midstream and pipelines: a casualty risk engineering

CIn

Wednesday, March 2, 2016Houston, TX

1:45–3:00 p.m.

MIDSTREAM AND PIPELINES:A CASUALTY RISK ENGINEERING PERSPECTIVE

Presented by

Jon ElvidgeSenior Casualty Risk Engineer

XL Catlin

In recent years the energy industry has seen a number of major incidents in the mid-stream sector. This session considers the midstream sector from a liability perspective.The focus is on pipelines, both natural gas and hazardous liquid, and covers current trends,loss examples, and the main factors affecting the potential for liability claims. The sessionalso looks at other midstream areas such as gas processing, terminals, and undergroundstorage together with discussion on some of the emerging risks in this sector.

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Jon Elvidge, B.Eng. (Hons), C.Eng., MIMechESenior Casualty Risk Engineer

XL Catlin

Mr. Elvidge is a chartered mechanical engineer with 18 years post-chartered experience and atechnical background in fluid mechanics. As a casualty risk engineer with XL Insurance, he sup-ports the casualty underwriters, responsible for a wide range of liability risk assessments, princi-pally in the upstream, midstream, manufacturing, utilities, and construction sectors. Within theupstream sector, he supports US, International, and Marine & Offshore Units with liability risk as-sessments and technical advice. On the manufacturing side, he works predominantly with in-sureds in the automotive supplier sector, visiting facilities around the world to advise on productliability and recall risk identification and mitigation.

Prior to joining XL in 2006, Mr. Elvidge was a principal mechanical engineer with Entec UK, work-ing as a project manager and lead mechanical engineer on major pumping and pipeline-relatedcapital projects, often appointed as designated engineer or project manager under the variousforms of UK construction contracts including IChemE, ECC, and M/F forms.

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Notes

This file is set up for duplexed printing. Therefore, there are pages that are intentionally leftblank. If you print this file, we suggest that you set your printer to duplex.

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Midstream and Pipelines:A Casualty Risk Engineering Perspective

Presented by:

Jon Elvidge

XL Catlin

3rd March 2016

#IRMI2016

1. Introduction2. North American Pipelines

- Trends- Notable Incidents- Key Factors for Liability

3. Other Midstream Exposure Areas- Rail Transfer- Gas Processing- Storage / Terminals

4. Emerging Risk Areas- Drones- Cyber Critical Infrastructure

5. Q & A

© 2016, XL Catlin companies. All rights reserved. I MAKE YOUR WORLD GO 2

Contents

Contents

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Presenter

Jon is a chartered mechanical engineer with 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

Oil and Gas Energy

• 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 – refineries, possibly petrochemical plants and distribution of refined products

1 Introduction


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2 North American Pipelines

PHMSA Pipeline Incidents: Count (1995-2014)

Incident Type: Serious System Type: ALL State: ALL

PHMSA Pipeline Incidents: Count (1995-2014)

Incident Type: Significant System Type: HAZARDOUS LIQUID State: ALL

Offshore Flag : ALL Commodity: ALL

Pipeline Incident Trends


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PHMSA Pipeline Incidents: Property Damage (1994-2013)Incident Type: Significant System Type: HAZARDOUS LIQUID State: ALL

Offshore Flag : ALL Commodity: ALL

North American Pipelines

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Significant Incident Causes


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Significant Incident Cause Breakdown: 5 Year Average (2010-2014)

System Type: GAS TRANSMISSION State: ALL Offshore: ALL

Significant Incident Cause Breakdown: 5 Year Average - (2010-2014)

System Type: HAZARDOUS LIQUID State: ALL

Offshore: ALL Commodity: ALL

North American Pipelines

Major gas transmission incidents in US over the last 5 years:

1. California 2010 (8 dead, 51 injured) Type: 1949, 30” natural gasCause: long seam fatigue cracks in pup sections

2. Louisiana 2015 (4 dead, 1 injured)Type: 1970, 36” natural gasCause: unknown although related to on-site slug catcher rather than pipeline ROW

North American Pipelines2


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Major hazardous liquids incidents in US over the last 5 years:

1. California 2015 (2,500 barrels, >$140m estimated cost)Type 1990, 24” steel - crudeCause: unknown

2. Michigan 2010 (20,100 barrels, >$900m estimated cost)Type 1969, 30” steel - crudeCause: stress corrosion cracking leading to corrosion fatigue

3. Montana 2011 (1,500 barrels, $142m cost)Type 1990, 12” steel - crudeCause: rupture of pipeline at river crossing due to flood conditions

4. Arkansas 2013 (3,190 barrels, $93m cost)Type 1947, 20” steel - crudeCause: long seam cracking

5. Illinois 2010 (7,500 barrels, $51m cost),Type 1968, 34” - crudeCause: suspected third party water leak leading to failure of adjacent crude line




What can we learn from PHMSA incident database?

• No significant correlation between spill size and cost • Ruptures are the main concern for excess liability• Large losses typically involve proximity to watercourses• Age of pipe is only a minor factor. Weld type, coating, environment,

commodity all influence corrosion / cracking potential• Whilst the industry is getting safer, hazardous liquid spill consequences

are worsening• The top three spills on the previous slide are all outliers…

2 North American Pipelines

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Clean-up Costs

Industry data shows that since 2002 only three spills have exceeded expected ‘worst case’ clean-up costs (from Etkin, Ruitenbeek et al)

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Spill Volume(bbl)

‘Worst case’ Clean-up Cost $/bbl

Small <238 107,000

Modest 238-2,400 35,000

Average 2,400-11,900 14,400

Large >11,900 8,000

© 2016, XL Catlin companies. All rights reserved. I MAKE YOUR WORLD GO


Clean-up Costs

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Spill Quantity Spilled (bbl)

Estimated Damage and

Clean-Up Cost / bbl

Macondo,GoM 4,900,000 $2,850

2010 Marshall, MI 20,000 $41,000+

2011 YellowstoneRiver, MN

1,500 $90,000

2015 Goleta Coast, CA

2,900 $50,000+



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Crude v HVL / Refined Products

• 20 spills since 2010 over 5000 bbls in US• 8 of these were crude (dilbit); remainder LPG, Ethane, Gasoline etc.

