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Reflecting on the last two years

The past two editions of this report have highlighted the dynamic factors that can affect the operating conditions and risk landscape for the industry.

Oil​ refinery​ and​ plant and tower of Petrochemistry industry in oil​ and​ gas​ ​industry with​ cloud​ blue​ ​sky the morning​

The 2022-2023 period was defined by a number of factors that challenged the energy and power industry as well as the global economy. Recovery from the Covid-19 pandemic was further complicated as the spotlight on energy security intensified as a result of the Russia-Ukraine war, soaring energy and commodity prices contributed to inflationary pressures and tightening of fiscal policies, and supply chain constraints impacted most industries. At the same time, the global groundswell of social and political commitments to address climate change and adopt sustainability measures renewed the urgency to transition to clean energy sources. Despite the macro-economic landscape, the current volume and scale of investment in the energy and power industry is unprecedented. The terms energy security and energy transition have become the part of our common language and serve as reminders of how essential the industry is to both developed and emerging economies.

The past two editions of this report have highlighted the dynamic factors that can affect the operating conditions and risk landscape for the industry. The 2020 report reflected the aftermath of the active loss period of 2017-2019, while the 2022 report captured the uncertainty, heightened risk considerations, and reduced operational activity through the Covid-19 pandemic. The past two years have been a mix: there was more loss activity in 2022, though this subsided in 2023, particularly in relation to onshore assets.   

Since our last report, only two incidents have resulted in property damage losses in excess of US$240 million, which is the adjusted threshold for the 100 highest value losses. In researching this edition, we have also revisited  historical losses where additional information is now available that may not have been  at the time of our previous report publication. Using updated investigation reports and data from insurance markets, we have identified twelve incidents that now qualify for the top 100 ranking.

2022-2023 losses added to the top 100

  • A fire and large explosion at a gas processing plant in the US (July 2022, ranked 44).
  • A fire and explosion on an offshore platform complex in the Gulf of Mexico (July 2023, ranked 26). This is the first upstream sector loss to be added to the dataset since 2016.

Historic losses added to the top 100

Date Location Cause Sector Ranking
1974 Norway Mechanical failure Upstream 65
1982 Canada Mechanical failure Upstream 84
1987 US Fire and explosion Upstream 18
1991 Norway Mechanical failure Upstream 31
1999 Angola Mechanical failure Upstream 59
2003 Norway Mechanical failure Upstream 35
2007 Canada Fire Refining 78
2009 South China Sea Natural catastrophe Upstream 87
2013 Kazakhstan Mechanical failure Upstream 21
2014 Netherlands Explosion Petrochemicals 53
2015 US Mechanical failure Upstream 27
2017 Canada Fire Refining 99

Marsh engineers have also analyzed a number of incidents that did not rank in the top 100 but are notable to insurance markets because the combined value of property damage and business interruption claims for each loss was significant. Many of these incidents are still under investigation to determine the cause of the loss, and will undoubtedly provide valuable learnings for energy operators.

  • A fire at a refinery in Spain (January 2022).
  • A fire at a refinery in the US on a unit processing alkylate (February 2022).
  • A floating production storage and offloading (FPSO) vessel sank off the coast of Nigeria following a fire and explosion (February 2022).
  • A mechanical incident caused significant damage to a crude oil distillation unit at a refinery in Austria following a legally required water pressure test (June 2022).
  • An explosion at a liquefied natural gas (LNG) facility in the US where investigators identified deficiencies in operating practices and shift crew management (June 2022).
  • A fire at a refinery in the US (June 2022).
  • A fire and explosion at a refinery in the US. Investigators identified violations of process safety rules and inadequate training of workers (September 2022).
  • An explosion and fire on a glycol unit at a petrochemical complex in the US (July 2023).
  • A fire at a refinery in the US (August 2023).

Examining the causes.

Operational discipline

In the 2022 report, one of the major risk factors identified was the potential downsizing of operations and loss of experienced staff as organizations focused on recovering from the Covid-19 downturn. While the energy industry demonstrated exceptional resilience and innovation to overcome the challenges during the lockdown period, there have been a number of recent incidents that may indicate a loss of operational discipline. The examples below are not in the top 100 dataset but demonstrate the importance of embedding robust operational processes and ensuring personnel are appropriately trained.

Refinery fire, Spain, January 2022

A fire occurred when the wrong item of equipment was opened for maintenance. The incident resulted from poor shift handover and maintenance practices.

LNG line rupture, Texas, June 2022

A LNG line ruptured when left blocked for an extended period without a thermal relief path. Investigation identified inadequate procedures, procedures not followed, high overtime rates leading to operator fatigue, and poor alarm management.

Refinery fire, Ohio, September 2022

A fire occurred when a light naphtha stream was drained to the refinery oily water system, creating a vapour cloud which ignited. One of the factors leading to the incident was an inadequate response to an abnormal situation.

