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Aon’s 11th Energy Insurance Training Seminar
Overview of Energy Insurance
Euan Nicholson
Upstream, Midstream
& Downstream
Onshore….. Downstream / Midstream
Midstream Definition:
After initial production until
point of sale ( processing,
storage, transportation and
marketing)
Downstream definition:
After Production phase until
point of sale
Where does Offshore end and Onshore begin?
•
Rig – Tanker – Processor
–
•
Oil is onshore as soon as it leaves the flange of the
tanker.
Rig – Pipeline – Processor
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If the pipeline goes straight from the rig, offshore
market can provide cover all the way to the refinery.
History of Refining
•
First ever refineries….
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Jaslo, Austrian Empire (now Poland) in 1854-56
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Small refineries.
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Whaling
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Kerosene for lamps.
The process has become increasingly complex …
Onshore Facilities: Types of Plant
Types of Non-Marine onshore plants:

Refineries

Ethylene Plants

Aromatics

Oil/Gas Stabilisation

Oil/Gas Storage

Pipelines

Transportation
Onshore Facilities: Chemical Plants
Downstream derivatives:

Polyethylene

Polypropylene

PTA (Pure Terephthalic Acid)

MTBE (methyl tert-butyl ether)

Synthetic Rubber

VCM (Vinyl Chloride Monomer)
Why Refine?
Crude Oil needs to be processed.
Oil Products:
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Gas
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Naptha
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Kerosene (Aviation Fuel)
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Light and Heavy Gas Oils
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Lubricants
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Gasoline
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Tar
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Coke
Why Insure?
• Onshore hazards:
– Fire
– Explosion
– Lightning
– Aircraft
– Storm
– Flood
– Earthquake
– Machinery Breakdown
– Sabotage, riots, strikes, civil commotion, malicious damage…
– War, terrorism
Resulting damage… Big Spring 2008
Resulting damage… Big Spring 2008
Big Spring loss 2008
•
•
Loss Limit
–
US$350,000,000
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EML now clearly too low
Loss Cost
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Vastly in excess of US$350,000,000
Closer to home…
•
•
Coryton Refinery
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Partial Loss in October 2007.
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Small fire in dehexaniser column.
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Affected production but not distribution.
Buncefield storage depot, December 2005
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Physical Damage loss.
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Damage to surrounding property.
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Negligence!
Major losses in modern history
•
•
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Flixborough (1974)
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28 killed, 36 injured.
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Poor engineering planning.
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BIG loss at the time.
Phillips 66, Pasedena Chemical Complex (1989)
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23 killed, 130-300 injured.
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Including BI, loss over US$1,000,000,000.
Toulouse Fertiliser Plant (2001)
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29 killed, 700 injured.
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Including BI, loss over US$1,000,000,000
All VAPOUR
CLOUD
EXPLOSIONS
Insurance
•
•
The pooling of fortuitous losses by transfer of such risks to
insurers, who agree to indemnify insureds for such losses, to
provide other pecuniary benefits on their occurrence, or to render
services connected to the risk
So it is the transfer of loss and sharing of losses with others
– Risk Transfer
Key Features of Insurance Contracts
•
•
Indemnification
Valuation of Insured Losses
–
–
–
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Replacement Cost
Actual Cash Value (ACV)
Agreed-upon Value
Deductibles
Physical Damage & Business Interruption
•
Covers:
~
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All Physical onshore assets, including:
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Refinery
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Pipelines
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Jetty
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Storage tanks
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Vehicles
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Unprocessed Oil and its products
Premium setting:
~
Insurers will apply a rate to the sum insured to reach the
premium.
Long term consequences

Shareholder dissatisfaction

Lender dissatisfaction

Loss of continuity of market

Potential for sale & take-over of the business

Deferral of expansions
Upstream: Exploration & Production
Offshore Production and Drilling Platforms
Concrete gravity based structure
Tension Leg Platform
• Relies on weight to keep stable
• Deepwater
• Made of steel and concrete
• Tension legs
permanently moored to
seabed
• Up to 300m jacket height
SPAR
• Hull is a buoyant
structure
• Deepwater
• Oil storage in hull
Conventional Platform
• Mooring lines connect
platform to seabed
• Steel jacket supporting
topsides
• Jacket legs piled into
seabed
• Shallow – medium
depth water
Offshore production and drilling platforms cont.
FPSO (Floating Production Storage
Offloading)
• Deepwater or isolated areas
• Low cost option
• Ability to weather vane
FLNG (Floating Liquefied Natural Gas)
• Gives access to stranded gas reserves
that cannot be transported to land
• Liquefaction process takes place on
board
• Deepwater and problematic areas can
be accessed
• LNG takes up less space than natural
gas
Offshore production and drilling platforms cont.
The scale of the industry
Increasingly Complex risks
Offshore Construction: Different Phases
Engineering
Testing and
Commissioning
Installation
Procurement
Offshore transits
Hook-up
Fabrication
Design
Project Management
Offshore Construction
Deepwater Repair
Deepwater Drilling Challenges
Life is Risky….