The Future of Risk: Energy

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Leader’s insight:
looking beyond the storm

The energy sector is facing a perfect storm, with COVID-19 and the low oil price environment placing significant pressure on firms globally.

Our Expert
Euan Nicolson
Chief Commercial Officer, Global Energy
+44.207.086.7786

Most are focused on the immediate challenges created by the pandemic, with rigs laid-up, cashflow shortages and heightened operational risk challenging resilience right across the sector.

But many are also developing a vision for the future, as the sector comes under increasing pressure to change its energy mix in the coming decades, and embrace the Energy Transition.

While this pressure is unlikely to result in an immediate sea-change, it has rapidly climbed up the agenda within the c-suite of many oil and gas firms with the COVID-19 pandemic acting as an accelerant. And it is forcing a rethink when it comes to issues ranging from future investments and exploration, M&A and talent, environmental social governance (ESG), to alignment with the 2015 Paris Agreement, and maintaining access to capital.

As a consequence, 2020 has witnessed an increase in announcements from oil and gas firms articulating their decarbonisation plans and net-zero ambitions.

The analysis in the Future of Risk: Energy aims to address many of the challenges the sector will face along the many different glidepath scenarios, drawing on expert insights from across Aon and beyond, and our hope is that the analysis will help firms build resilience for the long-term.

Much as with the current pandemic, there will be both winners and losers; and it will be those who can understand and adapt to the changing dynamics facing the sector in the coming decades who will come out on top.

Leader’s insight:
Europe - leading the charge

The energy transition had already begun prior to COVID-19, but the pandemic and evident parallels with the systemic and far-reaching consequences of climate change, has seen it rapidly move up the agenda of major oil companies.

Our Expert
Henric Gard
Head of EMEA Energy
+46.8.697.4811

Most major European oil companies have adapted their plans as they prepare for the energy transition and future visions that prioritise decarbonisation are receiving considerable airtime at public and investor events.

Prominent majors including BP, Equinor and Shell are taking the transition increasingly seriously and seem to be ready to transform at pace. Operating models and capital expenditure budgets will need to be revised accordingly.

In the Nordics, we are already seeing strong evidence of this changing focus, with Finnish Neste acquiring the Bunge refinery in Rotterdam - presumably to be able to increase renewable content in their refined transportation fuels.

While a refiner recently made public their decision to shelve a major refinery expansion, to focus future investments on the refining of ever more sustainable transportation fuels.

And while Europe is leading the charge, the recent US presidential outcome suggests a change in policy direction there is likely. This should encourage the major US oil companies to ramp-up their energy transition strategies and join the race. We will undoubtedly find out shortly.

Over time we believe that this will mean a material shift in the asset mix of oil companies, one which will align them more closely with the power industry as well as - in some cases - petrochemicals.

"Companies are also developing a vision for the future, as the sector comes under increasing pressure to change its energy mix in the coming decades, and embrace the Energy Transition. 2020 has witnessed an increase in announcements from oil and gas firms articulating their decarbonisation plans and net-zero ambitions."

Changes will see new technologies, innovations and solutions emerge, which will create new and complex risk exposures for the sector. This will demand greater adaptation and innovation from the insurance market in order for solutions to align with evolving energy priorities and ambitions.

At Aon, we embrace this shift and our promise to the industry is that we will do our utmost to develop products and solutions that support companies as they navigate the risks – and opportunities – inherent in the energy transition.

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