Energy - Allianz Global Corporate & Specialty

www.agcs.allianz.com
Global Risk
Dialogue
Allianz Global Corporate & Specialty
Spring 2011
SPECIAL TOPIC
The future of energy
Demand for energy is growing as never before. Along with that
comes the demand for cleaner, more efficient energy sources.
What challenges does industry face today to ensure we will have
energy tomorrow?
20
Down Under on top
Major liquid natural gas project in
energy powerhouse Australia.
24
Offshore windparks
Ambitious targets for a promising
renewable energy

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owner. Global Risk Dialogue
is published twice annually.
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editorial content was
March 15, 2011.
OVERALL RESPONSIBILITY
Hugo Kidston, Global Head
of Communications,
Allianz Global Corporate &
Specialty,
Fritz-Schaeffer-Str. 9,
D-81737 Munich,
hugo.kidston@allianz.com
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Richard Manson, Annika
Schuenemann, Andrea
Schmiedl, Neil King
ART DIRECTOR
Nadine Schroeder
PRINTER
medienfabrik Guetersloh
GmbH, Guetersloh
PHOTO CREDITS
AGCS, corbis, MERCEDES GP
PETRONAS, BARD
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02 Contents
14
20 24
Contents
SPECIAL TOPIC
Energy today – risks and prospects
14 Energy security
Oil and gas facing major challenges
20 Down Under on top
A large-scale gas project in Australia
24 “Going with the wind”
Breathing life into offshore windparks
30 Capturing carbon emissions
CCS systems are ready for take off
IN BRIEF
04 News
Events in risk, Allianz and AGCS
07 4 Questions for ...
Dr. Jürgen Guhe, leader of the NatCat area at Allianz Global
Corporate & Specialty
REGIONAL EYE
08 Regional story
The meaning of market management
RISK FUTURES
10 A day in the life
Risk assessment of the Mercedes-Benz truck plant
IN CONCLUSION
34 The last word
Johannes Kindler on peaking power grids
35 Calendar
EDITORIAL
One thing I have learned over the
years: sharing knowledge is better
than hoarding it. The idea underpins
the new Allianz brand campaign, but
it has always been a core value of
AGCS. It is the best way to master fu-
ture challenges together and to enab-
le industry to progress. This issue of
“Global Risk Dialogue” focuses on one
of those key challenges: energy – fi-
nding it, generating it and managing
some of the side effects of energy pro-
duction such as CO ² . Being part of this
discussion and sharing AGCS’s own
knowledge is truly exciting.
Axel Theis
CEO, Allianz Global Corporate & Specialty AG
Contents | Editorial 03

04 News
IN BRIEF
Spring and Fall 2011:
Risk news briefs
CLIMATE CHALLENGES AND POLITICAL UNREST
The 2010 United Nations Climate Change Conference took
place in Cancún from November 29th to December 10th. The
outcome was an agreement concluding that climate change
is an urgent and possibly irreversible threat to mankind and
needs to be addressed. All parties are supposed to reduce
their carbon emissions in order to hold the average increase
in temperature to less than 2° C from pre-industrial levels.
The winter 2010/2011 began with an unusually harsh November
in all of Europe. Heavy snow hit not only Scandinavia
and central Europe but also Belgium, the Netherlands, the
United Kingdom and even Italy, Spain and Portugal. Norway
experienced the coldest temperatures ever recorded in November
(hitting -35° C in Finnmark). North America also experienced
an extreme winter on the east coast and in the
Midwest and even in areas such as Mississippi and Texas.
Businesses were closed and airports shut down.
Around Christmas 2010, southern California experienced
flooding after heavy rains. The total damages are estimated
to exceed $ 60 million. Several counties declared a state of
emergency and were faced with massive clean-up efforts in
the aftermath of the rains.
Heavy Brazilian summer rains in January led to mud and
torrents running down the mountains in the state of Rio de
Janeiro. The rains have caused the worst natural disaster in
more than 40 years in Brazil, wiping out entire neighborhoods,
killing over 800 people and leaving more than 30,000
homeless. Rebuilding costs are expected to come to $ 1.2
billion.
By far the most devastating floods occurred in Queensland,
Australia in January with an estimated insured loss of $ 210
million but still rising (as of beginning of February). The area
flooded, 850,000 square kilometers, was equivalent to that of
Germany and France together, and the water did not recede
for several weeks, affecting more than 200,000 inhabitants.
Piracy attacks reached their highest rate ever in 2010. The
International Maritime Bureau (IMB) reported 445 pirate attacks
last year – a 10 percent rise. According to the IMB the
number of piracy attacks has risen substantially this year as
well. In January 2011, 47 attacks were reported, especially by
Somali pirates, including seven “successful” hijackings.
Upheavals in the Middle East and North Africa. 2011 began
with extensive protests and the call for regime change in several
Arab countries. Governments fell, but unrest continued.
Millions of people marched on the streets, in some cases leading
to violent clashes. The unrests caused substantial damage
and business interruption issues in the region.
A magnitude 9.0 earthquake hit Japan on Friday, March 11,
probably the strongest earthquake in 1200 years. The quake,
with its epicenter off the north-eastern coast, triggered large
tsunamis which caused extensive further damage and loss
of lives. The chain of events also led to failures of the cooling
systems in several atomic power plants. Insured and additional
business losses are expected to have a major impact
on the global economy.
Spring and Fall 2011:
Allianz and AGCS news briefs
STABLE GROWTH AND NEW CHALLENGES
Allianz Global Corporate & Specialty launched a new
corporate website in December featuring an extensive
knowledge-sharing section. It features a completely
new look in line with Allianz Group’s new corporate design
and a new user experience, including encouraging
visitors to sign up for updates and new content.
www.agcs.allianz.com
Standard & Poor’s confirmed the stand-alone “AA” rating
for Allianz Global Corporate & Specialty on August
12th, 2010. That was followed on December 22nd by the
confirmation of A.M. Best’s “A+” (superior) rating for
AGCS. Allianz Risk Transfer AG received its first A.M. Best
financial strength rating of “A” (excellent). The outlook
for all ratings is stable.
In the context of the discussions about the stability of
the euro, in late December 2010, Allianz CEO Michael
Diekmann emphasized the confidence Allianz has in
the European currency. He announced that Allianz will
continue to be investing in government bonds in 2011.
Thomas Gonser took over the leadership
of Allianz Global Corporate
& Specialty Austria on January 1st,
2011. The Austrian office also got a
new head of market management,
Andreas Schmitt. These appointments
are part of a strategic move to
increase the presence and sharpen
the profile of AGCS in this important
market.
www.agcs.allianz.com
Chantal Schumacher, the AGCS Global Head of Planning
and Performance Management, was honored with a Generation
CEO award, as part of an initiative to promote female
management talents in Germany.
At a conference in India in January, Hartmut Mai, AGCS
Global Head of Financial Lines, pointed to a rise in corruption
charges at major corporations due to new regulations
in many countries. “Simply expanding Directors
& Officers liability cover would only treat symptoms”,
Mai explained. “The key lies in prevention: working to -
geth er to improve corporate governance.”
In February, Allianz Group announced a new partnership
with the Mercedes GP Petronas Formula One team. The
new team partnership underlines Allianz’ commitment
to the automotive industry and road safety, as indicated
by the Allianz branding on the team’s seatbelts and head
and neck supports. In September 2010, Allianz already
announced it was renewing its relationship as a Global
Partner for Formula One.
On February 24th, Allianz Group announced its results.
In 2020, revenues grew by 9,3 percent to € 106,5 billion
with operat-ing profit increasing 17 percent to € 8,2 billion.
Over the same period, AGCS wrote € 4.007 billion in
gross written premiums, an increase of some € 200 million
over the 2009 result of € 3.806 billion, and posted a
combined ratio was 94 percent. In January, the Allianz
share price passed the € 100 mark.
News 05

