IMIA Working Group Paper WGP 65 (10) Construction of … · 2019-10-28 · The IHS CERA DCCI index....

IMIA Working Group Paper WGP 65 (10)

Construction of Petrochemical, Oil & Gas Processing Plants

IMIA Conference, Berlin - September 2010

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IMIA Working Group Paper WGP 65 (10)Construction of Petrochemical, Oil & Gas Processing Plants

Prepared by:

Tim Cook - Allianz Global Corporate & SpecialtyRobert Glynn – Cooper GayTom Wylie – North Star Underwriting

Working Group Contributors:Khurram Al KhanOlivier P de Combes Angelo Colombo Brad Dalton Achim Dosch

Ho Kun HongPedro OleaDoug ScottMike Spencer Jon Wiegand

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Contents

INTRODUCTION

BACKGROUND- History- Economic- Understanding Oil & Gas Processes

INSURANCE CONSIDERATIONS- The Parties Involved- Quality- Perils- Technical- Contractual - Period- Insurance

LOSS SCENARIOS

CONCLUSIONS

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Introduction

Oil & Gas projects are by no means unique from other technical risks but they nevertheless display distinct exposures in the following areas;

the inherent technical exposures associated with the processes,the dynamics of a construction site,the contractual relationships between the many stakeholders,the environmental forces that may affect the project

Deep Water Horizon 2010

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BackgroundHistory

First Oil refineries constructed some 150 years ago produced outputs of just a few thousand Barrels Per Day (BPD).

Outputs steadily grew to around 50,000 BPD by the 1950’s

Current maximum output is over 1m BPD

Name of Refinery Location Barrels per Day

Reliance Jamnagar Complex (RIL) Jamnagar, India 1,240,000

Paraguana Refining Complex (CRP) Amuay and Cardón, Venezuela 940,000

SK Energy Ulsan Refinery (SK Energy) South Korea 840,000

Yeosu Refinery (GS Caltex) South Korea 700,000

Jurong Island Refinery (ExxonMobil) Singapore 605,000

Worlds 5 Largest Oil Refineries by BPD Output

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Background

Economic Factors

5 of the world top 20 companies are Oil & Gas Multinationals

The projected global energy investment of $16 trillion equates to 1 per cent of expected globalGDP on average over the next 30 years.’

Total investments in oil and gas sectors will amount to almost 36% of world energy investments

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Background

Economic Factors

According to Oil & Gas Journalremaining reserves represent

- 44.6 years of oil - 66.2 years of natural gas

According to a BP 2009 review the world has 42 years left of Oil

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Background

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Economic FactorsGeographic redistribution will probably continue to shift refinery production outside of OECD countries

Construction of LNG plants in locations close to the natural reserves

Growth in Petrochemical industries in Middle East & BRIC

Increasing demand for lower sulphur levels in fuels

The IHS CERA DCCI index

This tracks the costs of equipment, facilities, materials, of more than thirty refining and petrochemical construction projects globally

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BackgroundUnderstanding Oil & Gas Processes

The major areas can be summarised as:- Oil refining- Gas separation/liquefaction- Petrochemical production

Feedstock Products Process Product/Feedstock Process Products UsesMethane C1 Liquefy LNG Fuel

Steam Reform Synthesis gas Ammonia, methanolHydrogen Used in hydrotreating processes

Paraffins Ethane C2 Crack Ethylene EO, MEG, Polyethylene, PVCOil & Gas Naphthenes Separation

Aromatics & conversion Propane C3 Liquefy LPG FuelDehydrogenate Propylene As below

Butane C4 Liquefy LPG Fuel

Naphtha C5-C10 steam crack Ethylene EO, MEG, PolyethylenePropylene PO, Polypropylene.

catalytic reform high octane gasoline fuelAromatics refine Paraxylene PTA, polyester, PET

Benzene Chemical precursorCyclohexane Nylon

Aviation gas C8 Blended product alkylate (isooctanes)Jet fuel C5-C16 Blended product

