downstream liability exposures: a casualty risk

CIn

Wednesday,March7,2018Houston,TX

1:15–2:15p.m.

DOWNSTREAMLIABILITYEXPOSURES:ACASUALTYRISKENGINEERINGVIEW

Presentedby

JonElvidgeCasualtyRiskEngineeringPracticeLeader(EnergyandConstruction)

XLCatlin

Downstreamexposuresarecommonintheenergyindustry,alessonthathasbeenreinforced by recent pipeline spills and refinery damage caused by recenthurricanes.Thissessionwilldiscussdownstreamexposuresfromacasualtyriskengineering perspective. It will examine the public, products, and pollutionliabilityexposuresassociatedwithcasualtycoveragesusingvariouscasestudies,aswellasdiscussemergingriskissuesinthedownstreamsector.

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JonElvidgeCasualtyRiskEngineeringPracticeLeader

(EnergyandConstruction)XLCatlinMr.Elvidgeisacharteredmechanicalengineerwith20yearspost-charteredexperienceandatechnicalbackgroundinfluidmechanics.AsacasualtyriskengineeringpracticeleaderwithXLCatlin,herunsasmallteamofriskengineerssupportinginternationalandUScasualtyunitsprincipallyintheupstream,midstream,downstream,utilities,andconstructionsectors.Mr.Elvidgeisresponsibleforawiderangeofliabilityriskassessments,supportingcasualtyunderwriterswritingoilandgasaccountswithliabilityriskassessmentsandtechnicalad-vice.PriortojoiningXLCatlinin2006,Mr.ElvidgewasaprincipalmechanicalengineerwithEn-tecUK,workingasaprojectmanagerandleadmechanicalengineeronmajorpumpingandpipeline-relatedcapitalprojects.HewasoftenappointedasdesignatedengineerorprojectmanagerundervariousformsofUKcontractsincludingIChemE,ECC,andM/Fforms.

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Downstream LiabilityExposures:

A Casualty Risk Engineering View

Presented by:

Jon ElvidgeCasualty Risk Engineering

Practice LeaderXL Catlin

#IRMI2018 1

#IRMI2018

1. Introduction2. Refineries

- Key factors influencing liability coverage- Recent incidents

3. Tank Farms and Terminals4. Products Pipelines5. Emerging Risk Areas

- Dealing with the Cyber Threat- Diesel emissions- Drones

6. Q&A

© 2017, XL Catlin companies. All rights reserved. I MAKE YOUR WORLD GO2

Contents

Contents

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#IRMI2018

Presenter

Jon is a chartered mechanical engineer with over 20 years post-chartered experience and a technical background in fluid mechanics. Jon currently heads up XL Catlin’s Casualty Risk Engineering Energy & Construction group. In this role he supports the casualty underwriters, responsible for a wide range of liability risk assessments in the upstream, midstream, downstream,utility and construction sectors. Prior to joining XL in 2006, Jon was a Principal Mechanical Engineer with Entec UK, working as a project manager and lead mechanical engineer on major pumping and pipeline related capital projects.


Jon Elvidge CEng, BEng, MIMechEPractice Leader Energy & ConstructionCasualty Risk Engineering

1 Introduction

#IRMI2018

• Upstream – finding and removal of oil and gas from the ground (offshore or onshore) i.e. Exploration and Production (E&P)

• Midstream – gathering, transportation and storage of hydrocarbons together with gas / NGL processing and LNG

• Downstream – crude refining and distribution of refined products

© 2017, XL Catlin companies. All rights reserved. I MAKE YOUR WORLD GO

2 Refineries

Oil and Gas Energy

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#IRMI2018


2 Refineries

Crude Refining Overview

Crude refining is the processing of natural or synthetic crude oils into finished petroleum based products

Downstream processing may also include other facilities e.g. upgraders

• 650 refineries worldwide (140 in US)• Sizes varies from <10,000 bpd to >1,000,000 bpd• Processing dependent on oil type, throughput and refined product

demand

So, individual process units may be similar, but capacity / combinations are unique

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#IRMI2018

Refineries


2 Refineries

#IRMI2018

What factors might influence public and products liability exposures?