06 News
IN BRIEF
Allianz recently
launched a new marketing
campaign that focuses
on real people in authentic
settings. The
goal is to “share
knowledge” by having
clients share their experiences
and pieces of advice.
The One Campaign
also makes increasing
use of digital spaces and
encourages dialogue.
One thing ... 4 Questions for ...
Allianz “One” Campaign and new
layout for “Global Risk Dialogue”
Dialogue and knowledge
sharing tie in nicely with
the concept of “Global
Risk Dialogue”, which
the reader will note has
Jutta D., Engineer BARD Service GmbH
gotten a facelift. In line
with the new, fresh corporate
design we are
making use of additional
colors and new design
elements. At the same time “Global Risk Dialogue” is placing
a greater emphasis on specific topics, giving space to
a broader range of perspectives and bringing in more external
voices in this spirit of risk dialogue.
© Allianz SE, Germany
AGCS is contributing to the global Allianz campaign with
different motifs from its industrial client base. The first
client to be featured was BARD Offshore as depicted above.
BARD is an Allianz Risk Consulting client currently building
a commercial offshore wind park about 90 kilometers
One thing, if you
want to understand
risk, you need
to get out from
behind your desk.
Know more. Achieve more.
Breaking new ground requires a
trusted partner. That’s why one of
the world’s first deep water wind
farms, BARD Offshore 1, trusts in the
expertise of Allianz Global Corporate
& Specialty – covering the most
complex business risks worldwide.
www.agcs.allianz.com
With you from A-Z
off the coast of the German
island of Borkum
in the North Sea. (For
more on offshore wind,
see article p. 24)
The company recently
erected the 15th wind
tower and is planning
on setting up a total of
80 towers in the area.
The ad shows Jutta D.,
who works as an engineer
for BARD, in a helicopter
flying out to the
first wind towers. Her
advice is: “One thing, if
you want to understand
risk, you need to get out
from behind your desk.”
There will be several advertisements
with different
clients in the
months to come. Should you be interested in participating
please feel free to contact us. The magazine’s editorial staff
would also like to engage in more client dialogue and are
looking forward to your feedback on the new layout as well
as the new structure.
Please feel free to share your input/suggestions/feedback:
agcs.dialogue@allianz.com
Dr. Jürgen Guhe
Dr. Jürgen Guhe took over the Cat Management
department at Allianz Global Corporate &
Specialty on February 15th. The Cat team plays
a central role in the analysis, evaluation and
monitoring of Cat risks, including natural
catastrophes and terror risk.
Dialogue: What exactly does the NatCat
team do?
Dr. Guhe: Actually, it’s more appropriate to
speak of “Cat” not “NatCat”. We deal with nat -
ural catastrophes and terrorism. The Cat
team, as I prefer to call it, has two main responsibilities.
First of all, we evaluate and
quantify NatCat and terrorism risks. AGCS is
active globally and thus faces various threats.
We all remember the earthquake in Chile in
2010 and the most recent floods in Australia
remind us how vast the effects of such events
can be. In many countries there are simulation
models or we apply simplified estimates of
possible loss scenarios. Our second task is to
develop and maintain a limit system for Cat
risks. We are talking about the largest risks for
AGCS, so our estimation and confinement is
critical.
How then does the Cat team work with the
other areas at AGCS?
Dr. Guhe: There are various contact points.
For example, we work closely with underwrit -
ing to gather the right data for our analyses.
Our risk engineers at Allianz Risk Consulting
(ARC) also help developing a firm data base as
they evaluate our clients’ risks on site. The
quality of this data is absolutely essential for
correct modeling and checking Cat risks. In
addition, the results from our modeling are
extremely important for pricing structures,
our internal risk capital calculations and, of
course, reporting to ratings agencies and reg -
ulators.
How does this benefit clients?
Dr. Guhe: We want to be a reliable partner for
our clients. But we can only be a dependable
partner if we manage our concentrations
properly so we can prevail over the long term.
We need to avoid accumulations that exceed
the risk capacity of AGCS. The financial crisis
illustrated how important it is to keep an eye
on these concentrations and manage them in
a disciplined way.
What can we expect from the Cat team in
the future?
Dr. Guhe: First of all, our Cat models need to
reflect the entire risk landscape. We are work -
ing systematically to find gaps and fill them.
Flooding in Germany, for example, is a gap
that was recently closed.
Secondly, we have to make further progress
in terms of data quality since this is critical for
our success. In the context of the restruc -
turing of the European insurance regulators,
known under “Solvency II”, the regulators are
becoming ever more strict in that regard.
Thirdly, the quality of our modeling will re -
ceive a much larger emphasis. There are
competing models from different vendors
and some of them do not take our industrial
risks sufficiently into account. As a result, we
need to examine them thoroughly in order to
determine the best fit for us and adapt where
necessary. Here we are also working closely
with Allianz Re.
DR. JÜRGEN GUHE
Dr. Guhe joined Allianz
in 2001. Before that he
worked as Financial
Analyst at GE Frankona
Re. He studied Industrial
Engineering and
Business Administration
at the University of
Karlsruhe and holds a
doctorate in Economics
from Jena University.
4 Questions 07

REGIONAL
EYE
An advocate for the customer:
the meaning of market management
Customer focus is at the core of Allianz Global Corporate & Specialty
(AGCS). The principle is simple: to understand client’s needs and act on
them. Ensuring clients are getting the right risk solutions requires partnership
and mutual exchange rather than one-sided marketing.
JONATHAN TILBURN
08 Regional Eye
“Transparency is essential on both
sides. The clients need to know
that they can trust their insurer.”
In an environment of constantly evolving business and
new challenges for clients, it is essential to get a better
understanding of what clients need and to provide a
clear picture of what AGCS has to offer. Giving the client
a single voice within the organization and single point of
contact to AGCS was why market management was
established. Market management means constantly
striving to talk to clients and work with underwriting to
develop better products and services.
Earlier this year, Brian Kirwan, became the head of Market
Management & Communication (MMC) for the London
regional unit of AGCS. The unit is responsible for
AGCS business in the UK, Ireland, the Netherlands, Belgium
and South Africa and looking to expand its pres ence
in all of these markets.
“The client and broker are at the center of what we do.
Making it as simple as possible to access our business is
fundamental,” Kirwan explains. This means taking a holistic
view to clients’ businesses with a team that provides
solutions that take all areas of underwriting and services
into account.
As markets evolve and client needs change, working
with them to understand their business and providing
them with an overview of the full range of support AGCS
can provide is fundamental. Kirwan adds: “It’s partnership
with regular dialogue and an in-depth mutual understanding
that makes a relationship.”
Listening to clients discuss their business needs, provid -
ing AGCS's own experience and mutually sharing expertise
creates better products. The relationship develops
by discussing what the client’s expectations are and
how the insurer can respond to this. “Transparency with
Brian Kirwan: Head of Market Management & Communication (MMC)
for the London regional unit of AGCS.
a client is essential on both sides,” Kirwan comments.
“The clients need to know that they can trust their insur -
er to provide bespoke solutions to the risks they face and
be there when they need them.”
There are no “one-size-fits-all” insurance solutions for
complex corporate or specialty business. “An insurer
should be innovative with the solutions they provide
their client and broker,” says Kirwan. “Market management
is about utilizing the holistic insights to provide
that innovation.”
When discussing insurance cover, the focus often falls
on the cover itself and not what could happen if a claim
arises. However, claims are a critical time. If not man -
aged correctly, they can have detrimental effects on the
business. Effective partnership and understanding of a
risk in advance have a positive impact when claims do
arise. Therefore, true client focus means discussing the
claims process from the very beginning.
Kirwan concludes: “If I was asked to summarize market
management, I would say its job is to work in partnership
and be an integral part of a client’s business. It’s
about taking time to get to know their business, the risks
they face and the challenges they are under. And it’s
about being there when the client needs us, acting as the
primary access point to the business. This builds a foundation
of trust were we can establish the basis for a longterm
relationship.”
BRIAN KIRWAN
Head of Market Management, AGCS London Regional Unit
brian.kirwan@allianz.com
WWW.AGCS.ALLIANZ.COM/GLOBAL-OFFICES/UNITED-KINGDOM/
Regional Eye 09

