Onshore Energy Conference — Dubai Onshore Energy Conference — Dubai 02 | Page 19

ENERGY MATTERS
exposure following an insured event. It is not
uncommon for relatively small PD losses which
result in a partial production loss at a large
onshore operation to generate substantial BI
losses as a result of the downstream losses.
A simple interdependency
example is set out below:
Incident; a refinery suffers a loss,
but would normally sell product to
a downstream petrochemical unit in
the same group, or “Insured”;
Impact to the downstream unit:
i
S
 uffers a loss of production ➞
Loss of gross profit; and/or
ii Buys feedstock to maintain production ➞
Increased costs of working
profit (i.e. 25% loss of production = 25% loss to
the damaged units’ contribution). This is often
not the case, due to the following factors:
i
Upstream
impact; depending on the

positioning of the damaged unit, it is possible
that there would be upstream ramifications
as the refining and petrochemical complex is
out of “balance” as a result of the incident.
For example, if there is no option of utilising
or selling the excess intermediate
product, it may be necessary
to “scale back” throughput,
which will result in
significant production
and efficiency losses.
Both options would result in a BI loss
downstream of the damaged unit. However,
a loss to an integrated operation is rarely this
straightforward, and reviewing the affected
unit in isolation may understate (or even
overstate) the potential BI exposure. A full
understanding of the critical process units,
their role in the production chain and the
bottlenecks / production constraints is required
when assessing the materiality
of interdependencies.
A common misunderstanding
would be to assume a linear
relationship between loss
of production and
the effect on the
Insured’s gross
19