Gasoline C4-C12Blended product, reformates, alkylates,naphtha,

aromaticsDiesel C8-C21

LubricantsBitumens C40+

Coal Gasification Synthesis gas convert Ammonia Fertilizer, explosivesMethanol Industrial chemical, propylene, ethylene

GTL Synthetic fuels, diesel, lube oils, LPG

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Oil RefiningDistillationDistillation units simply separate a mixture by heating up the liquid in a vertical column, The column consists of multiple stages or trays.CrackingCracking is the most common term used in the oil industry for breaking down larger molecules into smaller molecules. In general terms the larger the hydrocarbon molecule the less valuable it is. AlkylationInvolves the conversion of a mixture of lighter hydrocarbons such as olefins and propane/butane to alkylate. ReformingReforming processes cause chemical changes to occur to the feedstock generally by applying significant heat in the presence of a catalyst.

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Simplified Oil & Gas Value ChainOil Refining

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Gas ProcessingGas is economically only transportable by either pipeline or by LNG TankerGas TreatmentTo remove impurities and trace elements.LiquefactionLNG is produced by Liquefaction this process consists of cooling natural gas to a temperature of –162 °C at normal atmospheric pressure. Once liquefied, the gas’s volume is 600 times smaller Transportation & Storage

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GAS

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PetrochemicalPetrochemicals are chemical products derived from petroleum or gas.Two petrochemical classes are - olefins including ethylene and propylene - aromatics including benzene, toluene and isomersOil refineries produce olefins and aromatics by fluid catalytic cracking of petroleum fractions. Chemical plants produce - Olefins by steam cracking of natural gas liquids like ethane and

propane. - Aromatics are produced by catalytic reforming of naphtha. Olefins and aromatics are the building blocks for a wide range of materials such as solvents, detergents, and adhesives.

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Common Element ExampleJetty

Feedstock Import Import pipeline

Distilation

Liquifraction

DCSPlant Control System ESD

Steam TurbinesUtilities Gas Turbines

Grid ConnectionTank Farms

Storage Silos

Export

Product ExportJetties

Pipelines

Process Plant

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Insurance Considerations

Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual

- Insurance Specification

Quality

- Hazop

- QA/QC

- Design codes

The Parties Involved- Principal- PMT- EPC Contractor- Sub contractors

Insurance- Information- Insurance conditions- Risk Management- Market conditions

Period- FED- Procurement- Construction- Commissioning- Testing

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Insurance ConsiderationsThe Parties Involved

Principal :- The Principal usually the final operator of the plant and their primary interest is for

the project to be completed on time, on budget and to the required specification.Project Management Team (PMT) :

- Directly employed or outsources to one of the major international suppliers of project management consultancy.

- Project Management is a critical part of any construction project.- Often consist of several major process areas supplied by different contractors.- It is therefore important that the PMT has the relevant Oil & Gas experience to

manage the complex interfaces between all parties.Main/EPC Contractor

- Main Contractor is the party with whom the Principal contracts with to physically construct the project Sub Contractors

- The Main contractor will sub let contracts to specialist sub contractors, with a view to maximise both quality and price competiveness.

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Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual


Quality

- Hazop

- QA/QC

- Design codes




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Insurance ConsiderationsQuality - HAZOPOil and Gas processing plants comply with National Standards for the Control of Major Hazard Facilities.This review addresses :

• Prevention:Minimise the potential for and the consequencesof leaksMinimise the probability of ignition

• Detection:Provide Gas and Fire Detection Systems

• Mitigation:Active and passive fire protectionExplosion overpressure mitigationSafe separation distances

• Control:Emergency isolation, ESD and blowdownHazardous area classificationBunding, containment and drainage

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Insurance ConsiderationsQuality – QA/QC

