Definition
Oil and Gas Insurance
The oil and gas sector is one of the most technical and reinsurance-dependent areas of insurance. Insurance solutions call for different underwriting structures depending on the position of the activity in the value chain — upstream (exploration and production), midstream (pipelines, storage, LNG, gas processing) and downstream (refining, petrochemicals). This page focuses on onshore facilities; for offshore drilling, platforms and FPSOs see Offshore Energy Insurance.
For the general energy coverage structure and concepts such as PML/EML and BI, see the Energy Insurance page. This page is general information; it does not imply the capacity of any particular insurer, acceptance of cover, price or any commitment to pay.
Value Chain
Upstream, Midstream and Downstream
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| Typical activities | Prominent risks | Prominent covers | |
|---|---|---|---|
| Upstream (onshore) | Exploration drilling, production wells, production and gathering facilities | Loss of well control (blowout), drilling equipment damage, pollution | Control of Well, Operator's Extra Expense, OAR/PD, liability, BI |
| Midstream | Pipelines, compressor and pump stations, storage (crude, products, LNG, LPG), gas processing | Pipeline damage and leakage, fire/explosion, refrigerated gas risk, storage loss | OAR/PD, MB, BI, energy and environmental liability, political violence |
| Downstream | Refining, petrochemicals, LPG cylinder filling and distribution, product distribution | Process fire and explosion, BLEVE, reactor damage, product liability | OAR/PD, MB, BI, liability and environmental |
These three segments should not be treated as one "oil and gas policy"; their risk profiles, value concentration and capacity conditions differ.
Upstream
Upstream: Drilling and Production (Onshore)
- Control of Well: The costs of bringing an uncontrolled well under control, redrilling and making the well safe; generally structured together with Operator's Extra Expense (OEE). It is not automatically available for every drilling activity; well information, depth, pressure and the drilling programme are assessed.
- Drilling equipment: Property damage and machinery breakdown for the drilling rig and ancillary equipment; the equipment is in many cases owned by the drilling contractor and risk allocation is set by contract.
- Production facilities: Separators, tank batteries, gathering lines and processing units; fire, explosion and machinery breakdown.
- Loss of production: Loss of income after well or facility damage; dependence on wells and facilities determines the BI period. See Business Interruption Insurance.
- Pollution and environment: Seepage and clean-up costs; the boundary between energy liability and environmental policies depends on the policy. See Environmental Impairment Liability.
- Construction: CAR/EAR and DSU/ALOP for field facilities and infrastructure projects. See Construction & Erection Insurance.
Midstream
Midstream: Pipelines, Storage, LNG and Gas Processing
- Pipelines: Mechanical impact (for example construction equipment), corrosion, ground settlement and geological movement; pollution and clean-up cost. For lines of high strategic capacity the BI effect of a loss is heavier, and the indemnity period is set according to location.
- Sabotage and third-party interference: For cross-regional lines this may be examined together with a political risk assessment. See Political Risk Insurance.
- Pump and compressor stations: Machinery breakdown and control systems; spare parts and lead times for critical equipment.
- Storage: Fire and overfill risk in open- or fixed-roof tanks; for underground gas storage, subsurface topics such as well integrity, caprock and gas loss are assessed separately.
- LNG terminals: Loss of containment and brittle damage in refrigerated (about −162 °C) storage tanks, pool fire and BLEVE scenarios; at the terminal–ship interface (loading/unloading arms) coordination between marine and energy policies is needed. For floating storage and regasification units (FSRU) the boundary depends on the wording; see Offshore Energy Insurance.
- LPG storage: Pressurised tank and BLEVE risk, fire and explosion in bulk storage and terminal tanks; cylinder filling and distribution facilities are treated under downstream.
- Gas processing plants: Process fire, corrosion and machinery breakdown in desulphurisation, dehydration and fractionation units.
Downstream
Downstream: Refining and Petrochemicals
- Refineries: Fire and explosion in distillation columns, fluid catalytic crackers (FCC) and hydroprocessing units is the largest loss scenario; heat exchanger and pipe corrosion, BLEVE and environmental pollution. PML/EML estimates can be extremely high.
- Petrochemical plants: Process fire and explosion because of high pressure and reactive chemicals; reactor damage; longer BI periods in integrated plants.
- Product liability: Third-party loss caused by the distributed chemical. See Product Liability & Recall Insurance.
- LPG filling and distribution: Loss of containment on the filling line, fire and explosion at cylinder filling plants; cargo insurance for transport is assessed separately.
