Welcome to this year’s Energy Market Review. When we published last year’s edition, we imagined that COVID-19 would be an experience that might last for a few weeks, maybe a few months; little did we realise that we were on the cusp of an intermittent global lockdown over a 12 month period, resulting in a major revolution in the way in which we all now work. Regardless of when we transition back to a more physical business environment, there will be no simple return to the way we all operated in 2019; a large number of changes are here to stay, and it will be fascinating to see how the new business environments in the energy, risk consulting and insurance industries evolve in the months and years ahead. We continue to wish that all our readers stay safe, and hopefully experience a better 2021 than the challenging circumstances with which we have all had to cope during the last 12 months or so.
In the meantime, the besetting issue confronting the energy industry – that of climate change and the resulting energy transition – has, if anything, accelerated during the past 12 months, and we are putting this issue front and centre of our Review once again. This year, in assessing how climate change is affecting the industry, we thought we would ask the experts from within the industry itself. We are delighted that Dominic Emery, Chief of Staff at bp plc, agreed to be interviewed by us a few weeks ago and an edited transcript of our conversation is the leading article of this year’s Review. Just one statistic provided by Dominic during the interview was truly astonishing: that roughly $100 trillion needs to be invested over the next 30 years for global temperatures not to exceed 1.5 degrees by 2050. Of course, as yet the world is nowhere near being on course to meet such a level of expenditure; as Dominic points out, the will is there, both at national and private sector level, but investment levels around the world now need to step up exponentially. In his interview, Dominic provides an interesting insight as to how bp has risen to the challenges posed by the transition, as well as how bp is managing the new risk landscape that is emerging.
We also include three other articles within Part One of the Review which highlight the challenges posed by managing risk during this accelerating energy transition. Ian Phillips has over 25 years’ experience in the oil & gas industry, having worked for oil majors such as Shell and bp; he is now Development Director of a company which developed one of the UK’s first Carbon Capture and Storage (CCS) projects. Ian concludes his article by suggesting that although the energy transition may pose an existential threat to some players within the oil & gas industry, it may also represent an enormous opportunity to others. Tony Rooke, Willis Towers Watson’s Director of Climate Transition Risk, then shows how energy companies can begin the process of managing their transition risk by a quantification process that enables energy industry risk managers to provide insights to inform their company’s business strategy. Finally, to provide an insurance market perspective, we are delighted that Sam Harrison and Peter Burton from QBE have also been kind enough to sit down and discuss with us how QBE, as a global insurer, is reacting to the changing business environment in both the energy and insurance industries, including their company’s plan to support their energy industry clients through the transition.
In Part Two of the Review we focus on some key risk management issues that continue to be critical for the energy industry, including political and civil unrest issues that are fast becoming risks in domiciles which previously may have been considered benign. We also focus 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. We also hear from OIL on recent developments in their energy mutual; it will be interesting to see in future whether there will be any further developments in the mutualisation of energy industry risk as the energy transition gathers momentum.
In Part Three of the Review we focus on the continuing challenging insurance market conditions for Energy business. For the first time this year, we have included a specific insurance market Executive Summary so readers can pick out the main points that we make on capacity, loss rating levels and the market outlook for the remainder of 2021. We also include another insurer interview with Mike Hayes of Berkley Offshore, who provides his own perspectives on today’s challenging International Liability market.
At Willis Towers Watson we continue to support our clients in achieving an orderly energy transition, enabling them to increasingly align their business strategies in response to these stakeholder challenges and pivot towards a net-zero future. We are committed to taking a positive approach to this issue, helping our clients achieve their new objectives as rapidly as possible. We do this from a risk advisory position, which is designed to help them achieve and accelerate their climate reduction targets and so enhance their profile within their external stakeholder community.
We very much hope you enjoy reading the Review and as ever would welcome any comments or feedback that you may have.
Graham Knight is Head of Global Natural Resources, Willis Towers Watson. graham.knight@willistowerswatson.com