RISK
FUTURES
A day in the life
XXXXXXXXXXX
Risk assessment
of the Mercedes-Benz
truck plant
Allianz Global Corporate & Specialty has a worldwide team of risk engineers
who support its clients in risk control and management of their risk. But how
does a risk assessment actually work and what are the most important
steps? Read a first-hand report on a risk visit at one of our large client's production
plants in Wörth near Karlsruhe.
ANNIKA SCHÜNEMANN
In a loss-control program, it's quite common to hold a
preliminary meeting the evening before things get serious.
The aim is to outline the expectations of the risk
engineer and customer and determine the approach for
the next days is a common practice. Having met during
earlier inspections, Stefan Kippert, a risk engineer at Allianz
Global Corporate & Specialty, and Eberhard Hess,
the employee responsible for risk engineering in the
property division of Daimler, have been working together
for many years. The day begins at about 7:30 in the
morning with a trip to Wörth. The first impression is
overwhelming – with its nearly 2.5 million square meters,
the plant resembles a small city. It even has its own
heating supply station and wastewater-treatment faci-
10 Risk Futures
lity. The activities at the site are kicked off by the plant supervisor
(or, in this case, a substitute for the supervisor)
who greets all of the participants in the risk assessment.
The Mercedes-Benz Wörth plant produces a huge variety
of trucks and special-purpose vehicles such as the
UNIMOG, often deployed as a municipal utility vehicle,
and the Econic, frequently used as a garbage truck.
Then things get serious, and the risk assessment group
(consisting of the AGCS risk engineer, an employee from
plant technical services, the head of plant safety and
Eberhard Hess) enters the assembly line area. Stefan Kippert
has inspected this plant before and thus knows
exactly what to look out for. For him, the main hall is not
only the heart of production, but also the core element
in terms of risk management. A sprinkler system protects
the entire hall from fires. But, particularly when
renovating, it’s important to think about risk management
and retrofit the sprinklers, especially when scaffolding
remains in place for a long time. It is fascinating
to observe how the engineer carefully examines exactly
those places the average person would walk right past –
dazzled by the appeal of the huge commercial vehicles
produced here. From time to time, Stefan Kippert disappears
into a machinery chamber or adjoining room,
writes assiduous notes and asks the plant workers
specific questions about the risk management of the
various areas.
Involving the risk experts early on
Stefan Kippert explains: “For many new buildings,
renovations and changes of use, Allianz Risk Consult ing
is already involved in the planning process. This is a huge
advantage because we can introduce risk management
considerations early in the development process. But after
this point, too, small changes such as installing
smoke alarms in containers can often contrib ute to overall
safety.”
A significant part of production is paintwork: After
assembly, the driver’s cabs are brought to the painting
area where they have to show their colors. Now it gets exciting:
Because of cleanliness standards, a protective
Regular checks are
essential at the Wörth
plant, which covers
almost 2.5 million
square meters.
Risk Futures 11

Truck production
takes place on three
assembly lines.
suit is required, and visitors and workers alike must
enter a wind booth where they are blown clean from
head to toe. In general, painting vehicles is similar like
with anything else: The first step is to degrease the cabs
in various baths. Then the cabs are bathed in a cathodic
dip painting, which is followed by a “filler” – the undercoating
that evens out the surface. Only after these
steps are complete will the layers of paint and final coat
be applied that determine the actual color, which could
be any one of more than 200 shades selected from the
choices available.
To some degree the process is fully automated: There
are computer programs for the individual model spec -
ifications. This means the robots just have to recognize
what model they are working with so they can activate
the correct paint program. Here, fire protection primar -
ily works through CO2 as solvents are in use. Although
the amount of solvent-based paint continues to de -
cline, such steps as the rinsing between the various
colors still involves solvent.
Over 1 million configuration options
Truck production takes place at a fast clip on three
assembly lines and parts such as tires, seats and
dashboards are delivered “just in time” – which means
there is barely any storage area. Production of specialpurpose
vehicles looks a bit different. Here, a limited
number of units are produced and the lion’s share of
the work is finished by hand. For the non-specialist, a
truck is a truck, but there’s actually a lot more to it.
Trucks licensed for the road are so steep to climb into
that you can almost get dizzy doing it. In contrast, the
Econic has an entrance as low as a city bus, which is
one of the reasons it is often used as a garbage truck.
The abundance of options is also reflected in the risk
assessment: It just doesn’t make the grade to only inspect
assembly, painting and interior finishing. Stefan
12 Risk Futures
Stefan Kippert makes sure that all pipes and tubes are in the right place.
The Wörth plant even has its own fire department with training facilities for professional and
volunteer fire fighters.
Kippert must also check component manufacturing
(e.g. drive-shaft production), the industry park where
various Daimler suppliers are located and assorted
warehouses like the hazardous-materials storage for
flammable liquids. He also has to examine the new development
and test center, the test stands for trucks
and special-purpose vehicles, the sprinkler control
center and the roof.
Going beyond spot checks
Asked whether the inspection of such a gigantic site
can only be carried out using spot checks, he replies:
“No. You certainly can’t look at everything, but as the
insurer, we have the responsibility to go beyond spot
checks. Of course there’s no such thing as 100 percent
certainty, but we must cover as many contingencies as
possible.” To achieve this, he will also calculate an initial
“probable maximum loss” for the customer that
will appear in his risk report. This calculation
addresses the damage that occurs if a major element
in the safety concept fails, for example if the primary
sprinkler controller breaks down. This approach
differs from “maximum foreseeable loss,” which is
also calculated, in that it does not address the “worst
case scenario” that assumes all safety-related equipment
malfunctions.
After three days of risk inspection and somewhat tired
legs, there’s still a highlight to come: A pump test is
being held in one of the four existing sprinkler control
centers. It’s getting really loud and really warm, but the
pumps are delivering the goods. Stefan Kippert has
examined the details of the existing test logs and
would now like to directly experience the fire-extinguishing
system to be convinced of its effectiveness.
The Wörth plant enjoys the advantage that it has an
almost unlimited supply of water because of its loca -
tion on the Rhine River. But in an emergency, the water
must, of course, be transported using pumps. A plant
like Wörth has its own fire department. Wörth even has
its own training facilities where not only the full-time
professional fire fighters receive instruction, but also
volunteer fire fighters who work at the plant.
An effective customer relationship is the key
At the final meeting, the risk consultant informs
management about his observations. A remarkable
experience that proves that an effective customer
relationship built on a foundation of trust is the key
factor of success. In general, the assessment of the
plant has turned out to be positive – it constitutes a
good example of successful risk management.
Suggestions for improvements are discussed directly
with the customer.
A short side trip into fire
protection/a primer on
sprinklers:
• More than 130,000 sprinklers are installed in the
Wörth plant.
• To ensure their reliability is absolutely fail-safe,
several pumps supply the sprinkler systems – the
Wörth plant has a total of six (one has an electric
engine, five have diesel engines).
• There are hanging and upright sprinklers. These
can be distinguished by the type of spray plate
used by the sprinkler.
• Sprinkler qualities are noted on the sprinkler:
VdS2092 and CEA 4001 are used at the Wörth
plant.
• The first sprinkler was invented in the United
States in 1874 by Henry S. Parmalee.
• Sprinkler systems are reliable and effective. In
buildings where sprinklers were in use, up to 98 %
of all fires were controlled through the sprinkler
system. This approach uses water very effectively
to fight fires because only the sprinkler above the
area of the fire is activated.
Alternatives include:
• Fire departments alerted through a fire alarm
system: Here, a sufficient water supply to fight the
fire, small fire zones, a fireproof building structure
and good accessibility should be ensured. But then
again this concept is only suitable for moderate
fire loads.
• Fire-extinguishing systems on the basis of inert
gases: relatively expensive, only effective in closed
rooms, danger of re-igniting as a result of hot
spots, danger of suffocation (with CO2).
• Water-fog fire-fighting systems: relatively
expensive, only effective in closed rooms
• Oxygen reduction: only possible in airtight rooms,
high ongoing costs, permanently restricted
access.
• The most common temperature that sets off
sprinklers is 70°C. Sprinklers also differ in their
behavior when they are triggered: There are
normal and quick-trigger sprinklers.
STEFAN KIPPERT
Allianz Risk Consultant
stefan.kippert@allianz.com
WWW.DAIMLER.COM
ALLIANZ RISK
CONSULTING (ARC)
Allianz Risk Consulting
has a network of about
100 property risk
engineers worldwide
that applies a consultative
approach and
works together with its
clients to explore the
best options to reduce
or at best prevent
losses.
Risk Futures 13