• Size and type (Complexity)• Age• Storage inventory• Proximity to third parties and watercourses• Layout• Approach to operational safety and risk management• Product type • Policy coverage / attachment point


2 Refineries

#IRMI2018

Size and Type


• Barrels per day ‘capacity’ is considered good metric – reasonable correlation between size and exposure. May be preferable to ‘throughput’

• Extensive secondary processing (High Nelson Complexity) may increase inherent exposure due to greater number of units. Unit types are generally considered a minor factor – with one exception…

• Presence of Alkylation facilities does increase inherent liability exposures due to toxic cloud potential (high severity exposure)

2 Refineries

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#IRMI2018

Alkylation

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Why is Alkylation a heightened exposure for liability?

• Alkylation involves bulk storage and use of either sulphuric acid or HF – both toxic (HF IDLH=30ppm)

• Impact radius of HF toxic cloud can be much greater than that of VCE (>10 miles)

• Industry has reasonable safety record but clear potential for high severity incident

- 1987 Texas City release (30,000 lb HF) resulting in 100 persons being hospitalised and subsequent class action- 2012 Hubi Chemical Plant, South Korea release (16,000 lb HF) 5 fatalities, thousands of minor injuries from inhalation offsite

• Appropriate risk mitigation measures should be in place e.g. release modelling, inventory dumps, leak detection, water sprays etc.

2 Refineries


#IRMI2018

Age• Not a major factor for liability providing reasonable approach to

integrity management• Likely elevated exposure from older pipework, tanks and vessels constructed

to less robust standards

Storage Inventory• Tank farms present a clear sudden & accidental pollution exposure• Inventory, watercourse proximity and approach to containment all influence

liability exposures

Plant Layout / Operational Safety• Use reports / opinion from PDBI underwriter / broker reports• May need further information e.g. tank farm exposures• OHS and incident data can also give an indication of approach to plant

operation / integrity


2 Refineries

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#IRMI2018

US Injury / Fatality Trends


2015 injury rates (per 100 full-time workers)Petroleum & Coal Products Manufacturing - 1.2 (~ 113,000 seasonally adjusted employees)Oil&Gas Extraction - 0.7 (~ 178,000 seasonally adjusted employees)All US Industry - 3.1

Year Oil Refinery True Refinery

Oil&Gas Drilling

Oil&Gas Support Activities

(32411x) Fatalities (21311) (213112)

2005 202006 4 42007 5 72008 6 82009 5 62010 7 132011 3 3 41 582012 7 7 39 772013 3 5 24 762014 4 4 32 942015 4 4 9 74

2 Refineries

#IRMI2018

LOPC Trends


Major incidents (fire / explosion / toxic cloud) often associated with loss of containment

API RP 754? returns enable a comparison of individual site performance

? API Recommended Practice 754, Process Safety Performance Indicators for the Refining and Petrochemical Industries

2 Refineries

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#IRMI2018

Third Party Proximity

• Potential for major incident affecting third parties outside site boundary is elevated by presence of certain units e.g. HF Alkylation

• Land usage outside refinery – other energy facilities, housing etc.?

• Distance between refinery units and third parties?

• Google Earth is very useful!

• Most bodily injury claims though are ‘on site’.


2 Refineries

#IRMI2018

Maintenance / Turnarounds- Most major incidents occur during maintenance / turnaround

operations (start / stops)- Can be mitigated by robust permit-to-work procedures,

RAMS, asset management, change control and contractor supervision

Contractor exposures?- Damage to plant- Cross-liability- Type of works e.g. hot taps?- Contracts / MSAs (liability caps / consequential damages /

hold harmless agreements)


2 Refineries

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#IRMI2018

Products Liability

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• Contaminated fuel can result in damage to customer facilities and engines - numerous cases / class actions

• Potential for very large loss (aviation) although multiple aircraft engine failure is rare. Helicopter gas turbine engine failure is more problematic and numerous cases of helicopter crashes caused by fuel contamination

• 3rd party storage facilities are more likely to be the cause of contamination than the refinery

• Fuel additives e.g. MTBE have led to significant pollution litigation against refiners

