Marsh insurance looks to minimize risks for global energy shift
Shifting the Middle East economy from its core oil dependence to broad use of renewable fuels involves colossal risks.
Energy companies in the Gulf states, as well as in Egypt and across North Africa, are spending billions of dollars to build solar fields, wind turbines, green hydrogen plants and other forms of costly infrastructure to make the transition.
That’s the landscape where Marsh, the world’s largest insurance broker, sees tremendous opportunities. In an interview with The Circuit, Marsh President for India, the Middle East and Africa Gaurav Bhatnagar talks about the evolving risk management strategies that energy firms are adopting to safeguard their assets.
“These investments call for risk identification and risk analysis that improve investors’ confidence that risks are effectively managed,” Bhatnagar said. Those basic insurance tools “ultimately reduce the cost and the time required to get to financial close, and protect these assets throughout the lifecycle.”
The interview has been edited for length and clarity.
The Circuit: Given the MENA region’s reliance on oil and gas, how can energy companies here effectively transition to renewable energy while managing risk.
Gaurav Bhatnagar: The energy transformation encompasses a broad shift not only from fossil fuels to renewable energy sources but also toward sustainable solutions that promote environmental stewardship and social responsibility. This transition is about transforming our entire infrastructure, economies, and way of life to create a more sustainable future.
The Middle East is leading the way in areas where oil and gas economies are committing significant investment to state of the of the art energy infrastructure to reduce emissions, but they are also embracing new technologies such as carbon sequestration and changing the mix of their power generation and storage capabilities that are renewable based, such as solar and wind.
These investments call for risk identification and risk analysis that improve investors confidence that risks are effectively managed and ultimately reduce the cost and the time required to get to financial close, and protect these assets throughout its lifecycle.
What are the key risks associated with investing in alternative energy projects in the MENA region, and how can these be mitigated?
Diversifying the energy mix, investing in renewable energy, and reducing carbon emissions are key priorities for the region to ensure long-term sustainability. Renewable energy projects often require project owners to consider various risk transfer and risk mitigation measures to address an array of potential exposures, including construction, environmental, regulatory, technological, and operational risks. The ability to manage risks and insurance placements when developing a renewable energy project can contribute to the success of the organization and its bottom line.
In addition to the risks that traditional energy, infrastructure projects encounter and the mitigation strategies that are deployed, alternative energy projects bring new risks associated with evolving technologies like AI, battery storage and their exposure to weather conditions – quality of sunlight, wind speed and others. This requires cutting-edge risk solutions such as parametrics and alternative risk transfer mechanisms, which need to be evaluated carefully as the region leads the way in energy transformation.
What strategies can energy companies use to protect their assets in a world increasingly focused on sustainability and environmental impact?
The energy and power industry is experiencing a period of uncertainty and disruption driven by global commitments and urgency to transition to clean energy sources, [including] the growing demand for energy from developed and emerging economies and the critical need for energy security and safeguarding of energy infrastructure. As such, it is paramount that risks are understood and integrated appropriately into strategic goals and objectives.
Organizations and governments in the MENA region are focusing on tailored strategies covering critical areas such as technologies that create efficiencies, skills, AI adoption and integrated infrastructure. This includes using future scenarios to stress test growth strategies, along with identifying potential supply chain disruptions and supplier risks.
How has risk management in the energy sector evolved in the face of emerging technologies, like AI, blockchain and advanced data analytics?
What we’re seeing in the Middle East, in particular within the energy sector to support the transition, is a shift towards owning the risks through balance sheet deployment creating captive insurance vehicles and integrating these tools into a risk management framework to increase predictive capabilities and allow quicker responses to evolving threats.
In parallel to the move to a more mature risk management framework, these companies are also deploying risk assessment practices such as OT/IT infrastructure vulnerability assessments overlaid with scenario analysis, quantification and impact on the balance sheet to evaluate the best mitigation strategy, an evergreen process to keep ahead of emerging technologies.
How do you assess the financial risks related to energy projects in MENA with the ongoing fluctuating energy prices?
Commercial market demand and supply dynamics can be sensitive to short-term fluctuating market prices. However, as these are long-term capex investments, they are usually subject to a high level of due diligence from financial institutions evaluating their long-term bankability. In this evaluation, insurance plays a critical role from the blueprint stage in providing financial institutions and other stakeholders confidence to protect their balance sheets and the sustainability of these assets in the face of unforeseen, insurable events throughout the project’s lifecycle.