The explosion of the Deepwater Horizon oil rig in the Gulf ofMexico has changed sentiment among energy underwriters and willlikely lead to new market dynamics, according to a recent report byinsurance broker Marsh.

However, the report (“Energy Market Monitor”) noted that the oilspill will not have the same market-changing impact on the“upstream energy” market–which writes exposures for the explorationand drilling of oil wells–as other major events.

Following Hurricane Katrina, for example, the market experiencedreductions in capacity and rate hikes, Marsh said.

In this case, however, “capacity currently isn't an issue andinsurers seem keen to maintain their commitment to the market,”according to Jim Pierce, chair of Marsh's Global Energy Practice.“This is good news for the industry.”

The BP oil spill–because of the loss of life and the pollutionit has caused–will, however, lead to changes, according to Marsh.Indeed, the report said operators' approach to deepwater drillingwill be severely impacted.

Marsh also said government officials will lay down stricterrules and regulations for offshore drilling, but noted it is tooearly to define the new landscape.

Companies involved in the exploration and production of oil willscrutinize their current insurance programs in order to look intothe limits they purchase and the terms and conditions they seek,the report said.

“Some insurers have been capitalizing on their clients' concernsand have been hiking up their prices for higher limits anddeepwater drilling wells,” Mr. Pierce said.

But price increases are likely to be modest in other parts ofthe upstream energy market, unless more major losses occur,according to the report.

In addition, the report noted that the “downstream energy”market–which writes onshore risks for refining oil–remainsvirtually unchanged due to the absence of downstream losses.

Marsh said there were large rating reductions in this marketreported in the June renewals, and it anticipated reductions in thenext round of renewals.

The downstream energy market will barely be affected by the oilspill, since the market has an overabundance of capacity and issolely dedicated to writing onshore risks, the report said.