- Environment: Fuel and chemical leakage, soil and water contamination.
Coverage Structure
Coverage Structure: Which Cover Applies When?
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| Used for | Point to note | |
|---|---|---|
| CAR / EAR, DSU/ALOP | Facility construction and erection, delay loss | High-value equipment and long lead times; DSU is contingent on a construction loss |
| OAR / PD | Operational property damage (fire, explosion, natural catastrophe) | PML/EML, natural catastrophe sublimits and value concentration |
| MB / Boiler & Machinery | Internal failure of equipment such as compressors, turbines, pumps and boilers | See Engineering Insurance |
| BI / LOPI | Production and revenue loss caused by a covered loss | Long repair and equipment lead times determine the indemnity period |
| Control of Well, OEE | Well control and related additional costs | Not automatic; depends on well and drilling information |
| Energy liability and EIL | Third-party and environmental liability | Contractual indemnity (knock-for-knock) and the boundary with the environmental policy |
| Political violence | Damage from terrorism, sabotage and civil commotion | Stands out for pipelines and strategic facilities |
| Cyber / OT | SCADA, DCS and safety systems | To be read together with the cyber exclusion of the physical damage policy. See Cyber Insurance |
Not every cover applies automatically to every facility. Which covers are offered, their limits and conditions depend on the policy wording, the risk engineering assessment and the capacity of the relevant insurer.
Boundaries
Boundaries with Other Products
- Offshore operations: For offshore drilling, platforms, FPSOs and subsea systems see Offshore Energy Insurance.
- Marine: Vessels carrying crude oil and products, vessel cargo and port terminal liability are handled under marine policies. See Marine Cargo Insurance and P&I Insurance.
- Environment: For long-term pollution liability see Environmental Impairment Liability.
- Reinsurance: The capacity and programme structure for high-value facilities are covered on the Reinsurance Brokerage page.
Market and Capacity
Market and Capacity Note
Oil and gas risks are mostly assessed in specialist international insurance and reinsurance markets, and capacity varies by project, location and type of facility. This page does not imply any capacity, limit or acceptance; Neolife carries out assessment and placement work and acceptance rests with the relevant insurer.
Türkiye Framework
Framework and Insurance in Türkiye
In Türkiye, insurance obligations in oil and gas activities vary by activity, type of licence or permit and the applicable legislation; there is no single general rule. Exploration and production are within the framework of the Turkish Petroleum Law, while market activities are within EPDK regulation and licensing. The summary below is for general information.
- Petroleum market licences: Under Petroleum Market Law No. 5015, Article 15, insurance is compulsory for activities conducted under a licence; the President may by decision exempt certain activities from insurance. The Law states that the assets to be insured, the insurance lines and the exemptions are regulated in regulations to be issued by the Authority. The Communiqué on Insurance Obligations in the Petroleum Market (EPDK; Official Gazette 15/6/2005-25846, as amended 10/8/2010-27668), issued on the basis of Article 49 of the Petroleum Market Licensing Regulation, provides: under Article 5, licence holders operating in the petroleum market must take out financial liability insurance for bodily injury and property damage caused to third parties; under Article 6, refinery, transmission and storage licence holders must additionally insure their facilities and the petroleum they own or hold in custody against all risks. The free-user exception in the Communiqué does not relate to the obligation as a whole but only to the minimum guarantee limits in Article 7 (2010 amendment); the minimum limits may not be lower than the amounts in the Hazardous Substances tariff and instruction.
- LPG market: LPG Market Law No. 5307, Article 13 provides for insurance for activities conducted under a licence within the same framework (exemption by Presidential decision; insurance lines and exemptions are regulated by regulation). Under Article 4(ç) of the Law, taking out financial liability insurance together with the compulsory insurance for facilities and activities within the compulsory-insurance scope is also among the licence holder's obligations. The details are set in LPG market legislation, and the petroleum market communiqué should not be assumed to apply automatically to LPG activities.
- Natural gas market: Under Natural Gas Market Law No. 4646, Article 4(4)(f)(3), an applicant for a natural gas export licence must take out compulsory insurance to cover loss and damage that may arise if the security of the system is breached because of the export; transit-line transmission companies are exempt from the guarantee requirement in the same sub-paragraph. This provision is specific to the export licence; this page asserts no general compulsory-insurance obligation for other natural gas activities.
