Energy

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Energy.

Key developments in 2023

In our last Annual Insurance Review, we anticipated the further progression of the energy transition and a corresponding expansion of associated insurances. 

Over the past 12 months, the global trend towards sustainable and renewable energy sources has certainly gained momentum.  The UN Climate Change Conference (COP 28), in December 2023, saw the multilateral agreement of those participating nations to "transition away from fossil fuels in energy systems".  The agreement was described by the UN Climate Change Executive Secretary, Simon Stiell, as the "beginning of the end" of "the fossil fuel era".

Despite the political headway being made towards renewable energy systems, and perhaps surprisingly, 2023 has seen a continuation in the upward trend in total global premiums for offshore energy insurances.  The International Union of Marine Insurance (IUMI) has reported an increase in global premium of 7.3% since 2019, to USD 4.1 billion.

The increase in global offshore energy premium reflects the uptick in offshore activity in consequence of increased oil and gas prices.   A material contributor to the increase in those prices is the continued geopolitical concern over energy security in view of Russia's ongoing war in Ukraine.  

The war in Ukraine has exposed the fragility of global oil and gas supply to geopolitical events – which has resulted in nations, including the UK, reversing the decline in domestic production of oil and gas, in an effort to secure domestic energy supply.  Accordingly, governments have been placed in the seemingly inconsistent position of advocating a transition away from fossil fuels whilst simultaneously granting an increasing number of extraction licences.

With no end in sight for the war in Ukraine, and despite the apparent success of COP 28, the rise in premium income within the offshore energy market, in the short term, looks likely to continue. 

What to look out for in 2024

During 2024, we expect to see further growth in the production (and insurance) of hydrogen energy.

Over the last couple of years, the US and US have both invested significantly in hydrogen as a future source of energy. Saudi Arabia has spent billions of dollars on the NEOM Green Hydrogen Project, alone, which is due to be commissioned in 2026.  Globally, according to the Hydrogen Council, 680 hydrogen energy projects have been proposed worth an estimated USD 240 billion.

As a nascent technology, investors in hydrogen projects will look to the insurance market to provide guarantees as to the nature, allocation, and extent of the risk associated with a given project.It is the insurance market that will make these projects investable – and, by extension, possible.

In last year's review, we highlighted Marsh’s hydrogen project insurance facility. Marsh is also joined in this space by insurance giant, Munich Re, who offer risk transfer solutions to hydrogen producers.

Whilst hydrogen projects may be novel to the energy insurance market, the relevant coverages for production, transportation, and utilisation - and the associated hazards - will not be too dissimilar to those of the existing energy sources with which the market, and its lawyers, are familiar.

We look forward to seeing how the energy market develops, during 2024, to respond to this increasing focus on hydrogen energy.

Written by William Jones & Tom Scanlon.