. The Sustainable Development Steering Committee (Executive level), chaired by the Chief Executive Officer and President, is assigned to drive the implementation, and monitor the progress on a quarterly basis. The management of Thaioil Group are responsible for managing implementation in line with the established strategy. The “Net Zero GHG Emissions Governance Structure” is established where the Vice President of the Sustainability Function is supervising overall management. The structure consists of Strategic Planning Function, Production Function, Business Development Function, Research and Development Function, Finance Function, and Corporate Social Responsibility Function. These functions are responsible in assessing climate-related risks and opportunities, including aligning their work as per the organizational climate strategy, developing action plans and Thaioil Group’s Net Zero GHG Emissions Pathway and Roadmap, and regularly reporting performances as well as risks and opportunities management to the committees.

2. Climate Strategy 

Thaioil Group defines the Net Zero GHG Emissions Strategy, known as the 3Cs strategies, with the details as follows:

"Click Here" Operational Approach and 2023 Progress for 3Cs Strategy

3. Participation in trade associations to drive change

Thaioil Group collaborates with PTT Group, a leading energy company in Thailand, to study and brainstorm government laws and policies supporting Net Zero GHG Emissions under the PTT Group Net Zero Task Force (PTT G-NET) working team. This working team consists of several sub-working groups to jointly study, advocate, and propose operational approaches to achieve the target. The approaches include Carbon Capture Utilization and Storage (CCUS), the use of hydrogen as an alternative energy source, increasing production potential by utilizing renewable energy to replace fossil fuels, and engaging in reforestation initiatives for the benefits of carbon credits.

Furthermore, Thaioil Group has been a member of Thailand Carbon Neutral Network (TCNN) since 2021, aiming to actively engage in public policy regarding climate change. TCNN operates under the Thailand Greenhouse Gas Management Organization (TGO) with the objective of creating a network among public and private sectors to advocate for public policies that support the Carbon Neutrality and Net Zero goal in Thailand’s Nationally Determined Contribution (NDC). Thaioil Group consistently reviews and monitors TCNN’s objectives related to climate movement regularly to ensure that Thaioil Group’s climate position and net zero commitment are aligned with TCNN. In case of any misalignment between TCNN and Thaioil Group’s position in climate change policy, the Company may reconsider its membership.

4. Climate-related Risk and Opportunity Management

Thaioil Group has evaluated the resilience of the Net Zero GHG Emissions Strategy through a scenario analysis, as well as the business impacts of each climate change scenario. The analysis of climate-related risks and opportunities was assessed for the years 2030, 2040, and 2050. According to the Task Force on Climate-related Financial Disclosure (TCFD) recommendation, the analysis was conducted in 2 scenarios compared with the baseline scenario as described below:

The Transition Scenario Analysis

Thaioil Group assessed climate-related risks and opportunities by considering 4 factors, namely: regulatory; technological; market; and reputational. The two scenarios were assessed for the years 2030, 2040, and 2050 across the value chain, from upstream to downstream, as follows:

​• Regulatory Risk and Opportunity

Thailand’s commitment to GHG emission reduction at the Conference of the Parties to the United Nations Framework Convention on Climate Change is the factor that may affect current business operations and future investments. This may pose risks for Thaioil Group’s production cost once new laws and regulations are enforced to drive the country towards net zero goals. For example, the Draft of National Climate Change Act or Global Warming Act requires GHG emissions disclosure and actions toward national GHG emissions reduction targets. Meanwhile, economic mechanisms, such as carbon taxes, and emission trading schemes, may be applied in the near future.

Besides, carbon pricing can present a risk in upstream operations. Particularly, in the case that the origin country of crude oil suppliers mandates a carbon price. This could result in an increase in the Company’s raw material costs. Likewise, in downstream operations, the risks of carbon pricing may arise with the execution of the EU’s Carbon Boarder Adjustment Mechanism (CBAM), impacting the prices of some petrochemical products exported by the Company to the European market.