SPECIAL
TOPIC
Energy security
Oil refineries may well soon be
struggling to meet global demand.
14 Special Topic – Energy
Securing
oil and gas supplies
The oil and gas sector faces major challenges in
keeping up with demand
As the global demand for oil and gas grows, energy companies will be
forced to take increasing risks to try to secure future supply. Not only will
energy companies need to explore new, untapped areas and search for
fields at greater depths, but they will also be under increasing pressure to
forge joint ventures with national oil companies, as well as better relations
with the governments that own them, as they assume greater control over
the extraction of their mineral wealth.
NEIL HODGE
The next few years will be tough for the oil and gas sector,
especially as companies will need to invest more funds
to finance increased risks that insurers will likely be unwilling
– or incapable – of wholly underwriting. The
world’s energy markets have been greatly impacted by
the global economic crisis and increased price volatility,
and financial markets are still nervous about the pace of
economic recovery and the status of the energy industry,
particularly as the margin between supply and demand
becomes dangerously thin.
Presently, oil supplies are just managing to meet demand
– but the pressure is on to find new reserves fast.
The International Energy Agency (IEA), which acts as a
policy adviser to its 28 member countries, has recently
increased its global oil demand forecast for 2010 to
87.32 million barrels per day – up from the 2009 figure of
84.9 million barrels per day. The figure is expected to
reach 88.51 million barrels per day in 2011. By 2030, the
IEA estimates that global demand for oil will reach 105
million barrels per day – an increase of over 20 percent
on current demand. Current supply is around 92 million
barrels per day.
Even oil-producing countries are finding that they need
to import greater volumes of oil to meet industrial and
consumer needs. For example, China, a significant glob -
al growth engine, increased its demand in January 2010
by 28 percent and today buys as much as 8 million
barrels per day, or more than the combined daily production
of Kuwait, Venezuela and Norway.
Six Saudi Arabias
Dr. Fatih Birol, the IEA’s chief economist, has said that
the world would need to find the equivalent of four
times the crude oil reserves now held by Saudi Arabia –
the world’s largest oil producing country – to maintain
current production plus six Saudi Arabias if it is to keep
up with the expected increase in demand between now
and 2030. As a result, exploration and production (E&P)
investment, which dropped to $400 billion in 2009, is
forecast to rise to $447 billion in 2010 – an increase of 12
percent.
Accountants Ernst & Young’s (E&Y) Business Risk Report
2010, titled “The Top 10 Risks for Oil and Gas”, says that
access to reserves at a reasonable cost is a key problem
EXTREME OIL
PRODUCTION
According to the US
Energy Information
Administration, the US
is actually the third
largest producer of oil
in the world, after
Russia and Saudi Arabia
– China is number five.
However, demand in
the US and China far
exceeds their
production and
continues to rise.
Special Topic – Energy 15

“The insurance industry has to help create a culture
of openness with National Oil Companies so
that they understand how we price premiums.”
Oil companies will be forced to search for oil
in riskier areas and deeper waters.
16 Special Topic – Energy
Paul O'Neill, Head of Energy Underwriting
for oil and gas companies. It points out that the location
of many of these reserves are in difficult environments
where the E&P costs are high — such as the Canadian oil
sands, the Arctic or deep water — and so will increase
the risk of making new investments.
A vast number of offshore projects are coming on line
and many more are being developed. Australia is seeing
record breaking projects on the North West shelf, for
example, with the vast Gorgon liquefied natural gas
(LNG) project with reserves estimated at 1.1 trillion
cubic meters of natural gas (see article on the Pluto gas
field p. 20). Other projects are reaching fruition off the
West African coast and in Venezuela and Canada. The
targets are ambitious, as they often are in this industry:
Iraq currently plans to expand production to as much as
12 million barrels per day over the next six to seven years.
Shale gas projects are also coming to the fore: as the
technology matures, projects are looking increasingly
economically viable, although distribution remains a
problem, particularly in newly tapped areas. However,
such obstacles are being overcome, and major projects
such as Nord Stream and the Russia-China pipeline will
enable the development of a more efficient distribution
network from source to customer.
The OCs
Paul O’Neill, head of energy underwriting at Allianz
Global Corporate & Specialty (AGCS), says that with out
doubt the energy environment represents a challeng ing
future in which both quality energy companies and
insurance partners will recognize opportunities,
though the volatility of oil prices makes the economics
of planning projects for the long term unpredictable
and difficult.
O’Neill also points out that the influence and strategic
importance in their relationship with national oil
companies (NOCs) is rapidly changing. NOCs, such as
Petrobras in Brazil and China’s Sinopec, are now intent
on controlling their own reserves, relying on the oil
majors for their industry expertise and as equity
partners, rather than needing them to carry out the bulk
of the work. And their influence should not be underesti
mated – NOCs now control nearly four-fifth’s of the
world’s oil and gas reserves, compared to just six percent
controlled by independent oil companies (IOCs).
O’Neill believes that IOCs will be under increasing
pressure to explore for oil and gas reserves in riskier
areas and in deeper waters, and that they will need to
use the latest technical innovations to secure fields as
NOCs concentrate on exploiting their own national
reserves. He also points out that the process will be an
Total world oil demand (Mb/d) ‘10-’11 STEO forecast
88
87
86
85
84
83
1Q 2010
2Q 2010
3Q 2010
4Q 2010
1Q 2011
2Q 2011
expensive one: IOCs will need to spend billions of
dollars on E&P investment, while NOCs have the back -
ing of sovereign funds, local government support and
a greater proximity to emerging markets.
In the past few years, governments in emerging
markets have showered billions of dollars worth of
investments on their own oil companies. The growing
desire to secure supply has seen Petrobras put
together the largest ever share offering of over $ 67
billion. This will be used to fund a capital expenditure
program of $ 224 billion, with the aim of developing
the company’s significant offshore reserves. Chinese
NOCs such as Sinopec and the China National
Offshore Oil Corporation (CNOOC) have been taking
stakes in projects from Africa to Canada.
O’Neill believes that the rise of NOCs poses several
challenges for the industry and for insurers, at least in
the short-term. For example, he says: “Insurers need to
make sure that NOCs provide quality information
about the projects they are involved in, the inherent
risks that have been identified, and the controls that
have been put in place to mitigate them. This has not
always been the case in the past, which has made it
more difficult for insurers to price premiums and assess
whether they could provide adequate coverage.”
“The insurance industry has to help create a culture of
openness with NOCs so that they understand how we
price premiums. We need to encourage a greater
exchange in quality information as this will help both
parties,” he says.
Securing skills
Another global problem is that presently oil companies
– both national and independent – do not have
enough skilled and experienced people in place to
3Q 2011
4Q 2011
Source: IEA
Special Topic – Energy 17

Proven reserves
NOC dominance
60 % Middle East
11 % Europe and Eurasia
10 % Africa
10 % South and Central America
6 % North America
3 % Asia Pacific
78 % NOCs
11 % NOCs (equity access)
6 % Russian Companies
6 % IOCs
actually carry out operational and project work. “Oil companies
are not attracting enough young people with experience
to meet the needs of the industry,” says O’Neill.
“The workforce needs to be constantly replen ished so
that oil companies do not suffer a skills short age, particularly
as global demand for oil is pushing them to look for
reserves in riskier areas at greater depths.” O’Neill adds:
“While this is a short-term problem, there is currently a
higher risk of an accident or spill occurring as human
error is still one of the main causes of losses, which
means that insurance premiums become more expensive
and the scale of potential liabilities also increases.”
Political risks also come to the fore. In developing
countries, political unrest or the nationalization of
resources might lead to disruptions in supply. As
governments have realized the benefits of securing
their own oil supplies, some have taken “authoritarian”
steps to ensure that they remain in control. For example,
in 2006 Russia forced oil giant Shell to cede its majority
control in the Sakhalin 2 project to Gazprom, majority-owned
by the Russian government, slicing its stake
in half down to 27,5 percent.
In May 2007 the Venezuelan government nationalized
the country’s Orinoco Oil Belt reserves so that the state
had at least 60 percent stakes in all oil projects. State
participation in the Orinoco River Belt has since
increased from 39 percent to 78 percent. Six major
companies were asked to hand over proportions of
their stakes, and Chevron, Total, BP PLC and Statoil
negotiated deals with Venezuela to continue on as
minority partners. But ExxonMobil and ConocoPhillips
rejected the terms, prompting Venezuela to
nationalize Exxon’s 42 percent stake of the Cerro
Negro project. Exxon went to the International Centre
for Settlement of Investment Disputes (ICSID), a World
Bank institution that arbitrates investment disputes
between member countries and individual investors,
demanding that projected profits be included so that
the total compensation was $ 5 billion, rather than the
$ 750 million on offer. However, in June 2010 the ICSID
Tribunal concluded it had no jurisdiction to act.
“Increased direct government involvement in oil and
gas projects has always been on the risk register for
insurers and IOCs,” says O’Neill. “However, the industry
and insurers need to work more closely with NOCs and
their governments so that best practices are followed,
technical innovation and expertise is maintained, and
risks are properly identified and managed,” he says.
O’Neill believes that insurers need to make a greater
effort to help oil companies understand that they plan to
be involved in the industry for the long-term. “If insurers
are going to promote greater openness to encourage
better information sharing, then it is important that
clients understand that we are committed to the
industry for the long-term. This means that insurers
need to invest in better training and recruitment so that
underwriters have a better understanding of the oil and
gas sector and the risks that it faces,” he says.
PAUL O'NEILL
Global Head of Energy Underwriting
paul.oneill@allianz.com
WWW.IEA.ORG
WWW.AGCS.ALLIANZ.COM/SERVICES/ENERGY/
Modern oil platforms
still need raw muscle
power to function.
18 Special Topic – Energy Special Topic – Energy 19

