Energy market losses substantial in 2011: Willis

The energy sector experienced one of its worst years ever for non-windstorm-related losses, with almost $9 billion in combined insured and uninsured total losses, according to a study by global broker Willis.

Severe losses in the Alberta oil sands and the floating production and storage offshore (FPSO) sectors contributed to the negative loss picture, says Willis in its annual Energy Market Review. An upgrader fire at the Horizon oil sands project in January 2011 resulted in a total insurance loss of $726 million.

Even with the losses, Willis notes that energy market capacity has increased by 11% to 14% in both the upstream and downstream markets, to more than $9.2 billion.

“However, in general terms we would suggest that these capacity increases are mostly the result of the lack of investment opportunities for capital providers elsewhere in the global market,” Willis says. “The key issue is how much of this capacity is willing to compete aggressively for business.”

The report also touched on the issue of hydraulic fracturing, or “fracking,” the process of extracting natural gas from shale rock deposits. It involves blasting water, sand and chemicals into the ground to break open the rock and release natural gas.

From 2006 to 2010, economic production from shale increased by 48% per year, according to the U.S. Energy Information Administration. Analysts now indicate that shale gas production may increase threefold from 2009 to 2035. However, environmental groups have expressed concern over fracking related to groundwater and soil contamination and the potential link to earthquake damage.

In Canada, the federal Natural Resources Department announced in early April a four-year study on the effects of fracking on earthquake activity in British Columbia, New Brunswick and Quebec, according to the Canadian Press.