Geospatial AI Reduces Oil and Gas Insurance Premiums Through Early Leak Detection
By S. DONEGAN, Satelytics, Hunting Valley, Ohio (U.S.)
(P&GJ) — Within the energy sector, astronomically high insurance premiums have long been accepted as a fact of life. They are routine, but do not necessarily need to be. Emerging technologies are changing the ways that many energy producers view insurance, helping them to negotiate better rates and keep overall expenditures sustainable. Ironically, insurance companies are privately expressing surprise that more energy producers are not leaping to integrate this technology.
Among these technologies, geospatial analytics is leading the pack—in some cases, its deployment is saving insurance companies millions in costs. Understanding how it works and why it is needed is an essential step for any energy producer looking to reduce insurance premiums.
Energy producers are facing steep risks. The urgency of this problem can be explained by the fact that, without active intervention, those premiums are only going to rise. Aging infrastructure plays a significant role here. The U.S. has some 2.5-MM mi of pipelines: enough to wrap around the world's surface nearly 100 times. These pipelines, despite continual remediation efforts on the part of oil and gas producers, are often degraded from when they were first installed. Most gas transmission lines (about 54%) were installed before 1970. With pipes more than a half a century old, the most vigilant maintenance program can only go so far toward preventing leaks.
To some extent, this is just part of doing business in this particular sector—energy producers know that challenges are inevitable, and they plan accordingly. However, the problem is that in many cases leaks can be undetectable in their earlier stages. You cannot remediate something you cannot see. Too often, energy producers notice leaks only after they have spiraled into outright disasters.
There are dire examples of this phenomenon. One example is the Tesoro leak in North Dakota in 2013, in which 840,000 gallons (gal) of oil seeped from a broken pipeline. In that case, months passed before the leak was identified, and only because a landowner noticed it was soaking their farmland. A few hundred miles away and 6 yrs later, the Keystone Pipeline leak resulted in the release of approximately 383,000 gal (9,120 bbl) of crude oil.
Once again, energy producers are not necessarily at fault here; they work with the tools they have. However, sometimes these tools are wholly unequipped to actually detect the relevant leaks in time to prevent emergencies. The result is that insurance premiums have continued their steady climb, rising by as much as 50% annually in recent years.1
The emergence of geospatial analytics. It is in this context that artificial intelligence (AI)-powered geospatial analytics has emerged as an essential technology for energy producers looking to turn the tide on rising premiums and keep leaks from progressing into disasters.
Here is how it works: first, satellite images—both multispectral and hyperspectral—take in the full sweep of an energy producer's terrain. This imagery is then analyzed by advanced algorithms, which can instantly flag potential problem points. The range of flagged problems encompasses everything from methane emissions to crude oil and produced water leaks, as well as right-of-way (ROW) encroachments.
To put things in perspective, a similarly comprehensive view of an energy producer's operations would—if undertaken manually—require hundreds of inspectors working around the clock. Despite the inspector’s involvement, difficult-to-detect leaks would likely be missed due to their small-scale nature.
Geospatial analytics increases inspection accuracy, ensuring that leaks are caught while there is still ample time to actually do something about them. The process saves energy producers millions of dollars in potential remediation costs, regulatory fines and public relations (PR) consultant fees. In addition, it keeps insurance premiums low, as insurers are willing to negotiate discounts on premiums with the producers that deploy this technology.
Siloes are harming adoption. Given the obvious upsides here, one might reasonably wonder: why aren't more energy producers opting to deploy this technology? As is often true in the business world, the answer here comes down to organizational fragmentation.
Of course, fragmentation is not unique to the energy sector—a 50-person e-commerce operation is just as likely to succumb to its pitfalls. However, the sheer scale of these businesses magnifies organizational issues; for instance, ExxonMobil alone has more than 60,000 employees. Employees in different departments might work on the same floor for years without ever meeting each other.
Inevitably, the result is that information is siloed. Executives working on the risk management side may have a strong interest in lowering the company's premiums. Executives working on the technological end may be keyed into exciting new developments like geospatial analytics. However, the two sides, separate as they are, rarely cross-pollinate information, resulting in simple knowledge that could save a company millions withering among staff with no relevant decision-making powers.
The benefits of breaking down those barriers could not be clearer—to both energy producers and insurers. After all, the fewer claims an insurer has to process, the more money they will save. Meanwhile, a proactive approach to risk-detection invariably yields reputational and share price benefits with the insurer's corporate investors.
By now, it is very clear to interested parties that this technology works: it detects leaks and other issues with a precision and speed impossible with conventional tools and saves energy producers (and their insurers) vast sums of money in the process. Now, the task is simply spreading the word.
About the Author
SEAN DONEGAN is the President and CEO of Satelytics, bringing more than 30 yrs of technology and software development experience to the company. Donegan’s career has been focused on building companies through creativity and innovation and recruiting highly effective teams to solve the toughest challenges for customers.
With his energetic leadership style, he has always believed in building talented teams whose members are laser-focused on problem-solving, results and financial objectives. These qualities were illustrated during his 15-yr tenure as CEO of Westbrook Technologies Inc., where he transformed a failing enterprise into a highly profitable document management software global leader with customers in 52 countries. Donegan earned a BS degree from the University of London and a postgraduate professional qualification from the Chartered Institute of Management Accountants. Donegan currently lives in Hunting Valley, Ohio.
LITERATURE CITED
1 Stephens, “The current state of insurance in the oil and gas sector,” June 2022, online: https://www.stephens.com/perspectives/the-current-state-of-insurance-in-the-oil-and-gas-sector