SPECIAL
TOPIC
Australia
steps on the gas
Australia is set to become an energy superpower: huge gas
reserves are being developed off the northwest coast of the fifth
continent, which could elevate Australia to the position of the
world’s largest gas producer in a few years’ time. One such site
is Woodside’s Pluto gas field, which will start production in 2011.
Allianz Global Corporate & Specialty is one of the insurers of the
multibillion-dollar project.
FRANK STERN
20 Special Topic – Energy
It’s one of the biggest development projects in the
Australian energy sector: the Pluto LNG project (Liquid
Natural Gas) off the north coast of Western Australia is
expected to cost Woodside around A$ 12 billion (€ 9 billion).
The company, the second-biggest oil and gas
producer in the country after BHP Billiton, is banking on
the energy appetite of Asian newcomers China and
India, as well as that of industrial nations such as Korea
and Japan, and the boom is set to continue for many
years to come. Even the financial and economic crisis
that has shaken the West these past two years has had
little impact on demand. Experts predict that by 2020
Australia will topple Qatar from its leading position
among gas producers and rise to number one from its
present ranking of fifth.
Pluto is an important part of this calculation. The gas
field where 129 billion cubic meters of natural gas lie at
water depths of between 400 and 1000 meters, was
discovered in April 2005 some 190 kilometers northwest
of Dampier (see map). 15-year supply contracts have
been signed with the Japanese companies Tokyo Gas
and Kansai Electric, each of which holds a five percent
share in Pluto, with an option to extend the agreements
for another five years.
Pluto goes easy on the environment
The first “train” or processing plant is scheduled to start
production in 2011 and is expected to deliver 4.3 million
metric tons of liquid natural gas (LNG) a year. The crude
gas is cleaned and compressed at minus 161°C into
LNG, which is 600 times less voluminous than the
natural form. A loading terminal and a shipping
channel 10 kilometers long and up to 275 meters wide
had to be dredged for the tankers that transport the gas
to the importers. To offset the dredging work, which
involved the removal of 12 million cubic meters of sea-
Experts are predicting a three-fold increase in
global demand for LNG by 2025.
Pluto’s environmental
program
The operators of the Pluto gas field have devised an
extensive environmental program to offset the
ecological impact of the development work. This
envisages the following measures:
• Marine observation program
• Large-scale planting of eucalyptus trees
• Rehabilitation and restoration program for the
Burrup Peninsula that will restore poor quality
areas
• Support of research to study the effects of
dredging work on tropical marine ecosystems
Protection of culturally significant sites
In the course of construction work on the Pluto LNG
Park, 170 petroglyphs (rock art) carved by Australian
Aborigines were moved and conserved for posterity
under the supervision of archaeologists and repre -
sentatives of local Aboriginal groups.
bed, a marine observation program to minimize the environmental
impact on marine flora and fauna in the
shipping channel was undertaken. The monitoring
program provided information on any impact to the
coral reef communities in the area.
Woodside also set up an environmental program
costing A$ 100 million (€ 70 million). The program comprises
large-scale planting of eucalyptus trees in New
South Wales and Western Australia. According to the
company, Pluto will become one of the most environmentally
friendly natural gas ventures in the world.
Special Topic – Energy 21

Liquified gas plants will be needed to tap
Australia's hidden treasures.
22 Special Topic – Energy
An estimated 129 billion
cubic meters of
natural gas are hidden
below the ocean some
190 kilometers northwest
of Dampier.
Indian Ocean
Dampier
Carnarvon
Perth
With the help of AGCS experts in London, the Australian
branch of Allianz Corporate & Specialty (AGCS) secured
its role as lead insurer for the onshore production
facilities, gas tanks and jetty. “That was a real milestone
for us,” says Ronan Gallagher, who heads the AGCS team
in Sydney. A milestone that is also paying off: so far, there
have been no major accidents or damages since the
project got underway – despite the daunting technical
and geological challenges.
The specific conditions in the Carnarvon Basin off the
north coast of Western Australia required extensive
exploration of the seabed to develop a safe anchorage at
a depth of 85 meters for the offshore platform on which
the gas is collected from the five drilling wells.
Engineers also had to carefully consider the course of
the 180-kilometer long pipeline to the onshore LNG
plant and how best to stabilize it. The gas field is exposed
not only to strong tidal and sediment movements but
also to unpredictable oceanic currents.
Production forecasts appear to justify the outlay. Experts
are predicting a threefold increase in global demand for
LNG by 2025. Asia’s energy appetite in particular is
driving prospects, and Australia’s geographical location
puts it in an excellent position. If fully exploited, Pluto
could yield a good 12 million metric tons of LNG a year in
Broome
WESTERN
AUSTRALIA
RONAN GALLAGHER
AGCS Pacific Head of Engineering Underwriting
ronan.gallagher@allianz.com.au
Great Australian Bight
future: The 200 hectare LNG Park on Burrup Peninsula,
which is insured by AGCS, can easily accommodate a
further four processing plants. “Australia's ‘dash for gas’
presents us with some great opportunities and challenges,“
says Gallagher. “The stakes are high with a very
high concentration of values.”
But Pluto is not the only source that Australia is staking
its hopes on: the Gorgon gas field to its south, is set to
come on stream in 2014, and will trump everything that
has come before. Containing over 1,100 billion cubic
meters of gas, almost ten times as much as the Pluto
field, it would be sufficient to power a city of a million
inhabitants for 800 years. Chevron, ExxonMobil and
Shell are jointly investing A$ 43 billion (€ 30 billion) in
the development work. A floating LNG plant will be
tested here for the first time. PetroChina has recently
agreed to purchase 2.25 million metric tons a year. This
agreement alone will earn the Gorgon operators A$ 50
billion (€ 35 billion) over a period of 20 years.
WWW.WOODSIDE.COM.AU
WWW.AGCS.ALLIANZ.COM/SERVICES/ENGINEERING/
NORTHERN
TERRITORY
SOUTH
AUSTRALIA
Adelaide
GAS GIANT
Australia is thought to
have one of the largest
natural gas reserves in
the world. Together
with New Zealand, net
annual exports are
expected by the
International Energy
Agency to grow from
10 billion cubic meters
in 2007 to 67 billion by
2035.
Special Topic – Energy 23

SPECIAL
TOPIC
Wind energy
Offshore wind farms – pion eering work on the high seas
A stormy day on the North Sea. A large ship gets into trouble. The high
swells hurl it against the transformer platform of an offshore wind farm,
sinking it. Power from the wind farm to the mainland is cut off for months. A
worst case scenario.
MARIA WAGNER
A total loss with far-reaching consequences: The
electricity can no longer be transmitted, and the
wind energy production must be shut down. Perhaps
for a period of months. After all, it can take an
extensive amount of time to erect a new platform
on the high seas: Elaborate advance work must be
done to schedule the use of costly special ships and
equipment. The high-seas operation may be delayed
over and over again as a result of bad weather.
Added to the high production costs of a new offshore
platform are the financial losses resulting
from the extended halt of electricity production.
“When an entire platform sinks into the sea, we face
a classic worst case scenario. In such cases, we are
talking about potential property losses of € 50 million
to € 60 million as well as a nine-digit loss of income,”
says Gerhard Müller, Senior Risk Consultant
24 Special Topic – Energy
at Allianz Global Corporate & Specialty (AGCS).
Gerhard Müller knows what he is talking about:
Every day he works on risk management in the area
of wind power stations. The market for these systems
is currently experi encing a boom. Germany is
a good example. The Amended Renewable Energies
Act of 2009 has set very ambitious goals for the
country: By 2020, 30 percent of electricity should
come from renewable energies. Robert Maurer,
Global Head of Renew able Energies Underwriting at
AGCS, is convinced that wind power will play a key
role in this drive: “Wind power stations represent a
real alternative to nuclear power plants because
they can produce sufficient amounts of electricity.
For this reason, wind energy has the greatest potential
of all re newable energies – particularly from a
cost-benefit perspective.”
Wind power worldwide June 2010
With almost all lucrative mainland sites occupied, European wind farms
are moving farther out to sea.
Position Country Total capacity June 2010 (MW) Added capacity June 2010 (MW) Total capacity end 2009 (MW)
1 USA 36,300 1,200 35,159
2 China 33,800 7,800 26,010
3 Germany 26,400 660 25,777
4 Spain 19,500 400 19,149
5 India 12,100 1,200 10,925
6 Italy 5,300 450 4,850
7 France 5,000 500 4,521
8 United Kingdom 4,600 500 4,092
9 Portugal 3,800 230 3,535
10 Denmark 3,700 190 3,497
Rest of the World 24,500 2,870 21,698
Total 175,000 16,000 159,213
Source: WWEA
Special Topic – Energy 25

