Canadian Underwriter

Will insurers find opportunity in Europe’s need for Canadian LNG and hydrogen?

August 26, 2022   by Philip Porado

Tanker carrying liquified natural gas from Canada

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Canadian insurers have a future opportunity to cover the infrastructure required for hydrogen energy products, commercial insurance brokers say.

For example, if Europe wants its efforts to reduce dependence on Russian natural gas supplies to be successful, it will need to reduce demand in the short term (easier said than done) and seek new supplies – with Canada being an obvious substitute.

“We’re seeing various countries in Europe delay closure of domestic coal and nuclear energy production. If Russia cuts them off before winter, they’re in trouble,” said Javier Pardo, senior vice president for the complex risk solutions group at NFP in Canada.

The issue for Canadian liquified natural gas (LNG) producers is that their product resides in the western provinces and it’s difficult to get pipelines built so that it can be loaded on ships bound for Europe.

Which means agreements similar to a recent hydrogen export pact between Canada and Germany may prove a more viable long-term option.

“Both LNG and hydrogen are clean forms of energy and [can] help countries meet [climate] targets, so they are going to be interested,” Pardo told Canadian Underwriter. “But the infrastructure isn’t yet compatible for hydrogen. It has to be built and that creates a lot of opportunities for insurance companies.”

Over the long term, coverage of hydrogen and LNG operations could replace some of the premium income being lost by insurance companies that are stepping away from coverage for the oil and gas sector, he said.

“Projects that support the energy transition and help countries achieve global climate change targets are the kinds of new business insurance companies should be aggressively pursuing,” he said. “Companies that remain in the fossil fuel business but operate safely and responsibly should also be supported because they’re the most likely to transition us into greener alternatives.”

Given that prediction, it’s no surprise that earlier this week Marsh announced the launch of an insurance and reinsurance facility to provide dedicated capacity for both new and existing green and blue hydrogen energy projects.

It will provide up to US$300 million globally of cover per risk for construction and start up of hydrogen projects.

Blue hydrogen is produced using a process in which natural gas is mixed with very hot steam and a catalyst. By contrast, green hydrogen uses an electrolysis process that’s powered by renewable sources – water, solar or wind.

Marsh noted investment in green and blue hydrogen initiatives is estimated to exceed US$150 billion by 2025, spurred largely by traditional energy operators, governments and hard-to-abate industries working to meet carbon-reduction obligations.

“As the global hydrogen industry, especially green hydrogen, scales up rapidly to meet demand, the facility will reduce the complexity of securing risk-transfer options for operators of all sizes and boosts investor and lender confidence in achieving their ambitious project timeframes,” noted Andrew George, global head of energy and power at Marsh Specialty.


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