IUMI on the EU Offshore Safety Directive

One of the areas for “Support” in the latest IUMI Political Forum list of Support issues was the EU Offshore Safety Directive. The EC proposed in October 2011 a Regulation on the safety of offshore oil and gas prospection, exploration and production activities, with the aim of, amongst other things, extending the scope of the Environmental Liability Directive (ELD) to include “all waters under the jurisdiction of the Member States” and mandating financial security.

A study was commissioned on liability security schemes for offshore environmental risks, drafted by the University of Maastricht. Joint industry efforts were made to prevent some of the more controversial suggestions of the Regulation and explain the practical implications – and impracticability – of extending the ELD.

The impracticability was due to:

(1) most likely an inability to quantify the damages in a longer term, and

(2) scale of potential loss and selectivity by insurers.

In October 2012, the Industry, Research and Energy Committee (ITRE) of the European Parliament voted in favour of transforming the proposal from a Regulation to a Directive. The Directive was formally adopted in June 2013.

Article 4 of the new Directive states that evidence of provisions to cover potential liabilities shall be included in the application for a licence. With reference to financial security, the Directive states that: “(63) Operators should ensure they have access to sufficient physical, human and financial resources to prevent major accidents and limit the consequences of such accidents.

Two studies on civil liability, financial resources and compensation claims for offshore oil and gas activities were presented in 2014. IUMI was consulted as part of the studies, explaining the practical implications, limitations and how the market functions from an offshore energy insurance perspective. A report on the Commission’s assessment of the effectiveness of the liability regimes in the EU in respect of the damage caused by offshore oil and gas operations was released in September 2015. The report concluded that a broadening of liability provisions through EU legislation did not appear appropriate at that juncture.

In March 2016 the EP Committee on the Environment, Public Health and Food Safety (ENVI) issued a draft opinion, recommending that the (responsible) Committee on Legal Affairs call on the Commission to consider the establishment of a legislative compensation mechanism for offshore accidents with minimum requirements.

Responding to these discussions, IUMI presented in April 2016 a position paper to members of the relevant parliamentary committees. The report of the Committee on Legal Affairs was presented in October with only some minor modifications to the ENVI opinion. The report recognized that “over-reliance on insurance could potentially result in a closed market for financial security instruments, with the corollary potential for a lack of competition and increased cost”. The possibility of finding an international solution was also encouraged. IUMI said that it “remains unpersuaded that a legislative compensation system over and above the existing provisions is needed, and continues to believe that a voluntary financial security system is likely to be most effective”.

IUMI said that it would:

  • Support a voluntary financial security system rather than a legislative compensation system over and above existing provisions.
  • Explain the capabilities and limitations of insurance as a financial security instrument, and
  • require a cost-benefit analysis cross-referred with insurance market capabilities if further investigations are to take place.