2 Refineries


#IRMI2018

Major Incidents with Significant Bodily Injury


2005 BP Texas City Explosion after turnaround Isomerisation 15 fatalities / 100 injuries

2012 PDVSA Amuay Storage tank leak and explosion Propane tank farm 39 fatalities

2010 Tesoro Anacortes Heat exchanger rupture and explosion

Hydrotreater 7 fatalities

1998 Equilon Puget Sound

Explosion Delayed Coker Unit 6 fatalities

2008 Lyondell Basell Mobile crane collapse during turnaround

- 4 fatalities

1999 Tosco Martinez Pipe failure during maintenance Crude Unit 4 fatalities

2000 Mina Al-Ahmadi Condensate line leak - 5 fatalities / 50 injuries

1998 Equilon Enterprises Explosion after turnaround Coking Unit 6 fatalities

2016 ExxonMobil Explosion during maintenance Alkylation Plant (Sulphuric)

4 major injuries

2 Refineries

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#IRMI2018

Anacortes (2010, 7 fatalities)• Explosion caused by failure of Naptha Hydrotreater Heat

Exchanger due to HTHA• During operation to put heat exchangers back in service

Texas City (2005, 15 fatalities, 105 injuries)• Ignition of hydrocarbons overflowing knock-out drum• During operation to refill Isomerisation Unit Raffinate Splitter Tower

Venezuela (2012, 48 fatalities)• Explosion caused by vapour cloud ignition from leaking pump• Many fatalities outside the site boundary (but close to LPG tanks)


2 Refineries

#IRMI2018

• Reasonable expectation for compliance with international standards for tank construction / inspection (e.g. API 650, 653)

• Vulnerability of external environment?• Approach to secondary / tertiary containment?• Overfill protection standards?• Care, custody and control?


Tank Farms and Terminals3

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#IRMI2018

Terminal Incidents

San Juan, Puerto Rico 2009• Overflow and VCE• 300 homes and business damaged• Major fuel spill into surrounding watercourses and wetlands

Jaipur, India 2009• Transfer leak (hammer blind failure) and VCE• 12 fatalities, 200 injuries

Buncefield 2005 • Overflow and VCE• No major injuries• Widespread property damage• Groundwater pollution (mainly from PFOS in foam runoff)• £700m judgement against Total


Tank Farms and Terminals3

#IRMI2018


PHMSA Pipeline Incidents: Count (1997-2016)Incident Type: Significant System Type: HAZARDOUS LIQUID State: ALL Offshore Flag : ALL Commodity: REFINED PP

4 Refined Products Pipelines

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#IRMI2018

Major Refined Products Pipeline Incidents (US) Since 2010

• 2016 – 9,000 bbl gasoline spill (circumferential crack caused by poor compaction) $66m costs

• 2011 – 1,300 bbl gasoline spill (construction defect leading to subsequent gasket failure) $38m costs

• 2012 – 500 bbl gasoline spill (long seam cracking failure) $25m costs• 2013 – 2,000 bbl diesel spill (long seam cracking failure) $23m costs• 2012 – 95 bbl gasoline spill (crack from dent caused by third party

damage) $19m costs• 2015 – 215 bbl gasoline spill (fatigue crack) $18m costs



#IRMI2018

Crude v Refined Products

• 29 spills since 2010 over 5,000 bbls in US• 10 of these were crude (dilbit); remainder LPG, Ethane, Gasoline etc.

• 9 spills since 2010 with property damage / clean-up cost over $25m• 7 of these crude; 2 gasoline spills

Crude is a more significant exposure for excess liability (including S&A pollution) than refined products even though enhanced bodily injury potential with non-crude. *

* See JE seminar on Midstream – IRMI 2016



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#IRMI2018

Pipeline Integrity

3 methods for pipe testing:- In-line Inspection- Hydrostatic Testing- Direct Assessment

• In-line Inspection preferable for in-service inspections

Key questions for ILI:-How much of the line is piggable?-What technology is used and how is the data verified?-What determines the need for physical excavation?