With these situations, the oil industry business might face challenges in adaptation. Also, the Company may encounter risks related to higher costs and a long-term shift towards clean energy. However, the government initiatives present opportunities for Thaioil Group to formulate its business strategy. For instance, if the government advocates or offers incentives for investing in clean energy ventures, such as hydrogen production or sustainable aviation fuel, it could facilitate Thaioil Group’s adaptation to change its business landscape.

Mitigation Measures

• Technological Risk and Opportunity

Technology advancements in alternative energy that can replace oil may affect future business direction, posing risks to technological readiness, efficiency, and safety in use, as well as production costs. This is evident in the rapid technology development in utilizing alternative energy products, such as electric vehicles, hydrogen fuels, or carbon capture utilization and storage technology.

Mitigation Measures

• Market Risk and Opportunity

Factors influencing the consumption behaviour of end-users of petroleum and petrochemical products (Downstream) include responses to the trends towards a low-carbon society and low-carbon energy. Moreover, the fluctuation of crude oil prices from crude oil suppliers (Upstream) could cause an uncertainty of business revenue. These factors are further accelerated by future market trends that are the result of the global energy transition as well as the growth of electric vehicle demand, resulting to a decrease in demand for fuel oil and other fossil fuels.

Moreover, the National Electric Vehicle Policy Committee (EV Board) has announced the 30@30 policy, aiming to produce at least 30% of Zero Emission Vehicle (ZEV) – vehicles emitting zero emissions – of the total vehicle production by 2030. In 2023, the EV board issued measures to support the use of electric vehicles in Phase 2 or EV 3.5 over a 4-year period (during 2024-2027). These measures are expected to accelerate the rapid behavioural change in consumer behaviour towards ZEVs.

With the growing demand for clean and renewable energy, Thaioil Group has recognized the impacts on its product sales in both the short and long terms. However, the energy transition also presents opportunities for the Company to explore new business investments and new products.

Mitigation Measures

• Reputational Risk and Opportunity

The factors that may affect Thaioil Group include insufficient actions to mitigate climate-related impacts in response to stakeholders’ expectations such as societies, communities, employees, shareholders, and creditors.

Mitigation Measures

Result of Financial Impact Assessment 

Key Risks

• 1. Impact of carbon pricing: This results from the release of carbon dioxide equivalents emissions from the Company's production processes. The scenario analysis has been conducted under the assumption that Thailand adopts the GHG Emission Trading Scheme (ETS), and the control capacity is referred to the volume of GHG emission by Thaioil Group for the year 2023. References to carbon prices for the years 2030 and 2050 in the Asian regions are based on the IEA World Energy Outlook 2021. 
  2. Impact of declining demands on the Company’s products from the shift to use alternative energy (Downstream): These results are based on the demands for oil products in ASEAN, referencing the IEA World Energy Outlook 2021.
  3. Impact of carbon pricing from the increasing crude oil price by crude oil suppliers (Upstream): These results are based on the assumption the crude oil suppliers are affected by carbon taxes and pass on the costs to the Company’s cost at 100%. 
•  

"Click Here" More details of financial impact assessment for the Transition Scenario Analysis 

1. The Physical Scenario Analysis

2. Thaioil Group assessed physical risks of both acute and chronic impacts from rising global temperature. The scenario analysis has been conducted for the years 2030, 2040, 2050 across supply chain, from upstream to downstream. Representative Concentration Pathways (RCPs), an internationally recognized climate model of the Intergovernmental Panel on Climate Change (IPCC), has been applied in two scenarios as follows:

• 1. The RCP 2.6 scenario represents a stringent greenhouse gas reduction measure.
• 2. The RCP 8.5 scenario represents a rapid increase in greenhouse gas emissions.

• Water Scarcity Risk

The most significant physical risk for Thaioil Group is water scarcity in the production process and investments in expansion projects, such as the Clean Fuel Project (CFP) and other future projects. The water scarcity risk is classified as chronic impact because it is caused by the climate change that accelerate the water shortage and the economic expansion that increases water consumption demands, particularly in the Eastern Economic Corridor (EEC), located in Eastern Region of Thailand. Thaioil Group recognizes the importance of being prepared to manage such risks to its operations, production, environment, and communities.

