Published on 03 August 2026

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Natural Resources Market Update H2 2026: Upstream

Published on 03 August 2026

The upstream energy sector is driven by LNG growth and energy security, with a focus on strategic gas investments. Meanwhile, abundant insurance capacity ensures favourable terms, despite rising claims activity.

INDUSTRY OUTLOOK

The upstream sector continues to benefit from a relatively constructive commodity backdrop, although the market remains increasingly bifurcated between oil and gas. While oil demand growth is slowing and pricing remains vulnerable to macroeconomic uncertainty, natural gas continues to emerge as the key growth story, supported by expanding LNG export capacity, energy security concerns, and rising power demand.

The LNG buildout underway globally is creating a significant pull-through effect for upstream gas developments. With over 150 mtpa of additional LNG capacity expected by the end of the decade, operators are accelerating investment in gas resources capable of supplying future export demand. This trend is particularly evident across North America, the Middle East, East Africa, and selected offshore basins where large-scale gas developments are increasingly being viewed as strategic assets.

At the same time, electrification, artificial intelligence, and data centre growth are creating a structural increase in power demand. Whilst renewable generation continues to expand, natural gas remains the most practical and scalable source of dispatchable power in many regions. This is reinforcing the long-term investment case for upstream gas developments and supporting activity across both conventional and unconventional resource plays.

Despite this positive backdrop, capital allocation remains disciplined. Operators continue to prioritise shareholder returns, balance sheet strength, and free cash flow generation over production growth at any cost. Similar to the broader energy sector, there is a noticeable preference for brownfield expansions, tieback opportunities, and infrastructure-led developments rather than large-scale frontier projects. Whilst major developments continue to move forward in regions such as Guyana, Brazil, and the Middle East, the industry remains considerably more measured than during previous commodity cycles.

Energy security continues to be a major driver of upstream investment. Governments are increasingly recognising the importance of domestic hydrocarbon production in supporting economic stability and reducing import dependency. Whilst ESG considerations remain influential, recent years have seen a more pragmatic approach emerge, balancing decarbonisation objectives with the need to maintain secure and affordable energy supplies.

The sector continues to attract significant capital, particularly where projects are supported by low lifting costs, attractive fiscal regimes, and long-term gas demand fundamentals. M&A activity remains robust as operators seek to optimise portfolios, secure reserves, and position themselves for the next phase of growth.

INSURANCE MARKET UPDATE

The upstream insurance market remains firmly in soft market territory, with abundant capacity and strong competition continuing to drive favourable outcomes for insureds.

Throughout the first half of 2026, existing markets have continued to expand their appetite while new entrants have sought to establish positions across both upstream and wider energy portfolios. Competition for high-quality business remains particularly intense, with many underwriters willing to deploy additional capacity in pursuit of growth and diversification.

The competitive dynamics that have characterised the upstream market for several years remain firmly in place. London continues to see a significant number of carriers competing for lead positions, while international markets are increasingly seeking opportunities to participate on larger programmes. This has resulted in continued downward pressure on pricing, broader coverage offerings, and increased flexibility around programme structures.

Underwriting focus remains centred on well control exposures, asset integrity, ageing infrastructure, natural catastrophe accumulations, and construction activities. Offshore developments, particularly those involving complex drilling programmes, continue to attract enhanced scrutiny, as do operations located within catastrophe-exposed regions. Aggregation management is also becoming an increasingly important consideration given ongoing consolidation within the sector and growing insured values associated with major developments.

Notwithstanding these considerations, underwriters remain keen to deploy capacity, and competition continues to outweigh concerns around exposure. For well-performing risks, rate reductions of between 10% and 20% remain achievable, often accompanied by opportunities to secure higher limits, enhanced policy wordings, and more favourable terms and conditions.

Multi-year agreements remain widely available and continue to be an area of interest for both insurers and insureds. Whilst some markets have become more selective regarding the structure of these arrangements, particularly where break provisions are absent, alternative capacity remains readily available across most programmes.

The upstream insurance market continues to experience elevated claims activity, with 2026 potentially a gross loss-making year for insurers. Whilst many insurers are pointing to their claim figures the market dynamics will continue to operate on a supply and demand basis and there continues to be an abundance of available capacity for most upstream risks.

Looking forward, we do not anticipate any material change in market direction over the next six to 12 months. However, there are early indications that the pace of softening may begin to moderate during 2027. Much of the capacity supporting upstream programmes also participates across downstream, power and broader energy portfolios, and any sustained deterioration in loss experience could influence underwriting appetite. For the time being, however, market conditions remain highly competitive and continue to present favourable opportunities for buyers.