23© 2017, XL Catlin companies. All rights reserved. I MAKE YOUR WORLD GO


#IRMI2018

Pipeline Leak Detection

• CPM based leak detection system is a key factor in reducing the magnitude of spills

• PHMSA looking to make this mandatory on all onshore hazardous liquids pipelines – but regulation affected by Trump / Priebus directive…

• Type and extent of LDS determine the effectiveness –asking about SCADA coverage is not that useful…



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#IRMI2018

Type Accuracy Detection Time for Liquids

Leak Location?

Transient discrimination?

Line Balance

~1-5% minutes-hours no no

Modified Volume Balance

~1-2% minutes- hours no no

(E)RTTM ~1% seconds yes yesNegative Pressure Wave

~1-2% minutes yes probably


Pipeline Leak Detection


#IRMI2018

Leak Detection & Emergency Response


• Operators must be encouraged to take responsibility to shut down lines irrespective of potential for false alarms

• Systems to automatically shut-down lines exist but hybrid systems are still in their infancy

• Robust, regularly practiced emergency response procedures must be in place with adequate equipment available

• Worst case total response time of 2 hours is reasonable expectation


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#IRMI2018

Cyber – Critical Infrastructure

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5 Emerging Risks


For downstream, casualty cyber exposure is predominantly third party BI/PD arising from hacking attacks

#IRMI2018

Cyber – Why is this now a problem?

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ThenICS in the past tended to be isolated, use proprietary control protocols with large element of hard-wired back-up

Now• Low cost Ethernet and IP devices are now widely used• ICS systems adopting IT solutions (standard operating systems and

networkprotocols) to improve business interconnectivity and data management

• Increased connectivity with outside world (contractors, equipment suppliers)

Is this a concern for Downstream?


5 Emerging Risks

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#IRMI2018

Downstream – Cyber Exposure Areas (Casualty)

Refineries• potentially vulnerable to hacking of ICS / SCADA • Dec 2017, ‘Triton’ attack was the first example of hacking of a refinery

Safety Instrumented System• clear target to cyber terrorists • potential for hydrocarbon spill and VCE

Liquids Transfer and Storage• generally easier to rupture liquids pipelines than gas from ICS hacking• potential for causing overfill of tanks and resultant escalation / pollution


5 Emerging Risks

#IRMI2018

Cyber – Information

What should we be asking our insureds about?

• ICS network separation and DMZ?• Presence of dedicated CIO, CSO etc?• Cyber risk management, fallback and recovery planning?• Access controls and monitoring?• Penetration monitoring and vulnerability assessments?


5 Emerging Risks

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#IRMI2018

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From Downstream perspective, main usage will be equipment inspections and monitoring:

• Pipelines• Steel structures• Tanks (internal and external)• Flares

Drone applications are generally considered to be positive:

• Reduce time and expense of inspections• Real-time monitoring and leak detection• Gain access to difficult-to-access areas• Reduce need for scaffolding • Reduce potential for bodily injury claims

Drones - Uses


5 Emerging Risks

#IRMI2018

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• Nuisance / breach of privacy (e.g. pipeline surveys)

• Use on hazardous sites• some drones are intrinsically safe; the majority are not• drones can ignite flammable atmospheres and therefore there is a

large loss potential on a high-hazard facility• need to review specific proposals and check responsibilities /

permitting arrangements.

Drones – Issues?


5 Emerging Risks

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#IRMI2018

Diesel Emissions

• Diesel fumes are a ‘known’ carcinogen - upgraded by IARC from ‘probable’ in 2012

• Increased media attention and public awareness following ‘dieselgate’

• Toxic tort claims expected to increase, especially from occupational exposures

• Multiple legal actions in UK against employers relating to alleged diesel pollution

• Car manufacturers / truckers / railroads likely to be more exposed but refiners have also been implicated in similar cases


5 Emerging Risks


THANK YOU

XL CatlinCasualty Risk EngineeringXL House20 Gracechurch StreetLondon

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In the US, the insurance companies of XL Group Ltd are: Catlin Indemnity Company, Catlin Insurance Company, Inc., Catlin Specialty Insurance Company, Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., XL Select Insurance Company, and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions.

The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details.

© 2017, X.L. America, Inc. All rights reserved.

USA Legal Disclaimer

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downstream liability exposures: a casualty risk

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