How gas export will change the way liquid natural gas facilities are underwritten.

Q&A With An LiU ExpErt

LiU Special ty Lines insurance

Q: the US has shifted from expecting to import gas through its LnG facilities, to looking to export. how does that change how these facilities are underwritten?

A: Many of the existing import operations are idle or used spar-ingly. therefore, fire and explosion exposures are reduced; however, attention to maintaining this high valued equip-ment for potential future uses must remain a priority for the owners. in addition, for the export facilities being constructed at existing import locations, the fractionation facilities being constructed represent a higher degree of fire and explosion potential. Underwriters will want confirmation that the owners are managing this integration appropriately and that all of the proper risk management procedures are being followed.

Q: in some mainstream coverage of LnG, the claim’s been made that the process and these plants are far less complex and risky than they have been. Agree? Why or why not?

A: All facilities handling, processing and storing flammable material under pressure at cryogenic temperatures are complex and represent inherent risks. this situation has largely remained unchanged from an insurance perspective over the past decade.

Q: One new LnG terminal in Singapore reportedly cost $1.7 billion. Another in Australia several times that. What sort of coverage(s) and limits are owners looking for to protect these large investments?

A: Owners need to utilize sound risk management processes to manage exposures including appropriate risk transfer via insurance coverage. in general, owners look to purchase all-risk coverage including natural catastrophe perils to protect their financial interests. the limits purchased are dependent on the myriad of exposures, and for heavily exposed natural catastrophe prone locations, equipment and structural design parameters are incorporated to mitigate loss potential.

Q: Are fac reinsurers brought in at the upper ends of coverage for individual facilities?

A: Large and complex insurance placements for LnG facilities involve the available market capacity including insurers, rein-surers and captives. this capacity is structured to achieve risk transfer requirements, ideally in a cost-effective structure.

Q: What sort of interest level among underwriters is there to insure LnG terminals?

A: in general, energy expansion projects, including LnG facilities, are viewed as desirable opportunities in the marketplace, recognizing that individual carriers’ appetites for risk are varied.

LIU ExpErt timothy Kania, SVP LIU Energy & Construction

LiU-USA.com Liberty international Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. this literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. please refer to the actual policy issued for complete details of coverage and exclusions.

©2014 Liberty Mutual insurance, 175 Berkeley Street, Boston, MA 02116.

Q: When considering these projects, how much do climate change and extreme weather events play into the minds of underwriters, given that terminals are along the coast?

A: the analysis of natural catastrophe exposures is considered a critical underwriting consideration for all projects, including energy-related projects when located in areas prone to natural catastrophe perils. Extreme weather, including hurricanes, can lead to substantial property and consequential loss due to wind damage and resultant storm surge flooding for coastal LnG and Energy facilities.

Q: LnG-related construction projects are underway around the world. how different is insuring these construction projects than insuring “typical” complex energy, chem-ical or manufacturing facilities (if at all)?

A: All energy projects, including LnG facilities, have unique and complex risks that require in-depth understanding of exposures in order to ensure they are properly insured. regardless of which type of facility is being insured, the risks require underwriters and risk engi-neers to thoroughly evaluate the operation and develop a comprehensive insurance solution for the project.