The Middle East needs to double its protection against the rapid escalation of oil equipment costs, experts said on Tuesday.
“The region has to revalue the true exposure of its existing facilities at today’s costs,” James Pierce Jr, Chairman of the Global Marine and Energy Practice at Marsh, the world’s largest insurance broker and risk adviser, said in an interview yesterday in Dubai.
“The value of underinsurance may be up to 50 per cent, some by design, as oil companies feel stronger by the strength of their balance sheet, and some not.”
Andrew George, managing director of Global Marine and Energy Practice at Marsh, said the market of risk management is rapidly developing. The market’s growth rates in the Gulf are higher than in other parts of the world, due to huge investments allocated to the sector.
George said the value of the company’s operations in the world went up to $3.6 billion (Dh13.2bn).
George, speaking on the sidelines of the Marsh’s National Oil Companies Conference 2008, said oil and gas companies in the GCC countries – which hold 60 per cent of known resources – are rarely resorting to local insurance and risk management companies due to the low financial blanket that the insurance and risk management companies have.
He said new players will enter the insurance market in the region, currently with 80 per cent of the world’s gas reserves. The cost of equipment, ranging from drilling rigs for oil exploration to steel for construction, has soared as growth in emerging markets increases demand for raw materials. Near-record oil prices are adding a new insurance burden on the region’s state-owned oil companies. “The high oil price demonstrates that the product they sell has much more value than it used to,” said Dan Glaser, CEO at Marsh, which is part of Marsh & McLennan. “Now they need to double the amount of business interruption insurance.”
Saudi Aramco, the world’s largest oil firm by production, regularly updates the replacement cost value of its assets, said the company’s risk management consultant. “We bring in consultants to update the value of our assets,” Michael Boyette said.
Oil equipment underinsured by half