World Wind Energy Report 2009
Position 2009 Country
1 United Kingdom 688.0 104.0 574.0
2 Denmark 663.6 237.0 426.6
3 Netherlands 247.0 0.0 247.0
4 Sweden 164.0 30.0 134.0
5 Germany 72.0 60,0 12.0
6 Belgium 30.0 0.0 30.0
7 Finland 30.0 0.0 30.0
8 Ireland 25.0 0.0 25.0
9 China 23.0 21.0 2.0
10
Spain 10.0 0.0 10.0
11
12
26 Special Topic – Energy
Total offshore capacitiy (MW)
end 2009
New offshore capacity (MW)
installed in 2009
Wind power systems riding a tailwind
According to the World Wind Energy Association
(WWEA), about 175,000 megawatts (MW) of energy
are now being produced by wind power stations
around the world. The leading producers are the
United States, China and Germany.
In Europe, the wind power expansion is moving out to
sea. The lucrative sites for wind farms on the
mainland (onshore) are almost completely occupied,
and the existing wind power stations can be made
more productive only through repowering, that is, re -
placing the units with more efficient ones. For this
reason, the future of wind energy in Europe lies
offshore: Huge wind farms with high-performance
wind turbines of up to seven MW are being erected off
the coasts of many European countries. The lion’s
share of the farms is being built by Great Britain, Denmark,
the Netherlands, Sweden and Germany.
Unlike other European countries, Germany faces
special challenges in its push to construct offshore
units in the North and Baltic Seas. These are chal -
lenges that other countries could also face in the
future if they decided to use new coastal regions for
offshore wind farms. In Germany, wind farms are
being erected on the high seas: The wind power units
can be located up to 100 nautical miles off the
German coast where the water can reach a depth of 60
meters. This makes the erection of offshore wind
farms logistically difficult and financially expensive –
even for market leaders like Siemens. Even though the
Total offshore capacitiy (MW)
end 2008
Rate of
growth (%)
Norway
2.3
2.3
0.0
22.4
500.0
0.0
0.0
0.0
1050.0
0.0
/
Japan
1.0
0.0
1.0
0.0
Total 1955.9 454.3 1491.6 30.5
18.1
55.6
0.0
Source: WWEA
company has built 16 offshore wind farms around the
world over the past 20 years and gained broad expertise
in the process, Martin Eckert, Senior Insurance
Consultant at Siemens Financial Services, does not
play down the problems associated with offshore
systems: “The greater the distance from the coast, the
longer it takes to make repair and maintenance trips
– and the tighter the time frame for such work. Hard
bedrock, great depths, strong currents and heavy
swells continue to make the project planning and
implementation highly challenging.” It is much
easier and more economical to build wind farms near
the coast, Eckert says.
“The problem is people’s acceptance of wind farms:
All Germans support renewable energies, but none of
them wants to have a wind turbine within eyesight,”
Robert Maurer says. “We also face a similar problem
in terms of expanding the grids that will transmit
green electricity from wind power units to consumers
in southern and central Germany. No one wants to
have transmission lines running in front of their own
windows.”
An expensive undertaking
Given the distance of wind farms from the German
coast, a tremendous effort and much money are
required to build and maintain offshore units. “Logistics
are the main driver of the extensive service and
repair costs on the high seas,” Gerhard Müller says.
“Let’s take a turbine breakdown as an example. It will
cost the operator € 1 million to replace the turbine for
Special Topic – Energy 27

“More and more major corporations are
acquiring small and mid-sized companies in
order to offer a complete service package
from a single source.”
28 Special Topic – Energy
repair purposes. But leasing special ships for this job
will cost many times this amount depending on avail -
ability and the weather.” This means that insurance
companies that cover the damages face the critical
challenge of quantifying the risks and the maximum
loss in advance. This is not a simple job. After all, Germany
is a pioneer in the operation of offshore wind
farms: “It is possible to insure an offshore wind farm.
But you have to take the wear-and-tear factor into consideration
as well,” Robert Maurer says. “If a wind
power unit is damaged after 10 years of operation, the
insurance will be paid only on a pro rata basis be cause
the unit has experienced extensive wear and tear.”
But how can the potential wear and tear of a high-seas
system be estimated in advance? In addition to typical
operation-related wear and tear, consideration must
also be given to the impact of important environmental
factors: Powerful storms, heavy swells and highly
corrosive salt water can cause individual parts in wind
power stations to wear much faster than in an on -
shore system. Manufacturers maintain that state-ofthe-art
offshore wind power stations can operate for
20 years. But Gerhard Müller is rather skeptical of such
assertions: “We don’t think that a wind power station
will have a 20-year lifespan without a suitable maintenance
plan. After all, the lifespan primarily depends
on maintenance and the replacement of parts in the
station. This means one thing: If parts are regularly
replaced, the lifespan of the station will be extended.
But this requires a tremendous effort and is expensive,
thus reducing the return on investment.”
Consolidation process in the wind energy market
High costs are the Achilles’ heel of offshore wind
farms. Building such a farm requires an investment of
hundreds of millions of euros. And there is no ceiling
on how high these costs can climb. A joint venture of
RWE Innogy, Siemens and Stadtwerke München has
erected the largest-ever offshore wind farm, consisting
of 160 stations, off the coast of Wales. The price
tag: more than € 2 billion. It is no wonder that international
corporations are gaining a bigger say in this
complex business, Robert Maurer says. “A consolidation
process is sweeping through the wind energy
market right now: More and more major corporations
like Siemens, GE and Goldwind, the Chinese market
leader in this area, are acquiring small and mid-sized
companies in order to offer a complete service package
from a single source,” he says. “Large corporations
also bring more credibility to the table in major projects:
Investors like to rely on well-known names in the
industrial world because they can make long-term
guarantee commitments. And these global groups are
completely aware of the risks associated with an offshore
wind power station.”
Siemens, for instance, draws on its experience to
minimize risks: “For offshore wind projects in particular,
risk management is closely linked to the breadth
of supplier contracts and service-level agreements,”
says Martin Eckert of Siemens Financial Services. “The
previous projects and the maintenance agreements
related to them primarily cover the offshore wind
turbines and, thus, the technical area above the water
line. The tendency to assume turnkey agreements for
wind farms and the grid connection creates significantly
higher requirements for risk management. At
Siemens, the experience of other units in the Energy
division can be drawn on in this regard.” For insurers,
the fast growth of the offshore industry and the
matured risk management employed by major corporations
mean larger challenges for the array of highsea
risks, Martin Eckert says. “We will need other creative
concepts in the future,” he notes. “Insurers will
need to actively encourage a risk transfer independent
of property damages for weather risks, the non-avail -
ability of special ships or return and modification
costs resulting from defects that have the potential of
producing series claims.”
But there are not only major corporations playing a
leading role with offshore wind farms – mid-sized
companies as manufacturers of parts should not be
underestimated in insurance terms. “The increasing
competition and the pressure for profitable offshore
wind energy production are leading to necessary cost
reductions. This means that manufacturers of wind
power stations are turning to more favorably priced
suppliers as a way of lowering production costs,”
Robert Maurer says. “As insurers, we cannot check
every detail related to the procurement of parts. But
we can determine which processes are observed
during manufacture. This will give us good insights
into the professional work of the station makers.”
The code of practice
To be able to better estimate the challenges, problems
and risks associated with the manufacture and operation
of offshore wind farms and to completely cover
them in insurance terms, Allianz is talking with other
Top 5 countries in offshore wind (MW)
Germany 60 72
Sweden
Netherlands
30 164
Denmark
United Kingdom
market players about a code of practice. In this
process, insurers, manufacturers and stakeholders
should compose a set of risk-related guidelines –
similar to the Tunneling Code of Practice. “In the UK,
the Tunneling Code of Practice grew out of a number of
major losses in the area of tunnel construction,”
Robert Maurer says. “At the time, the industry was
forced to talk to insurers. The situation is not so
dramatic in the area of wind power stations yet
because we have not experienced any major insur -
ance cases so far. But we intend to act now and
promote an open dialogue with all involved parties.”
The lack of a dramatic situation in the offshore area
does not mean that the rapid growth of the industry
should be left up to chance. The fact that more and
more major companies from Asia are entering the
global wind power market is exerting pressure even
on market leaders. The fear that the quality of
products will suffer as a result is sweeping through
the industry like an ill wind: “We intend to promote
quality standards on an international level,” Maurer
says. “Europe is still leading the way in wind power.
But this can change quickly in the coming years.”
ROBERT MAURER
AGCS Engineering Underwriting
robert.maurer@allianz.com
GERHARD MÜLLER
Allianz Risk Consulting
gerhard.mueller@allianz.com
247
WWW.WWINDEA.ORG
WWW.SIEMENS.COM/FINANCIAL
WWW.AGCS.ALLIANZ.COM/SECTORS/ENERGY-RENEWABLES/
237
104
663
688
Source: WWEA
Special Topic – Energy 29