Principal, and/or his appointed representatives develop specific quality management, quality assurance and quality control plans and monitoring procedures.Third party verification:Accredited TP verification service providers are often used to ensure impartial quality controlPositive Metal verification:Traceability of materials is critical to ensure correct alloys are usedWelding Failure rate:Welding is a key activity during Oil & Gas construction projects and the quality of the welding is essential Design CodesPlant design for the facility should be based on international and national design standards, local regulations and statutory requirements - American Society of Mechanical Engineers (ASME)- American Petroleum Institute (API)- National Fire Protection Association (NFPA)

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Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual


Quality

- Hazop

- QA/QC

- Design codes




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Insurance ConsiderationsPerils - Fire & Explosion

• Boiling Liquid Expanding Vapour Explosion (BLEVE)The most common type of BLEVE occurs when a pressurised flammable liquid storage vessel is exposed to a fire.

• Storage Tank FiresFires in tanks containing large volumes of flammable materials, especially oil products, are very difficult to control and extinguish.

• Vapour Cloud Explosion (VCE)Result from:- Release of flammable vapour- Mix with air and drift until they find an ignition

source.

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Insurance ConsiderationsOther Perils

• LiftingThe size, weight and dimension of the key process units creates the need for specific and controlled lifting procedures. Heavy lifts generally exceed 50 metric tons

• TransitSignificantly enhanced transit exposure for modularised construction

• StorageCongestion, phasing, storage conditions and protections

• CorrosionHighly corrosive environmentsCorrosion is the wearing away of metals due to a chemical reactionMethods to reduce the activity of the exposed surface, such as passivation protection.

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Insurance ConsiderationsPerils - Natural Perils

Remote Oil & Gas reserves driving the location of plants in areas of high natural perils exposure

• Windstorm exposed risks often exposed for several windstorm seasons

• Earthquake & Seismic design

• Tsunami & site elevation

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Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual


Quality

- Hazop

- QA/QC

- Design codes




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Insurance ConsiderationsTechnical - Scale Up• Constant drive for efficiency and improving returns on capital provide

significant stimulus for the development of technology • Improvements in output are therefore achieved through new materials,

designs and processes and scale ups.• Larger vessels• Higher pressures• Higher throughputs• Larger power units

• Insurers will look to address this aspect with appropriate defects clauses such as LEG 1,2 or 3

• Whilst technical boundaries may be stretched, it is seldom that prototype equipment is incorporated into plants.

• The Principal will be concerned with plant integrity, reliability and output to ensure the maintenance of revenue streams.

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Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual


Quality

- Hazop

- QA/QC

- Design codes




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Insurance ConsiderationsContractualTypes of ContractThe type of contract in place between the owner and contractor has a significant impact on the risk profile of major construction projects.

- Fixed Sum- Reimbursable EPC

Insurance SpecificationDescribes responsibilities of both the owner and contractor for provision and specification of insurance and in particular who accepts “risk of loss”

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Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual


Quality

- Hazop

- QA/QC

- Design codes




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Insurance ConsiderationsPeriod

FEED PhaseFEDBasic DesignDetailed DesignHazop

Insert S curve

Procurement phaseExperienced reputable equipment manufacturers & suppliersMaterials from less proven manufactures or territoriesRecognised international standards employedFactory Acceptance Testing (FAT)

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Insurance ConsiderationsPeriodConstruction phase

Civils to Erection phaseRapid Build Up of ValuePre commissioning generally by EPC

Testing phaseThe period of highest risk Defects or faults introduced during design, manufacture or construction are likely to appear. Start-up (RFSU) may be conducted by EPC or client

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Technical

- Scale Up

Perils

- Fire & Explosion

- Other Perils

- Natural Perils

Contractual


Quality

- Hazop

- QA/QC

- Design codes




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Insurance ConsiderationsInformation RequirementsParticipantsPrincipal / Contractors / Licensors / EPC Contract detailsNatural Hazards/Site LocationNatural Peril information including Geotechnical Report / Soil condition survey.Project Details / Scope of WorkIncluding Bar Charts / Flow Diagrams / inventory of hydrocarbons / Fire Protections / Heavy Lifts / Hot Testing Quality Assurance / Control AspectsQA/ QC procedures and methodology for implementation on site / Positive Material Identification (PMI) / Non-Destructive Testing (NDT) etc.Technical aspectsProcess/Licensor/Details of manufacture and reference plant experience of key itemsValue breakdownBreakdown of the Estimated Contract Values

