Energy sector undergoes rapid transformation

Climate change and the resulting energy transition continues to transform the energy industry risk landscape, and remains the dominant issue facing the sector, according to a report from Willis Towers Watson.

It outlines how the global energy system is currently being overhauled, with the threat of flows of fossil fuels from fields around the world, through pipelines and tankers to refineries near to consuming markets, disappearing or changing radically to more renewable energies such as wind, wave and solar power.

The report highlights the importance of using risk quantifications and analytics to conduct energy transition initiatives. It focuses on the continued development of analytical tools to assist in making correct risk management decisions and the development of risk engineering dashboards that assist risk managers in communicating risk issues effectively across their organisations. 

Rise of political violence

Among the key risk management issues that continue to be critical for the energy industry are political and civil unrest issues, which are fast becoming risks in domiciles which previously may have been considered benign.

Conditions in almost every arena of the energy insurance markets continue to harden, although rate increases are expected to be more moderate for some risks. 

George Nassaouati, head of Natural Resources Asia, Willis Towers Watson (WTW), said: “In the past 12 months, we have seen some quite extraordinary developments around oil price, demand destruction and an even sharper focus on environmental, social and governance issues and so there is no denying there are increasingly wider challenges facing the energy industry.

”However, it is the issue of climate risk that continues to dominate the sector and we are increasingly seeing an acceleration of the energy transition that will have a significant impact on the future shape of the industry. In short, today’s energy businesses are needing to consider how they establish robust transition plans to ensure a sustainable future.

”Here in Asia, we are seeing a lot of interest from energy companies in meeting their energy transition targets as they look ahead to ensure a greener footprint.”

Looking ahead, Nassaouati expects the overall energy insurance market in Asia to remain consistent. “Insurers are firm on their requirements, translating into inelastic premium levels, costlier coverage or extensions and higher insurance costs.

”As a result, energy companies should consider setting aside some buffer in their insurance budgets. With some recovery in oil price, we are also seeing an increase in the number of energy construction projects. However, aggregation is fast becoming an issue for energy companies that are based in Myanmar and Thailand, which may lead to restricting competition in some risks and future construction activities.”