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The global oil and gas industry is currently navigating its most challenging transformation in decades. As the world is seeking more sustainable and renewable energy resources in a bid to reduce carbon emissions, traditional approaches to exploration, extraction, transport and processing are being reassessed and adapted.

The world now invests twice as much into clean energy than it does fossil fuels, creating new opportunities but also leaving the traditional sectors in need of a reset in operational and financial processes. With this comes new risks and complications to business workflows and insurance. 

In this article, we will explore the changes reshaping the oil and gas sector, and the potential implications these changes will have for insurance and asset valuation.

The forces reshaping the energy sector

Increasing understanding of the impact of carbon emissions on the global climate, the risks of aging technologies and infrastructure, and a redirection of capital are all forces driving the change away from fossil fuel reliance in the energy transition. Let’s assess these factors in the new green landscape.

Paris Agreement’s accelerated mission

The Paris Agreement was agreed and adopted by nearly every nation across the globe in 2015. The treaty committed nations to tackling climate change together, with a collective effort to: 

  • Keep the average global warming temperature increase below 1.5°C 
  • Commit to climate action plans, with governments communicating them every five years, and becoming increasingly more ambitious 
  • Help vulnerable countries with finance to reduce emissions 
  • Report to other nations to keep everyone accountable and transparent

In 2025, with the agreement reaching its ten-year anniversary, these efforts faced challenges. To reach the treaty’s target of limiting global warming by 1.5°C, emissions must have reached its peak before 2025, at the latest. 

However, the total amount of emissions has actually increased. Where 2026 should have started to see the beginning of the 43% decline by 2030, it is expected to see more efforts being taken to reduce emissions and get the Paris Agreement targets back on track. 

The impact of this on insurance and valuation is significant. The ways that companies both replace assets and source equipment are now undergoing a shift. Under pressure to transition away from carbon-intensive operations and meticulously audit their entire supply chain, businesses are finding that old facilities are increasingly a liability. This is altering how and where equipment is replaced.

Refineries’ shifting processes

Oil refineries are one of the major industry drivers of energy usage and carbon emissions created, contributing roughly 4% of global CO2 emissions. In recent years, driven by stakeholder pressure to join the energy transition, refineries have started to process or develop much cleaner, lower-carbon products such as biofuels and green hydrogen. 

The commitment to transitioning to cleaner carbon is driven by the goal of mitigating emissions as outlined in the Paris Agreement. A decreased global demand for traditional petroleum products, due to the proliferation in electric vehicles, has further accelerated the need for this change. 

However, this is not a straight-forward swap. The old infrastructure that was built to handle and process crude oil may struggle to meet the demands of these cleaner carbon products. For example older piping may not be designed to meet the higher pressures required for hydrogen, and standard storage tanks may face corrosion issues when used with biofuels. Simply, existing equipment and technology was not built for the green fuels of the future. 

This huge shift will have a significant impact on many areas of the industry: 

  • Changing previous process requirements and workflows
  • Introducing new infrastructure and technology to replace the old machinery 
  • Overall handling of new operational risks 

Investment pivots

In today’s green-first landscape, the cost of not operating in a sustainable way is becoming expensive, and is not seen as a feasible long-term business strategy. 

Traditionally, oil and gas projects were seen as safe and steady investments. Today, they often face a higher Cost of Capital (a calculation of whether a project is a viable investment, taking the cost of equity and debt, to determine if there will be positive returns) than renewable projects. Where investment flows once favoured these fossil fuel industries, they are now pivoting toward building supply chains for hydrogen, wind, and solar energy. 

The trend that is driving this shift in investment behaviours is powered by both policy and public pressure. For example, HSBC, a major financial institution, announced in late 2022 that they would no longer fund any new oil and gas projects. 

Simultaneously, insurance companies are also facing intense scrutiny to move in the same way. In September 2025, this pressure reached a head when protesters surrounded the AXA and AIG London offices to demand an end to the underwriting of fossil fuel risks. From the increase in public upset and financial volatility, the insurance sector is continuing to be hesitant when considering the insurance of new fossil fuel projects.

For businesses in the sector, this creates a new economic reality:

  • Funding is becoming scarcer and more expensive
  • Assets that cannot transition to green energy are increasingly viewed as liabilities, or assets with limited life spans, making them harder to leverage for debt or equity
  • As public pressure mounts, the pool of insurers willing to cover new fossil fuel projects is shrinking

Implications for insurance 

These pressures, operational changes and cost restructures from the energy transition represent a fundamental change in insurance risks. The information that insurers have relied on for valuations for years within this industry is now becoming less predictive of future losses. 

