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MAJOR LOSSES IN THE HYDROCARBON INDUSTRY 03 JULY 2014
Jonathan Carter, Global Energy Risk Engineering London
MARSH 1 08 July 2014
• Introduction to Marsh
• Introduction to Insurance Risk Engineering
• Marsh 100 Largest Losses 23rd Edition
– What’s in it?
– The 10 Largest Losses
– What’s not in the document?
– Recent losses
– Trends in the losses
• Uses for the document
• Any Question?
MARSH 08/07/2014
Marsh & McLennan Companies
Marsh & McLennan Companies
Marsh
A world leader in
delivering risk and
insurance services and
solutions to clients
Mercer
A leading global
provider of consulting,
outsourcing, and
investment services
Guy Carpenter
A leading risk and
reinsurance specialist
Oliver Wyman
Delivering advisory
services to clients
Lippincott
Corporate
branding, identity,
and image
Oliver Wyman
A top-tier global
management
consulting firm
NERA Economic
Consulting
Competition,
regulation, public
policy, finance,
and litigation
MARSH 08/07/2014
Marsh Global Over 24,000 Colleagues and 400 Offices in 130 countries
Marsh Owned/Controlled Office
Affiliate
Correspondent
No Marsh Office
MARSH 4
Marsh: A Leader in Scale and Scope
• Marsh serves 87% of the Fortune Global 500 and manages three or more lines of coverage for 92% of the Fortune 100.
• Circa USD 40 billion in premium placed.
• Extensive global footprint with operations in more than 130 countries.
• Over 24,000 employees and 400 offices worldwide.
48%
U.S. and Canada
6% Latin
America
35% EMEA
11% Asia
Pacific
Presence: Marsh Owned/Controlled Office Affiliate Correspondent
2010 Revenue:
USD 4.8 billion
MARSH 08/07/2014
Energy
Value Proposition Capabilities
Marsh’s Energy Practice is at the forefront of advising energy
companies on risk and insurance issues impacting operational success.
Our network of over 350 energy specialists is globally coordinated from
ten strategic hubs. We manage over USD 2 billion of insurance premiums
in the energy markets for over 1,000 clients.
• Our leverage with global markets enables us to
reduce the cost of a client’s risk by identifying
opportunities in existing programs.
• Access to our market-leading claims team ensures
you benefit from our worldwide experience in
maximizing policy indemnity and swift recovery.
• Our market-leading risk engineering team provides
quality risk assessment and improvement advice,
benchmarking data, and adaptability to new
industry technologies.
• Our powerful analytics and benchmarking
capabilities allow us to support clients through all
phases of investment.
• Negotiating ability
• Market knowledge
• Contract review
• Risk consulting
• Engineering
• Ability to access key international markets
• Energy insurance training courses
• Crisis management
• Claims management
• Strong benchmarking data
MARSH 6 08 July 2014
Insurance Risk Engineering
Supporting the communication between insured and insurers
Making judgements on the quality of risk management practices
Making estimates of the magnitude of potential insured losses
Making recommendations on good loss control standards
Promoting improvements in process safety standards
Acting and technical resources for brokers and underwriters
Ensuring lessons from energy industry losses are shared across the
industry
MARSH 8 08 July 2014
• From a database maintained by Marsh for nearly 40 years
• Now has nearly 10,000 entries
• Latest edition – the 23rd – published in March 2014
• 100 Largest Losses based on the estimate of a “Ground Up” property
damage loss
– Adjusted to equivalent of 2013 value
• No Business Interruption / Liability / Cost of Well Control etc.
• Covers the period 1974 to 2013
MARSH 9 08 July 2014
Categories
• Refining
• Petrochemicals
• Gas Processing
• Terminals and Distribution
• Upstream
MARSH 10 08 July 2014
Included in the 23rd Edition
• Forward by Professor Sam Mannan
• New losses added since the 22nd edition – published in 2011
• Up-dating of losses with up-to-date information on loss values and causes
• Summary of other recent major losses
• Summary of recent Natural Catastrophe losses
MARSH
Ten Largest Losses
Location Country Date Incident Type Property Loss
(USD million –
2013)
Piper Alpha, North Sea UK 1988 Explosion / Fire 1,810
Pasadena USA 1989 Explosion 1,400
Skikda Algeria 2004 Explosion / Fire 940
Ekofisk, North Sea Norway 2009 Collision 840
Gulf of Mexico USA 1989 Explosion / Fire 830
Mina Al-Ahmadi Kuwait 2000 Explosion / Fire 820
Campos Basin Brazil 2001 Explosion / Sinking 790
Longford Australia 1998 Explosion 750
Campos Basin Brazil 1988 Blowout 700
Toulouse France 2001 Explosion 680
11 08 July 2014
MARSH
What isn’t in the publication?
