Liquefied natural gas (LNG) and its chain
Gas cooled to minus 162 degrees to ship it by sea, in a four-link chain (production, liquefaction, shipping, regasification) each falling under a different policy.
Gas from Ras Laffan or Sabine Pass does not reach Europe by pipe but by ship, which means liquefying it first. The chain has four links. Upstream, production and gas treatment, underwritten as upstream energy; liquefaction, a terminal risk; shipping by LNG carrier, underwritten in marine with a protection and indemnity club; regasification on arrival, again a terminal risk, onshore or on an FSRU. In insurance terms the chain is the classic case of distributed risk: no policy covers the whole, each link has its own underwriter, and a loss at one point cuts the flow downstream without the customer's insurer being involved. Liquid gas does not burn in the tank for want of oxygen; the danger comes from vaporization: a flammable cloud or a vapor explosion (rapid phase transition) on contact with water. The market also learned how fragile the chain is in 2022, when Europe replaced Russian gas with cargoes and the outage of a single US site moved prices across the continent. The contract structure (long-term sale agreements, tolling) adds a counterparty risk outside property insurance.
Textbook case: a 170,000 cubic meter LNG carrier loads at Sabine Pass for delivery at Zeebrugge. The ship is covered under hull and protection and indemnity, the cargo by buyer or seller depending on the incoterm (FOB or DES), the arrival terminal under its own policy. If the arrival terminal is closed, none of these policies pays for the ship's diversion.
LNG, LNG chain, liquefied natural gas, LNG carrier, LNG insurance
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