- Exploration and production licences: Turkish Petroleum Law No. 6491 provides for an investment guarantee of 2 per cent of the investment amount for the work programme (1 per cent offshore) at licence application (Article 7) and a guarantee to cover loss and damage that may arise during petroleum operations (Article 22). These are administrative and financial guarantees, not insurance policies; the Law text contains no insurance obligation, and the guarantees should not be confused with one.
- Offshore activities: Onshore petroleum and LPG market rules are not deemed to apply automatically to offshore activities; see Offshore Energy Insurance.
This summary is based on the Communiqué text published in the Official Gazette on 15/6/2005, the amendment of 10/8/2010 and the relevant law texts. Later amendments to the Communiqué, its current consolidated text, the current form of Article 49 of the underlying Licensing Regulation and the minimum guarantee amounts could not be verified; they should be confirmed separately from official sources (Official Gazette, mevzuat.gov.tr, EPDK), and this page does not guarantee that the text is current. The existence of a compulsory insurance does not imply any particular scope of cover; scope depends on the policy wording. This page is not legal advice.
Quotation Information
What Information Is Requested for a Quotation?
- Activity segment (upstream, midstream, downstream), type of facility and location
- For upstream: well programme, depth and pressure data, drilling contractor and equipment information, emergency response plan
- Process flow diagrams, equipment list, fire and explosion protection systems, maintenance programme
- Sum insured, PML/EML studies and the requested BI indemnity period
- For pipelines: route, material, corrosion monitoring and third-party interference measures
- Liability limits and indemnity terms in contracts
- Environmental permits and pollution response plans
- Loss record and insurance requirements of the financing institution
This list is illustrative; the information and documents requested vary by insurer and policy structure.
FAQ and Quotation
Frequently Asked Questions
Is oil and gas insurance a single policy?
No. Upstream, midstream and downstream call for different underwriting structures; property damage, machinery breakdown, BI, well control, liability and environmental covers are combined according to the activity. Scope depends on the policy wording.
What is the difference between upstream, midstream and downstream?
Upstream covers exploration and production, midstream covers pipelines, storage, LNG and gas processing, and downstream covers refining and petrochemicals. In each, the risk profile, value concentration and weight of covers differ.
What is Control of Well?
It is the cover addressing the costs of bringing an uncontrolled well under control, redrilling and making the well safe; it is generally structured together with Operator's Extra Expense. It is not automatic for every well and depends on well information and the insurer's assessment.
Which covers relate to pipeline damage?
Physical damage may be assessed under OAR/PD (gradual corrosion and wear are generally excluded); failure of equipment such as pumps and compressors may be assessed under MB, and third-party and environmental loss from leakage under liability and environmental covers; political violence cover may be relevant for sabotage. The boundaries depend on the policy.
Where is the boundary with marine policies drawn for an LNG terminal?
Onshore storage and process facilities are assessed under the energy policy; the vessel and its own liability sit in marine policies. For interfaces such as loading/unloading arms and floating units such as FSRUs, the boundary depends on the wording and should be set out explicitly.
What is the biggest risk in refinery insurance?
Ignition and explosion of pressurised hydrocarbons is the largest loss scenario; because of the value concentration in process units, PML/EML estimates can be very high. Capacity and terms vary by insurer.
Is offshore oil and gas covered on this page?
No. Offshore drilling, platforms, FPSOs and subsea systems are covered on the Offshore Energy Insurance page; this page focuses on onshore facilities.
Is oil and gas insurance compulsory in Türkiye?
It depends on the activity and the type of licence. For activities under a petroleum market licence, Law No. 5015, Article 15 requires insurance (exemption by Presidential decision is possible); the scope is set in the Communiqué on Insurance Obligations in the Petroleum Market: third-party financial liability insurance for all licence holders (Article 5), additionally all-risks insurance for refinery, transmission and storage licences (Article 6); the free-user exception applies only to the minimum guarantee limits in Article 7. For LPG, Law No. 5307, Article 13 contains a similar provision. The compulsory-insurance requirement in Law No. 4646 is specific to natural gas export licence applications (Article 4(4)(f)(3)); no general obligation is asserted for other natural gas activities. The investment and damage-compensation guarantees under Law No. 6491 are not insurance. The current consolidated text of the Communiqué and the minimum amounts could not be verified; they should be confirmed from official sources. This answer is not legal advice.
Neolife's Role
Neolife Group can assess the relevant information and contracts, explore suitable local insurance and reinsurance solutions, carry out placement work and compare the quotations received. This does not imply the capacity of any particular insurer or reinsurer, acceptance of cover, price or any commitment to pay; these are subject to the rules of the relevant insurer, to legislation and to the policy terms.