Insurance and reinsurance requirements for LNG

Abstract

The authors examine the propositions that the private banking sector is capable of assuring that liquefied natural gas (LNG) projects are economically viable and that the insurance sector is capable of rating the relative risks of LNG projects to assure their operations are as safe as possible. If the markets could assure these outcomes, government regulation of LNG projects could be reduced. Reviews of public and private regulation of safety and economic viability suggest that the private sector cannot serve these functions adequately. Unless private financial and insurance enterprises are induced by government regulations to smooth their own operating cycles, private self-regulation of major new developments is unlikely to be effective. In the case of LNG, the red tape of governmental bureaucracy may have prevented the large-scale development of costly, potentially hazardous, white elephants, but for all the wrong reasons.