US$600M oil spill insurance is a small amount to cover – insurance agency

Aug 28, 2022 News

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By Zena Henry

Kaieteur News – Insurance agencies interested in developing a consortium to handle the oil spill coverage in country are expected to meet this Wednesday to decide on the way forward in dealing with the necessary policy. They are expected to head back to the Bank of Guyana with a plan on how the industry will manage the multi-million dollar package set to protect Guyana and its people from the effects of a possible oil spill.

Stakeholders close to the developments told Kaieteur News that the Insurance Association of Guyana will be facilitating the meeting that will seek to involve all those in the industry. Association President, Melissa DeSantos told this newspaper that work has already commenced on what the industry wants to see regarding the insurance. “We do have a model which will involve all players in the industry; insurance companies, as well as brokers so that everyone will benefit from the model that we are coming up with.” As an industry, she said that the participants will meet next week so that everyone is on the same page and aware of what is happening, “before getting back to the Governor at the bank and presenting him with our official recommendation and the model we would like to go with, pending his approval.”

DeSantos explained that the model being addressed is basically a consortium of all the companies coming together to be able to form one underwriting pool. And one of the models currently being looked at is the Ghana model where that country has facilitated the pooling of resources by insurance companies to cater for the oil spill insurance there.  The president said that all states that produce oil would have had to come up with models to ensure their industry participation. Individually, she said, the local insurance industry does not have the capacity to fulfill the coverage, “but our aim is to come up with one model, forming a consortium of all the companies, so everyone could participate and benefit the entire industry.”

The size of the insurance policy was one concern for local stakeholders, some of whom had claimed that the policy would be too expensive to be facilitated locally. Even the Vice President, Bharrat Jagdeo had expressed thoughts that the local companies would be unable to handle the policy. It was thus highlighted that moves had to be made by the authorities to open the door for local companies; resulting in the agencies being asked to come together to cover the oil spill risks. One insurance operator told Kaieteur News however that the US$600M is not necessarily an amount that one company cannot get coverage for. Of course, the company would have to reinsure, “but I could make one call and have that covered,” the agent said. He noted however, that it is “commendable” that the consortium is being formed so that companies among themselves can share the risk and benefit from what is available to the industry.

The insurance companies will have to cover the US$600M for each project undertaken by ExxonMobil and partners within the Stabroek Block. So far, Exxon has two oil fields from which it is pumping crude and two more already approved, with one set to come on stream next year, and another set to come on stream every year after.

Environmental stakeholders have also applauded the move to set up the consortium here, but there are those who still express worry over the size of the insurance, compared to the size of Exxon’s offshore developments. Dr. Vincent Adams is one such person that continues to call for a more secure oil spill policy to protect Guyana. He has been arguing for parent company guarantee to cover all oil spill liabilities pass what Exxon’s subsidiary and Stabroek Block operator, Exploration and Production Guyana Limited (EEPGL) can cover.

Apart from the US$600M EEPGL is offering, the government and Exxon have been in discussions over the provision of a US$2B parent company sum. Whether this is a US$2B sum per project, is unclear. Exxon says, nonetheless, that it will not walk away from its responsibilities should there be a spill pass the US$2.6B combined coverage, but Dr. Adams is adamant that Guyana must get that commitment in writing. He continues to use the Gulf of Mexico Macando oil spill of 4 million barrels as an example given the large amount of oil Guyana is set to produce, at least 1.2 million barrels of crude per day by 2027 and over 300,000 barrels from Liza 1and 2 currently.  Pegged at an almost US$70B cost, Dr. Adams claims that if Guyana was to have a spill, one tenth of the Macando with 400,000 barrels of oil, Guyana’s current oil spill coverage is nowhere close to what that problem would cost.

 

 

 

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