This transition demands that we rethink how assets are valued, and how policies are structured. Here is how these forces are rewriting four rules of insurance valuations. 

1. Like-for-like replacement problem 

In a decarbonising world, like-for-like replacement is becoming a legal and strategic uncertainty. Reinstatement value, the cost of replacing a damaged asset with a new one of the same function and size, is becoming an ever more complex metric for risk. It is complicating the traditional like-for-like model with new layers of expected upgrades and green compliance. 

Put into context, if an older, carbon-intensive refinery unit is damaged, then stricter environmental regulations, planning or corporate net-zero commitments may prevent it from being rebuilt in its original form. Instead, the refinery company using this unit may need, or wish, to replace it with a more sustainable, efficient, and potentially more expensive green alternative. 

This issue creates an interesting valuation conundrum. If an asset is insured based on its existing form, rather than what the owner might be forced to replace it with, in the event of a total loss how would insurers approach reinstatement? Significantly the policyholder could also face a shortfall if newer more expensive technology is the only alternative in the event of a loss. 

Valuations may need to be reassessed, factoring in additional regulatory pressures, to account for the existing configuration. But they may also need to consider the impact of alternative technology and whether the economic and political environment would allow reinstatement.

2. Inflation driving up reinstatement costs

Even when like-for-like replacement is legally permitted in some cases, the cost of doing so is rising faster than general inflation. ‘Greenflation’, the rising cost of materials needed for the energy transition and creation of renewable technologies, is driven by intense competition for the raw materials needed. 

One example is the current market for large gas turbines. Their demand has skyrocketed, not just due to the increase in world power demand, but also due to the explosive growth in AI and data centres. This increased demand has created concerns for insurance coverage: 

  • Pushing up prices: the cost of turbines has risen sharply as manufacturers struggle to keep up with orders from many businesses 
  • Extended delivery times: with the growing demand, delivery windows have stretched significantly

If a valuation was conducted even two years ago, it likely does not cover today’s reinstatement costs. The result is a classic underinsurance risk where policy limits have been set based on outdated prices for equipment  that now, in today’s sustainable-first world, could cost significantly more and take twice as long to reinstate. 

3. Supply chain and business interruption 

Those extended delivery times from increased demand and the growth in clean energy have a direct impact on Business Interruption (BI) coverage. 

The scarcity of specialised technology (for example, specific alloys for biofuel processing, and carbon capture and storage) means that lead times are getting longer as businesses need to join the (long) order book for this equipment and materials. 

Supply chains supporting fossil fuel industries were previously well-established, with parts readily available. In the new green economy, supply chains are often immature or overstretched due to new unexpected and constantly changing variables involved in business operations and planning. 

Moving forward, policyholders must ensure that Indemnity Periods are re-evaluated to reflect the reality of today’s global supply chain. This involves moving beyond just the asset cost and instead deeply analysing the recovery timeline with regards to today’s landscape. 

4. Asset complexity 

Finally, the hybrid nature of modern refineries, where they will handle both aging infrastructure as well as new green fuels, introduces new risks and complexities. Especially when it comes to premium pricing.

For example, insurers have decades of data and information on existing crude oil refineries, and underwriters can price risk appropriately based on this information. However, there is far less information in the evolving field of biofuels or hydrogen. This uncertainty is often priced into premiums. 

When a facility adopts these new technologies, insurers may view the asset as a ‘prototype’ risk. Insurers will attempt to protect from the potential, higher risk of failure of these complex new processes. 

To mitigate this uncertainty, businesses must provide enough detail in their valuations to allow insurers and underwriters to understand the complexity of the operations, the proximity to adjacent units and the data to calculate their Probable Maximum Loss (PML) or Estimated Maximum Loss (EML) figures.

Accurate valuation here serves as a key data point for insurers, ensuring that the risk is well understood and adequately priced. 

Heading into a new year and new reality

Insurance is playing an active part in the transformational shift in the energy sector, and businesses should be prepared and ready for what’s to come. In 2026, these shifts are set to come into financial reality. Next year, the Paris Agreement targets are expected to be a high priority focus, and ‘greenflation’ will become ever more prominent. 

Relying on older historical data for asset valuations is no longer a safe strategy in a rapidly changing landscape. 

Feel free to get in touch with us if you’d like a no obligation conversation on how we can assist with setting your current declared values to ensure you’re adequately covered.