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. 

Trump’s vow to promote U.S. oil puts pressure on OPEC states

President Donald Trump’s inaugural promise to unleash the U.S. oil industry and stifle the Biden administration’s push toward renewable fuels produced muted reactions in Saudi Arabia, the world’s No. 2 oil producer after America.

Asked about what Trump’s vow to “drill, baby, drill” and vastly increase U.S. petroleum production meant for OPEC countries, Saudi Aramco CEO Amin Nasser said he’s confident that rising world oil demand – particularly from China – will cushion the impact.

“We still think the market is healthy,” Nasser told Reuters in an interview on Tuesday on the sidelines of the World Economic Forum in Davos, Switzerland. “Last year we averaged around 104.6 million barrels (per day); this year, we’re expecting an additional demand of about 1.3 million barrels … so there is growth in the market.”

UAE Economy Minister Abdulla bin Touq, meanwhile, expressed frustration with the European Union over maintaining his country on its “black list” of countries that are not doing enough to combat money laundering.

Bin Touq said the UAE will hold talks with the E.U. to settle the issue. “I do not understand how the UAE is still on the black list,” he told Bloomberg in an interview at Davos. The Paris-based watchdog Financial Action Task Force’s decision dropped the UAE from its parallel “gray list” last year.

At its pavilion on the Davos Promenade Tuesday morning, the UAE delegation hosted a breakfast talk featuring Minister for Cabinet Affairs Mohammad Al Gergawi, International Holding Co.  CEO Syed Basar Shueb and 2PointZero CEO Mariam Almheiri.

What’s on tap at the Milken Middle East and Africa Summit: Day 2

☀️ Good morning and welcome to Day 2 of The Circuit’s special coverage of the Milken Institute’s 2024 Middle East and Africa Summit. Read here what to expect today as the conference wraps up with discussions on the transition to renewable fuels, regulating digital finance, controlling the costs of health care and investing the Gulf’s sovereign wealth.

The agenda opens today with brief remarks from U.S. Ambassador Martina Strong, who came to Abu Dhabi a year ago and has been a key Biden administration representative in the Middle East.

Following Ambassador Strong onstage, Michael Milken returns to kick off Day 2’s proceedings in a conversation about the future of world financial markets with TPG’s James Coulter, promising to hit on topics including deglobalization, decarbonization, and digitization.

Milken will also lead the conference’s concluding session in a chat with Khaldoon Al Mubarak, one of the country’s most influential leaders as Managing Director and Group CEO of the Mubadala sovereign wealth fund, and a member of the Abu Dhabi Executive Council The conversation promises to touch on how the UAE, Saudi Arabia and their Gulf neighbors have become a dominant force in the investment world, with venture capitalists and hedge fund managers making pilgrimages to tap their financial resources.

Other headliners today include U.S. Ambassador to India Eric Garcetti, the former mayor of Los Angeles, who will join investors and real estate developers on a panel about the future of the world’s cities, with discussions on sustainable transportation, smart infrastructure and enhanced livability.

Among the showcase activities during the Summit has been interviewing and whittling down the list of competing startups for the annual $1 million Milken-Motsepe Fintech Prize, which aims to expand access to capital and financial services for small businesses in emerging and frontier markets. Nominees have been making pitches this week in hopes of competing in the final round taking place at the Milken Institute’s flagship Beverly Hills conference in May, where the prize is presented.

In an interview with The Circuit’s Omnia Al Desoukie, Margaret O’Connor, the chairperson of Mauritius-based Launch Africa and a judge for the Milken-Motsepe award, said the program is a major incentive for the continent’s young companies. “I actually have goosebumps because we’re at a moment in time where we’re building systems to create systematic connectivity,” O’Connor said. ”The GCC needs African talent – AI talent and entrepreneurial talent and business talent. GCC also needs access to African markets [while] African entrepreneurs need access to GCC markets and capital.”

Dr. Jill Biden, First Lady of the United States, told a packed ballroom that she’s proud of the progress made by the Biden administration in advancing medical care and education about women’s health after years of neglect. “I remember going to my husband and saying, ‘Joe, this can’t go on.’”

Actor Ed Norton, who is U.N. Goodwill Ambassador for Biodiversity, on “The Art of Storytelling” in a lunch discussion yesterday: “To get people involved in the story, you have got to make it transparent and about them. People respond well because of the authenticity of the story. When everyone sees that everyone is working from their heart, they will put in their efforts.”

Grant Verstanding, Founder, Chairman and CEO of Red Cell Partners during a panel on artificial intelligence: “The whole world changed after Newton. The whole world will change after AI.” 

Read our full recap of Day 1 at the Milken Middle East Africa Summit here and subscribe to our Daily Circuit newsletter for the latest on the Middle East business landscape each day here.