Thaioil Group has monitored and predicted water scarcity risks through water risk assessment, scenario analysis, and sensitivity analysis in situations where there are water shortages at various proportions within the production processes. The Enterprise Risk team works together with Thaioil Group Water Management Working Committee to monitor such risks. The WRI Aqueduct Water Tools, an internationally recognized tool developed by the World Resource Institute, were adopted in the working processes. The Company also built a water management network with both government and non-government agencies, such as the PTT Group Water Committee in the Eastern region, Keyman Water War Room, and the Institute of Water and Environment for Sustainability (established under the Federation of Thai Industries), to create comprehensive water management and determine proactive measures. This helps reduce the potential risks in the production process and the community, as well as managing the risks in a timely manner.

Mitigation Measures

• Other Physical Risks

To comprehensively cope with the impacts of physical risks, the Company has conducted the physical risks assessment in accordance with the Task Force on Climate-related Financial Disclosures (TCFD). The result of forecasted data in RCP 2.6 and RCP 8.5 revealed that the cyclone situation could be more intensified in the future. Even though the likelihood of cyclone is low, and the business has never experienced the risk of cyclone, there could be potentially affect the business operation, if it occurs. According to the study and analysis of historical data, cyclones often occur offshore, which can pose acute impacts to the transportation of crude oil for using in the production process (upstream) and marine transportation of product (downstream). Regarding the legal requirement on the crude oil reserves, the Company has reserved sufficient crude oils for its production. Therefore, we are confident that the risk from cyclone will not affect the Company’s production process. Moreover, the wind speed at operational sites may pose hazards to workers, machinery, and equipment.

Mitigation Measure

Result of Financial Impact Assessment (EBITDA)

Key Risk

• ​1. Impact of water shortage: In case that the government sector reduces water supply to the Company by 10%, the Company must align its investments with the Long-term Water Supply Strategy. The Company is required to consider increasing the volume of freshwater from private sources and freshwater production from seawater by the Thermal Desalination Unit. Additionally, the Company needs to prepare the water reservation plan in appropriate areas to provide adequate water in the production process. However, these measures could increase production cost. 

5. Performances 2023

With the GHG management described above, Thaioil Group has successfully controlled methane emissions within the set target. A significant portion of methane emissions originate from the same source as other greenhouse gases.

Through the implementation of energy efficiency improvement projects in the production process in 2023, Thaioil Group was able to successfully achieve targets for GHG emissions (Scope 1 and 2). Furthermore, the Company has also established a long-term, medium-term, and annual target. Annual targets are determined from the energy consumption used per business plan in each year as follows:

Reduction of Indirect Greenhouse Gas Emissions (Scope 2)

Thaioil Group has indirect greenhouse gas emissions (scope 2) from the purchased electricity with the total of 8,244 tCO₂e, or 0.24% of greenhouse gas emissions (scope 1 and 2).

Reduction of Indirect Greenhouse Gas Emissions (Scope 3)

Indirect GHG management (scope 3) from Thaioil Group’s supply chain is summarized as follows:

• • Sought opportunities to increase the value of waste disposed to landfill. The 3Rs method was adopted to control and reduce GHG emissions. In 2023, Thaioil Group successfully maintained zero waste to landfill performance against the set target. 
• • Conducted risks assessment and developed plans to minimize ocean loss during the transportation. The Energy and Loss Committee also designed a product loading system through pipeline to reduce GHG emissions from both land and sea within the production and transportation system.
• • Promoted the procurement of environmentally friendly products and services from partners. The Company organized “Thaioil CE WE GO (Thaioil Circular Economy) project” to increase waste value through upcycling initiatives, such as upcycling plastic waste into QSHE shirts for employees and contractors, upcycling food waste into fertilizer, and others.
• • Sold low-carbon products to reduce downstream GHG emissions from end-users such gasohol, biodiesel, and bioethanol.

​In 2023, Thaioil Group had 5 green product categories, and 14 types of environmentally friendly products as follows:

Update : February 2024 

Thaioil Indirect greenhouse gas emission (Scope 3)

Operational Approach and 2023 Progress for 3Cs Strategy

Thaioil's Physical Risk Report

Thaioil's Transition Risk Report