How a lack of insurance is a growing threat to the oilsands

The fight to stop the Trans Mountain oil expansion pipeline from Alberta to Canada's West Coast was back before the national regulator recently, with the Crown corporation behind the project seeking to protect the names of the insurance companies backing the controversial development.

Trans Mountain made the proposal after demonstrators in Vancouver blocked the entrances of buildings housing insurance companies to demand they stop insuring the pipeline, resulting in four arrests.

The Canada Energy Regulatorultimately sided with the pipeline builders, allowing them to keep the insurers' names secret from the public.

But opponents could only delight at their impact, with the Crown corporation making it clear in its applicationhow pressure over the years by environmentalists was making it harder and more expensive to find enough insurance, threatening the viability of the project.

The dispute even made international headlines.

Trans Mountain isn't alone as natural resource companies are increasingly struggling to obtain adequate coverage amid rising prices and fewer numbers of insurers willing to work with the fossil fuel industry, especially pipeline and oilsands companies, which could threaten future growth of the sector.

"It's certainly a sign that the pressure on the insurance companies is working," said Elana Sulakshana, with the Rainforest Action Network, an environmental organization based in San Francisco.

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The technique isn't a "silver bullet" but is showing signs of working, says Elana Sulakshana, with the Rainforest Action Network.

Sulakshana spends the majority of her time finding ways to try to stop insurance companies from supporting the fossil fuel industry, because burning fossil fuelsis a major contributor to climate change.

This week, the International Energy Agencyreleased a reportdetailing how the global energy industry can bring carbon dioxide emissions to net zero by 2050 and give the world a chance of limiting the global temperature rise to 1.5 C. Besides projects already in development, it said there are "no new oil and gas fields approved for development in our pathway."

Only in the last 12 to 24 months have environmental activists decided to put much more emphasis on the role of banks and insurance companies, said Sulakshana.

"There's absolutely no room for new oilsands or any oil and gas infrastructure to achieve the goals of the Paris Agreement," said Sulakshana. "Financial institutions should not be supporting these products or companies."

In its application to the regulator, Trans Mountain said insurers were increasingly reluctantto provide coverage for the pipeline project and at a reasonable price.

The company had already "experienced a significant reduction in available insurance capacity" in 2020 and the demonstrations this year were likely to resultin the problem getting worse and making it more of a challenge to "fulfil its significant financial resource obligations" that are required by the regulator.

For their part, insurers have cited financial risk as one of the reasons to pull out of oilsands investing. Climate regulations and societal pressure "could result in significant loss of value ('stranded assets') for the most carbon intensive businesses," wrote AXA in 2017, calling the oilsands"a particularly carbon intensive form of energy."

Fewer options

It's difficult to quantify how much insurance rates have increased for the oilsands industry because there are many factors that go into prices and companies are often changing their coverage, usually choosing to purchase less insurance to avoid higher expenses.

About a decade ago, there were about 50 large insurance companies in North America, Europe and Bermuda that provided coverage to the oilsands, said Joe Seeger, who has more than 25 years of experience advising oilpatch companies on insurance.

Today, there's only about half as many, he said.

When big players likes AXA, Allianz, and Zurich announce they are reducing their exposure to emission-intensive sectors such as the oilsands, amid "an increasing climate crisis," they can pull out hundreds of millions of dollars of insurance coverage.

"It really is a supply and demand situation where we always go to our clients and have the bad news of [explaining] are fewer insurers and we have to try to figure out new ways to do the business," said Seeger.

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Insurance costs keep climbing, says Joe Seeger, who works with oilsands companies to secure coverage for their facilities.

For instance, the large insurers based in London, U.K., are only offering up a combined limit of $200 million US toward coverage of the oilsands, compared to almost $500 million just 18 months ago, according to a recent report by Willis Towers Watson, an international insurance broker.

The biggest oilpatch players like ExxonMobil, Royal Dutch Shell and Suncor Energy are able to self-insure, but smaller companies don't have the same luxury. Adequate insurance for a large industrial facility is often required by banks and other investors.

"Based on the coverages that you can get, I don't know if you'd see any more of these mega-projects go on in the oilsands anymore. I just don't see the ability to financially backstop some of the mega-projects that put the oilsands on the map," Seeger said.

Strange bedfellows

To fill the void, Canadian companies have increasingly looked to China, Saudi Arabia, and other parts of the world to underwrite operations in Northern Alberta, Seeger said.

While activists are seeing results from their efforts to pressure insurers, they also realize the strategy has its limits. Not only can the large corporations self-insure, but the majority of oil production comes from state-owned companies around the globe, who also don't always require traditional insurance coverage.

Restricting insurance is an effective tool to combat climate change, said Sulakshana, with the Rainforest Action Network, but it "is not a silver bullet."

Driving some North American and European oil and gas producers out of business could also benefit some of the state-owned companies operating in other countrieswithout the same level of environmental standards, some energy experts say.

"The climate movement has a lot of work to do to grapple with how we're challenging the build out of oil and gas infrastructure in some of those petro-nations like Saudi Arabia and Russia," she said.