Uncertainty in the energy market looks set to continue, but insurance price pressures may ease, according to a new report from WTW.
According to the report, market volatility is likely to continue in the global energy sector, which continues to face challenges including:
The uncertainty arising from these disruptions is one factor driving continued insurance price hikes in the sector, according to the latest WTW Energy Market Review.
In Part One, the report examines the future beyond “peak oil,” highlighting the challenges and opportunities faced by the energy sector.
“Security of supply will remain a top priority for governments,” the report said. “The US is responding to higher prices by striding ahead in all areas of energy production. If international governments follow suit, then operators and contractors are set to benefit.”
A range of experts contributed to the Review, covering subjects including:
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Part Two of the report examines the current state of energy insurance markets, beginning with a Q&A between Tom Houston, head of upstream at Convex Insurance, Paul Sankey, Convex head of downstream, and WTW’s Richard Burge and Adam Barber-Murray.
Sankey said the war in Ukraine has revealed the energy industry’s integration with the global economy, as exemplified by Europe’s pivot from Russian oil toward imported liquified natural gas.
“In the short term, the world is focusing on energy security, and that shift alone makes the energy industry different, while other factors such as energy sustainability and energy affordability are also going to change it in the long term,” Sankey said. “As economies move away from their dependence on Russian natural resources, I think these changes are inevitable.”
The review also includes analyses covering:
It also includes a geographical overview with market intelligence from China, Dubai, Latin America and the Nordics.
“With capacity levels at least matching those of 2022, it seems clear that overall supply remains plentiful,” said Graham Knight, global head of natural resources at WTW. “But with more sophisticated risk management options open to major buyers, the market has to consider the possibility that some of the most sought-after businesses may be withdrawn in favor of increased captive participations – or even a parametric risk transfer solution – perhaps on a permanent basis.
“In very general terms, we therefore anticipate a possible easing of these hardening pressures as the year continues, in the absence of major catastrophic losses or other force majeure events.”
WTW’s own energy practice was recently bolstered with the appointment of Jamie Lee as head of upstream energy for the company’s North American natural resources business.
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