SPECIAL
TOPIC
CCS
Capturing
carbon emissions
Carbon capture and storage (CCS) systems, which can reduce CO2 emissions
into the atmosphere, are about to enter into large-scale industrial use.
JEAN INGLESE
Carbon-based technologies dominate about 75 percent
of the world’s power generation, according to most
estimates. While renewable and non-carbon-based
energy sources are coming on line, this dominance is
likely to continue for the foreseeable future. Therefore,
an effective carbon dioxide (CO2) emission control
strategy should target these power systems. It will
consist of cleaner power plants and “smarter” electricity
grids and also stop the CO2 created in the process of
burning fuels from entering the atmosphere.
30 Special Topic – Energy
Recovering CO2 from exhaust gases and limiting CO2
release to the atmosphere is a more or less new aim for
power plants and energy generation in general. Up to
now, power plants have developed gas treatments to
recover hydrogen sulphide, sulphur, nitrous oxide and
other compounds considered to be pollutants.
Long considered relatively neutral in its effects, little
attention had been paid to CO2 until it entered the public
discussion on climate change, as observers point to
million metric tons
Going up: Total carbon emission from fossil fuels (1900 – 2007)
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1900 1915 1930 1945 1960 1975 1990 2005
significant growth in CO2 emissions in recent years (see
chart). Recent requirements coming from state regula -
tions have now pushed companies to improve the CO2
capture in their exhaust and find ways of storing it. Processes
for carbon capture and storage (CCS) were therefore
first seriously investigated in the 1990’s but experienced
a significant development beginning this century.
Source: CDIAC
Three kinds of capture
In the current state of development, CCS processes can
be divided into three main types: post-combustion, precombustion
and oxyfuel-combustion. Each of them has
different advantages that in turn need to be weighed
against their costs and their overall effects on fuel
efficiency.
Post-combustion CCS processes, as the name suggests,
handle exhaust after the fuel is burned. Here again, there
are three major groups (see graphic next page). The first,
amine and advanced amine processes, are proven in natural
and synthetic gas purification and were developed
and specialized to capture CO2. Flue gas is treated with
aqueous amine solution, which reacts with CO2 by
absorption, and at raised temperatures CO2 is released
and solution recovered for re-use or directly by processes
consuming CO2 or stored as condensed and liquefied
CO2, in deep geological formations, in deep ocean masses,
or in the form of mineral carbonates. There are different
types of amines that are suitable for CO2 separation
under different conditions. Advanced amine processes
involve more specialized amines with a better efficiency,
a higher tolerance against oxygen and trace contaminants
and lower solvent degradation rates. Composition
of flue gas could be a challenge. Corrosion is possible and
therefore adequate materials are necessary.
This area has a lot of competitors such as all oil & gas
manufacturers, Alstom, Dow Chemical, Mitsubishi and
Siemens. A new project in Canada could be the largest
implemented in the world using amines specifically for
sulphides and CO2.
The second group of post-combustion CCS comprises
the chilled ammonia processes. These are also well
known processes where the flue gas is cooled, absorbed
in a rich ammonia-water-based solution and then regenerated
to be used or liquefied like the amine processes.
Special Topic – Energy 31

Technology options for CO2 Removal
Post-combustion
Pre-combustion
Oxy-fuel
Coal
Gas
Biomass
Gasification
Gas, Oil
Coal
Gas
Biomass
Coal
Gas
Biomass
32 Special Topic – Energy
Air
Air
Air/O2
Steam
Reformer
+ CO2 Sep
Power & Heat
O2 Separation
Power & Heat
This is a highly efficient solution with low heat of reaction,
easy and low temperature regeneration and tolerance
to oxygen and contaminations in gas. However,
there is a risk of toxic release of ammonia and buyers
need to be found for the ammonia sulphate that is a byproduct
of the process. Again corrosion is possible and
H2
Air
CO2
Power & Heat
N2
N2
O2
CO2
Separation
N2
O2
CO2
Compression &
Dehydration
Source: Bellona
Different routes, one destination – the methods of pre-combustion, post-combustion and oxy-fuel CO ² separation each require more additional energy
to existing power & heat plants, whereby oxy-fuel separation is the most energy-efficient. A further concern for all three is potential long-term risk for
the storage itself including storage in cavern. This area is still under a lot of investigation.
therefore adequate materials are necessary. The main
incident up to now is clogging.
Finally, a new kind of post-combustion CCS is the antisublimation
process. In this case, flue gas is cooled and
conditioned to be dried and then CO2 is frosted and
liquefied. No chemicals are involved, but efficiency
seems to be low. Up to now, they have not been tested at
a pilot plant and are still under investigation at laboratory
level.
The pre-combustion processes are based on an integrated
gasification combined cycle with steam reformer,
partial oxidation and a shift reactor to convert carbon
monoxide to CO2. This is followed by the capture of CO2
(as in post-combustion unit) and use of hydrogen and
nitrogen in a gas turbine. The process needs oxygen
coming from an air separation unit. This is the shortest
term for market and the easiest to realize. Up to 90 to 95
percent of the CO2 could be captured.
Oxyfuel-combustion processes were designed based on
technologies used for the treatment of ethylene and in
boilers in combination with proven technologies given
by referenced companies in order to supply a global process
management to their clients. It is a combined process for
power plants using fuel or coal where the end gas processing
unit can catch and release CO2. Using this method, 100
percent of the CO2 could be captured. However, the efficiency
of power plants would be lowered to below 70 percent,
while costs rise by about 30 percent. Oxygen content needs
to be controlled to below 25 percent. Supercritical CO2 is
used in some processes to allow pumping of CO2 and requires
some special equipment. Material selection is essential
and experiments have been done to select them. Cold
boxes for the cryogenic recovery of CO2 and condensers require
the use of aluminium and dedicated processes of
welding. Temperature control is needed to prevent hydrate
and dry ice formation.
With benefits come costs
Capturing and compressing CO2 requires a great deal of
energy and would increase the fuel needs of a coal-fired
plant with CCS by 25 to 40 percent. These and other system
costs are estimated to increase the expenses of energy from
a new power plant with CCS by 21 to 91 percent. Therefore,
cost-effective carbon sequestration schemes could be
identified as a key need for dealing with the impact of CO2 on
global climate change.
The main challenge of CO2 capture and storage is the high
cost of technologies using the current state-of-the-art
technologies. Separation and compression of CO2 account
for the bulk of these costs, while the costs of transportation
and injection are comparatively lower. Another issue could
be the energy and CO2 release used to capture CO2 versus the
efficiency of the capture process. All of the research and development
studies related to CO2 capture and storage are of
significant interest for these objectives.
As a result, Allianz works closely with its customers develop -
ing such processes. It offers them insurance warranties for
running pilot phases and pre-industrial phases as well. This
support means understanding the technologies they are
developing and what the main technical concerns are in
order to create more appropriate insurance solutions based
on the exposures they could face.
JEAN INGLESE
Allianz Risk Consulting, France
jean.inglese@allianz.com
HTTP://CDIAC.ORNL.GOV/
WWW.BELLONA.ORG
WWW.WWF.ORG
Guest commentary
from Matthias Kopp from World Wildlife
Fund/Climate Programme
When considering CCS there are two main
aspects to balance very carefully – the risks
involved in storing CO2 underground and
the benefits to our climate from avoding
these emissions to the atmosphere. It is becoming
increasingly urgent for emissions to
reach a global peak, then decline and ultimately
be reduced to levels where climate
scientist request them to, some 80 percent
or more (compared to 1990) over the next 40 years globally. Therefore,
further to or where renewable or less risky alternatives do not
exist or are not available, every technology with an acceptable risk
profile that delivers mitigated emissions needs to be considered.
CCS in fossil-fired power plants does not generally meet this requirement.
Various studies demonstrate that CCS in new-built fossil-fired
power stations for instance for Germany is even counterproductive
in the move to a carbon-free power sector, while it might be
needed as a retrofit option some time in the future if structural
emission reductions are not delivered quickly enough.
It appears to be a different story in emerging economies like China
where emissions will realistically only be controlled if also new
power plants can be equipped with CCS technology. But with our
current level of knowledge, we need to rigorously test CCS applications
for those industrial processes where emissions directly from
the process cannot be avoided. Germany, for example, will be stuck
with annual emissions in the order of 40-60 million tons of CO2 in
2050 from steel, cement and chemical processes, and for the time
being no other options can be identified besides storing the emissions
those industries generate underground, if we want to ensure
industrial production and jobs from those industries. Limitations to
suitable potential storage space also strongly point towards using
available reservoirs strategically and wisely – in Germany, hence, for
industrial emissions.
Regardless of whether CCS is used in power plants or industrial facilities,
any possible risk to humans, groundwater or ecosystems from
stored CO2 needs to be rigorously tested to the maximum. Such effects
and dangers will have to be avoided. The technologies developed
to reliably monitor that stored CO2 stays underground also
need to be very robust. If this is not ensured, we would still continue
to use the atmosphere as our carbon dump. There is a critical role
for the private sector, policy makers, insurers and society as a
whole to create the conditions in which mutual trust and legal frameworks
are established based on solid research and testing so that
vital technologies can be applied to help maintain the planned
emissions reduction targets without obstructing our progress towards
decarbonized economies.
Special Topic – Energy 33

