Energy boom fuels need for delay cover
10 March 2008
The rise in oil prices coupled with increased demand has seen a boom in global energy construction projects.
This boom has put a huge strain on the availability of skilled contractors, raw materials and specialist machinery, leaving contractors and owners looking for extra construction insurance against delays.
Paul Culham, Active Underwriter in the marine and energy practice at Lloyd’s underwriting group Kiln, says there has been a growth in the demand for delay cover. “Enquires and requests for delay in start up cover have been increasing,” he says. “The cover we offer is for delay due to a physical loss or damage that has delayed a project. It is something we are seeing more interest in because the energy sector is moving further afield in terms of finding fuel reserves, and it brings with it new risks for both owners and contractors.”
Indeed Culham says that the pressure on supply contractors and equipment for both on and offshore projects is now seeing a period of delay built into the contracts at their outset.
“Some contracts are being written across a longer time period because it is almost expected that there will be a delay in completion,” he adds.
Kiln is one of the very few underwriters that offer start up delay as a stand alone cover, rather than as part of their construction risk policy.
Keith Webber, Director of the energy practice at Lloyd’s broker Miller Insurance, says the advance loss of profit cover for such projects is available and is often a prerequisite if there is any external funding from banks and financial institutions.
“The market provides business interruption cover for projects such as this and, if it is the owner such as one of the major oil firms, funding the project they will not see fit to take out advance loss of profit cover in case there is a delay,” he explains.
“However, where you find a greater demand is if the project is being part-financed by a bank or other financial institution that is looking to protect its investment and very often you will find advance loss of profit cover is a condition of that financing. Lloyd’s has a market for this cover and it is available to owners should they require it.”
Webber said the energy construction market was being driven by the scarcity of raw materials, the availability of specialist machinery and the shortage of skilled contractors.
“The increased cost of oil and gas is making areas that were previously uneconomic to explore and extract oil viable.”
Last updated on 29 Dec 2009