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Insurance Conditions

Hydocarbon exclusions− Over riding of safety devices

Handover to Operational Insurance− Operational Insurers intention is only to accept a facility once it has been

fully tested and commissioned - shown it is capable of performing as planned

− Often leading to requests for construction Insurers to maintain coverage

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Insurance ConsiderationsRisk Management

Weld quality – welder training & supervisionConcrete quality controlBuild quality control – inspection test plansHeavy liftingCrane controlSmoking and ignition sources controlWorkforce supervisionHSE supervisionEquipment support during erectionConstruction fire protection procedures, equipment and controlsHousekeepingPTWTesting procedures

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Insurance ConsiderationsOther Issues

Market Capacity- Global market PML capacity is estimated to be in the region of $2.5bn

Captive Insurance Companies- Many of the larger Oil & Gas companies set up their own insurance

companies known as Captive Insurance Companies (“Captives”). - Reduced share of the project requiring protection via the traditional

international insurance market. - Additional potential capacity of $500m per risk

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Loss Scenarios

The following loss scenarios are examples of typical “normal losses”

- Defects – Compressor

- Handling – Dropping of GT

- Commissioning – Implosion of tank

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Loss ScenariosDEFECTS – FAILURE OF STEAM TURBINE DRIVER

Seven stage turbine steam drive of compressor (five high pressure (HP) stages and two low pressure (LP) stages).None of the rotors were subject to high speed balancing before delivery to site.Turbine tripped during load run.Loss of a sixth stage blade and limited foreign object damage to the seventh stage.Manufacture’s field representative approved installation of the spare rotor. The turbine was started up and it tripped again in similar circumstances.The turbine was opened up again and the damage was noted to be more extensive than during the original incident. CAUSE OF LOSSInconsistency in the method of fixing shrouds of the blades on the sixth and seventh row.Defects - stronger QA/QCQUANTUM: US$2,000,000.

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Loss Scenarios

HANDLING – DROPPING OF GTPropane Booster Compressor dropped at site just after commencement of craneageThe drop occurred as a result of the sudden failure of the crane boom. The compressor dropped about 20mm Collateral damage to nearby ducting

CAUSE OF LOSSIncorrect assembly of the adjustable

bracing rod in the pendent bar assembly of the jib of the mobile crane.

RESERVEUS$3,500,000

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Loss Scenarios

COMMISSIONING – IMPLOSION OF TANK

CAUSE OF LOSS- Collapsed condensate buffer tank –

due to vacuum - RCA – Faulty valve

RESERVEUS$ 2,500,000

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Loss Scenarios

Vapour Cloud Explosion (VCE)

Result from - Release of flammable vapour- Mix with air and drift until they find

an ignition source. The amount of damage depends on the type and quantity of material released, the degree of mixing with air, plant and equipment layout and congestion, and flame front speeds. In the majority of cases the VCE loss scenario is the governing PML event.

.

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Loss Scenarios

VCE are the governing risk of Energy Insurers

- Skidka- Texas City- Grangemouth- Kuwait- Phillips Petroleum

Infrequent but devastatingTo date VCE occurred only during operational phase

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Conclusions

Construction of Oil & Gas project are highly complex activities which continues tooffer significant technical challenges to Industrial InsurersHowever if the key issues are addressed:-

- the inherent technical exposures associated with the processes,- the dynamics of a construction site,- the contractual relationships between the many stakeholders,- the perils that may affect the project- the insurance contract

It is possible to successfully transact this segment of business to the mutual benefit of all parties.

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IMIA Working Group Paper WGP 65 (10) Construction of … · 2019-10-28 · The IHS CERA DCCI index....

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