• Bhopal Limited Property Damage loss
• Mexico City, Pemex Limited Property Damage Loss
• Feyzin Prior to 1974
• Buncefield Limited Property Damage to the first insured
12 08 July 2014
MARSH
Where are they?
Macondo / Deepwater Horizon
14th USD 600 million (2013 USD value)
Loss of the drilling rig only
Flixborough
40th Estimated Loss Value inflated to 2013 – USD 270 million
13 08 July 2014
MARSH
New Incidents Since 2011
14 08 July 2014
2012 Explosion and Fire at Petrochemical Site
Map Ta Phut, Thailand
2012 Explosion and Fire at Oil Refinery
Bangkok, Thailand
2012 Explosion at oil refinery olefins storage plant
Falcon State, Venezuela
2013 Refinery fire following major flooding
La Plata, Argentina
2013 Explosion and fire on an ethylene cracker
Louisiana, USA
2013 Sinking of a jack-up rig
Off-shore Angola
2013 Blow-out on a drilling rig
Gulf of Mexico, USA
MARSH
Recent incidents not included
• West, Texas Ammonium Nitrate Explosion
• Elgin Platform Gas Leak, North Sea
• Lac Megantic, Quebec, Canada oil train explosion
15 08 July 2014
MARSH
Recent Natural Catastrophe Losses
• Superstorm Sandy
• Flooding in Thailand
• Typhoon Haiyen in the Philippines
16 08 July 2014
MARSH
• Losses over USD 130 million (2013 value)
• Increase in activity in the sector
– Average daily production of crude oil
1980 – 64 million barrels
2012 – 89.3 million barrels
• Concentration of major losses in 1980s (Piper Alpha, Philips Pasadena,
Gulf of Mexico)
• More frequent large losses (over USD 130 million) in last 15 years
18 08 July 2014
MARSH
• Dominated by upstream and refining
• Upstream
– High value
– High pressures and temperatures
– Unknowns of natural reservoirs
– Corrosion and erosion risks
• Refining
– High value
– Heating / cooling / reacting
– Corrosion risks
– Large inventories
20 08 July 2014
MARSH
• Petrochemicals
– High value (and value concentration)
– High pressures / temperatures / reactions
– “Refined” feedstocks
– Lower inventories of flammable and explosive materials
• Gas Processing
– Lower value concentration (in general, but some exceptions)
– Less high temperature processing (more low temperature processing)
• Distribution
– Lower value concentration
– No heating / cooling / reacting
– Generally pre-processed
21 08 July 2014
MARSH
Use of the document
• “It can’t happen here”
• “I’ve never heard of that happening”
• “That couldn’t happen in a company like ours”
• Black Swans
22 08 July 2014
MARSH
What is a Black Swan?
• Hard-to-predict, rare events beyond the realm of normal expectations
“an outlier, as it lies outside the realm of regular expectations, because
nothing in the past can convincingly point to its possibility.
“it carries an extreme impact.
“in spite of its outlier status, explanations after the event make it
explainable and predictable.”
Are these losses Black Swans?
23 08 July 2014
MARSH
• Reminders for HAZOP teams
• Starting points for Process Safety meetings
• Reminders of the importance of process safety barriers
• A reminder to finance and risk managers of the potential impact of process
safety failures
24 08 July 2014
MARSH
• Judith Hackett – June 2014
“One of the biggest challenges in the world of real health and safety – and
preventing catastrophes – is getting people to recognise what could
happen, and to learn from past events even if they have never been close
to such a disaster themselves.”
25 08 July 2014
MARSH
Link to the document
https://uk.marsh.com/NewsInsights/Articles/ID/37406/The-100-Largest-
Losses-in-the-Hydrocarbon-Industry-1974-2013.aspx.
Or type
“Marsh 100 Largest Losses”
Into a search engine
26 08 July 2014
MARSH
To carry on the discussion
Follow the link to a Linkedin discussion group
https://www.linkedin.com/groups?mostRecent=&gid=4030631&trk=my_group
s-tile-flipgrp
28 08 July 2014
MARSH
Safety & Loss Prevention SIG – Confirmed Q3 Events
• High reliability organisations: one day seminar, London 24 July 2014
• Committee meeting and AGM combined with workshop on “Integrating SIL
into safety management” 11 September 2014, Portland Place London
• 2015 programme underdevelopment
– Regionally based committee meetings & evening talk
– Webinars
– One day seminars
29 08 July 2014