Focus areas to improve operational discipline and minimize incidents

  1. Identify and document the specific key processes such as standard operating procedures, effective communication, training programs, risk assessments, incident reporting systems, and continuous improvement initiatives.
  2. Establish key performance indicators for critical elements and processes and evaluate through regular audits, inspections, performance metrics, employee feedback, incident analysis, and benchmarking against industry best practices.
  3. Identify gaps, weaknesses, and areas for improvement and prioritize plans to correct these areas. Conduct internal and external audits, management reviews, independent assessments, third-party certifications, and compliance checks against regulatory requirements.
  4. Build a strong safety culture that encourages proactive hazard identification, reporting of near misses, and continuous learning and improvement. Robust training programs, competency assessments, job hazard analyses, incident investigations, and lessons learned exercises can all strengthen hazard recognition skills. Regular drills, simulations, and scenario-based training can help build confidence in recognizing hazards in abnormal operating situations.

Insurance indemnity periods

Two key factors are increasingly influencing the need to review indemnity periods for business interruption coverage: the intervention of local regulators, and an upswing in global construction activity. Both of these issues have the potential to delay the restart or prolong the rebuild of plant following an incident.

Interventions from regulators and public authorities

Regulators are becoming more involved in the aftermath of major incidents at operating sites, particularly those involving serious injuries or fatalities. Notable incidents that have triggered significant regulatory interventions include an explosion at a LNG facility in Texas, US (2022), a fire at a refinery in France (2019), an explosion at a refinery in Germany (2018), and an explosion at a refinery in Wisconsin, US (2018).

Regulatory interventions can introduce various implications including:

  • Access restrictions: Onsite teams may have limited access to the area affected by plant damage. In some cases, plant repairs may be prohibited until external investigations are completed and comprehensive plans developed.
  • Permitting requirements: Permits to operate may need to be reviewed and reissued before plant repairs can commence. Regulators may mandate changes to some plant hardware.
  • Assurance activities: In addition to hardware modifications, regulators will thoroughly evaluate the effectiveness of management systems and operating practices.
Increasing rebuild costs and timeframes

Construction activity ramped up post the Covid-19 restrictions but the backlog of projects coupled with high inflation has led to higher costs and longer lead times.

Construction cost indices in the ten-year period from 2010 to 2020 recorded average annual increases of 1% to 2.0%. However, prices started to spike from late 2021 as the world emerged from lockdowns and in 2022 alone, many indices recorded double-digit increases.

US Bureau of Labor Statistics: Producer price index by industry: new industrial building construction

Data source: US Bureau of Labor Statistics
Index base adjusted, January 2013 = 100

Although the rate of increase has decreased in the last year, overall construction costs are still at significantly higher levels. For example, steel prices are at or close to a 10 year high.

NYSE Steel Index, 2014-2024

Data source: WSJ Online

Increasing construction costs, supply chain constraints, as well as labor and material shortages highlight the importance of carefully evaluating policy indemnity periods and conducting comprehensive reassessments of plant rebuild values to align with prevailing economic conditions.

Looking Forward – managing emerging operational risks

Workforce and operational excellence

The scale of investment in energy projects is creating competition for talent as companies strive to secure resources to manage existing operations and new strategic initiatives. The competition for skilled personnel and the migration of talent between industries may pose tangible risks for energy operators. Companies must find ways to manage workforce turnover while maintaining knowledge, competence, and operational excellence to mitigate the inherent hazards involved in building and operating energy assets.

Existing energy operators may have a robust safety culture, but ensuring regular reviews of operationally critical processes and procedures is essential. Similarly, new operators should be mindful that building culture and expertise will take time. Operators can improve their chances of preventing significant and avoidable losses by using benchmarking studies, implementing comprehensive training and development programs, ensuring consistent maintenance practices, and regularly testing risk management and response plans.

Climate and sustainability considerations

The reality of climate change means companies have to rethink their infrastructure needs and design. Increasing variability in weather conditions and more frequent natural catastrophe hazards increase the risk exposure of most energy facilities. Operators are challenged with improving the resilience of existing operations today, and elevating climate considerations into expansions or investments. Furthermore, with the increasing scrutiny of environmental, social, and governance policies, future insurance market capacity and risk transfer mechanisms for traditional energy facilities may narrow.

Digitalization

Cyber risks are escalating with the digitalization of energy systems. A cyberattack on operational technology (OT) such as SCADA applications could paralyze production or power generation. But even the operational management of change associated with OT deployment needs careful planning, process management, and implementation to prevent significant business interruption losses and workforce risk.

Geopolitical dynamics

Regional conflicts increase the risk of energy infrastructure been strategically targeted. Aside from increased insurance costs, operators need to be aware of war and other exclusion clauses that may affect insurance coverage. 

100 Largest Losses in the Hydrocarbon Industry

1974 – 2023

This report reflects on the last two years and provides insight to energy industry professionals on the range of losses that can occur, the diversity of potential root causes, and the risk management and mitigation practices that can improve operations.

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