IN
CONCLUSION
Power grids at their peak
Guest commentary by Johannes Kindler, Vice Chairman, German Federal Network Agency
“There is a major need for modernization and expansion
which will require close collaboration between countries
and massive investment in their power grids.”
Johannes Kindler, Vice Chairman, German Federal Network Agency
JOHANNES KINDLER
The Federal Network
Agency for Electricity,
Gas, Telecommunications,
Post and Railway is a
separate higher federal
authority within the
scope of business of the
German Federal Ministry
of Economics and Technology,
and has its headquarters
in Bonn. On July
13th 2005 the Regulatory
Authority for Telecommunications
and
Posts which superseded
the Federal Ministry of
Posts and Telecommunications
(BMPT) and the
Federal Office for Posts
and Telecommunications
(BAPT), was renamed
Federal Network
Agency. Moreover, it acts
as the root certification
authority as provided for
by the Electronic Signatures
Act. Johannes
Kindler is Vice President
of the Federal Network
Agency for Electricity,
Gas, Telecommunications,
Post and Railway.
34 The Last Word
Power grids in Germany and Europe are engaged in a
high-voltage discussion – in more ways than one. The
demand for electricity has risen only slightly in recent
years, but there are huge challenges to maintain the
supply which need to be dealt with in order for the European
community to achieve its energy and climate
goals. The European Commission’s new energy infrastructure
program makes this abundantly clear.
Statistics show that Germany has the most stable power
grid in Europe, perhaps in the whole world. However,
when it comes to supplying electricity, the EU member
states do not act alone, but rather as a continent-wide
group. One of the main challenges here is integrating
the various power infrastructures. They differ significantly
in terms of age, dependability and their basic
technologies. As a result, there is a major need for modernization
and expansion which will require close collaboration
between countries and massive investment in
their power grids.
In addition, there is the issue of integrating renew able
energies. In the future, more and more regenera tive
energy will be brought on line. The traditional transmission
system is still based on a structure in which large
and medium-sized power plants send their electricity
over relatively short distances to the consumer. For
wind energy in Germany the main concentration is off
shore in the north where electricity needs to be carried a
much longer distance to the consumer. Wind and especially
photovoltaic power also come from volatile
sources and are much more difficult to rely on: some -
times they generate a lot, and sometimes very little.
Nowadays wind is somewhat predictable. It is much
harder to predict and steer sunshine. Therefore, it is
particularly tricky to bring electricity from these sources
on line. Grids need to become much “smarter” to handle
these enormous technical challenges.
From my point of view, the risk of increasing power
grid instability needs to be put into clear focus. For
example, in heavy winds, the power brought on line
can exceed the load the grids can handle. What does
that mean? The ideal frequency for electricity
transmission is 50 Hz, with a very small margin for
fluctuation. A large deviation from this ideal frequency
can interrupt the power supply. In order to avoid
overloading, it is necessary to expand the power grids,
which often meets with a lot of local resistance.
Experience shows that – regardless of the need to further
simplify the approval process – an attempt has to
be made to increase acceptance for expanding the grid
infrastructure through more education and new forms
of dialogue with the population. This does make a big
difference.
In the interest of power grid sustainability, it is also essential
for operators to work more closely than in the
past with the consumers in order to make use of their
vast potential. The most energy-intensive industries
are willing in principle to provide capacity through
flexible production to offset fluctuations in the wind,
or when there is a potential disruption to supply due to
a drop in power to temporarily shut down production
immediately. My office works closely with Allianz in
this area to estimate probable financial losses and
develop possible insurance solutions. The very posi -
tive progress of these discussions is a good example of
how government and the private sector can work as
partners on solutions for major social challenges.
By providing constructive information to insured companies
about their risks and consequences, insur ers
for their part can motivate power producers, grid operators
and consumers to do everything they can to
maintain one of the most important goods in a
civilized society, a dependable supply of electricity.
IN
CONCLUSION
2011
Calendar
Date/Location Event Information
May 1–5 RIMS - 2011 Annual Conference www.rims.org
Vancouver, Canada Risk and Insurance Management Society (RIMS)
J une 5–8 PRIMA 2011 32th Annual Conference www.primacentral.org
Portland, OR , USA Public Risk Management Association (PRIMA)
J UNE 6–8 AIRMIC - Annual Conference 2011 "Embracing new horizons" www.airmic.com
Bournemouth, UK Association of Insurance and Risk Managers (AIRMIC)
J UNE 19 – 22 IIS - 47th Annual Seminar www.iisonline.org
Toronto, Canada International Insurance Society (IIS)
J UNE 19–21 ALARM - 19th Annual Conference www.alarm-uk.org
Telford, UK Association of Local Authority Risk Managers (ALARM)
JULY 31–August 3 APRIA - Annual Conference 2011 www.apria.org
Tokyo, Japan Asia-Pacific Risk and Insurance Association
September 6–8 DVS Symposion 2011 www.dvs-schutzverband.de
Munich, Germany Deutscher Versicherungs-Schutzverband
September 10–15 RVS Monte Carlo 2011 www.rvs-monte-carlo.com
Monte Carlo, Monaco Rendez-Vous de Septembre
September 18–21 RIMS Canada 2011 www.rimscanada.org
Ottawa, Canada Risk and Insurance Management Society
September 18–21 IUMI – 2011 Conference www.iumi.com
Paris, France International Union of Marine Insurance
O c tober 2–5 FERMA Risk Management Forum 2011 www.ferma.eu
Stockholm, Sweden Federation of European Risk Management Associations
O c tober 24–25 AGCS Expert Days "Digital Environments" www.agcs.allianz.com
Munich, Germany Allianz Global Corporate & Specialty
N o vember 13–17 IRMI – 2011 Construction Risk Conference www.irmi.com
San Diego, CA, USA International Risk Management Institute (IRMI)
N o vember 20–23 RMIA – 8th Annual National Conference www.rmia.org.au
Melbourne, Australia Risk Management Institution of Australasia (RMIA)
December 4–7 SRA Annual Meeting www.sra.org
Charleston, SC, USA Society for Risk Analysts
Calendar 35