• 8 spills since 2010 with property damage / clean-up cost over $25m• 7 of these crude (exception 2011 gasoline spill)

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.



Key Factors Which Influence Risk

Physical Asset

• Type (gathering, gas transmission, hazardous liquids)

• Length of Pipeline

• Location (location class, HCA)

• Construction (coating, weld technology)

• Size and Pressure



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Key Factors Which Influence Risk

Operational Performance

• Approach to integrity management

• Asset management

• Leak detection / SCADA

• Emergency response



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?

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Rail Transfer


Crude pipelines are an increasing concern for excess liability…..

…..unfortunately so is crude-by-rail

3 Other Exposure Areas

Pipelines v Rail

Which is better? According to Forbes Energy (April 2014)

Oil Spillage Rates (Ton-miles 1996-2007)Truck (worst) > Pipeline > Rail > Ship

Incidents Resulting in Bodily Injury / Property DamageTruck (worst) > Rail > Pipeline > Ship

Environmental ImpactShip (worst) > Pipeline > Truck > Rail


Other Exposure Areas3

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Rail Incidents (Oil)

Between July 2013 to Feb 2014 there were eight major North American crude-by-rail incidents including:

• July 2013 – Lac Megantic, Quebec (63 cars derailed, fire and explosion, 47 fatalities)• October 2013 – Aliceville ,AL (30 cars derailed – 17,000 bbl, fire)• December 2013 – Cassleton, ND (34 cars derailed – 9,500 bbl, fire)• April 2014 – Lynchburg, VA (15 cars derailed – 1,190 bbl, fire)

Then

• Feb 2015 – Mount Carbon, WV (10 cars derailed – 8,000 bbl, fire)• May 2015 – Heimdal, ND (6 cars derailed – 2,000 bbl, fire)



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FRA statistics show that rail is getting safer….



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Crude by Rail

• Over 10x increase between 2010and Jan 2015

• Majority is Bakken and Canada derived

• Bakken and Canada Dilbit is considered higher risk althoughnew rulings on stabilisation

• Improved railcars (CPC1232 +) of some benefit in low speed incidents

• 40mph speed limit (only applies in HTUA)



Gas Processing / LNG

• Typically lower risk than refineries• Mainly physical separation processes and fractionation• Pollution not a major concern• Industry has a good track record and major losses are rare• For liability, low incident frequency but may be very high

severity • Post-fractionation processing may be higher risk, e.g.

olefins units



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Terminals

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

• Vulnerability of external environment?• Approach to spacing?• Approach to secondary / tertiary

containment?• Overfill protection standards?• Seismic / flooding exposure?



Terminal Incidents

San Juan, Puerto Rico 2009• Overflow and VCE• 300 homes and business damaged• Major petroleum 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



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Underground Gas Storage

Midstream and utility companies typically store gas in underground formationsThree main types:

• Depleted Reservoir• Salt Cavern• Aquifer

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Underground Storage

Salt CavernAquifer Storage

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Source: www.intragaz.com



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Underground Gas StorageIssues

Gas leakage - A few cases related to salt cavern leakage, rarely serious. However, current Aliso Canyon, CA situation (depleted reservoir injection well failure) is a major concern.

Age of wells and benefits of SSSVs need to be considered.

Pollution - Aquifer storage potentially

Seismic - Injection / abstraction of fluids linked to earthquakes.2013 Castor storage - 512 ‘earth tremors’ linked to offshore depleted reservoir gas storage. Largest 4.2 on Richter Scale.

Subsidence - Mainly salt cavern related. 2012 - Bayou Corne, LA. Collapse of salt cavern (salt mining not gas storage) leading to 25 acre sinkhole property damage and oil pollution.

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Cyber - Critical Infrastructure

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• Increasing attacks and attempted penetrations against US Energy / Utility companies

• Most significant trend in 2014 was increased targeting of SCADA/ICS through malware (TrendMicro Report)

• Spear-Phishing is the single biggest attack method

• Mainly results in denial of service / disruption but there is potential for third party BI/PD

4 Emerging Risks


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Cyber – Recent “attacks”

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• 2014 – Hackers caused a floating energy facility off the coast of West Africa to list, forcing temporary shut down

• 2014 – German authorities reported that hackers disrupted control systems in German steel mill causing “massive” – though unspecified –damage

On the midstream side, no major recent incidents

• 2008 – Turkish pipeline deliberately overpressurised after hacking (allegedly) of ICS?

4 Emerging Risks


Cyber – Why is this now a problem?

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ThenICS systems 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

network protocols) to improve business interconnectivity and data management

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

Therefore enhanced potential for cyber attack although physical damage / bodily injury still unlikely (due to ‘hard’ protective devices)

Complex processing facilities are considered more vulnerable than pipelines to physical damage

4 Emerging Risks


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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?


4 Emerging Risks

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

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

Drone applications are generally considered to be positive:

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

4 Emerging Risks

Drones - Uses


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Main issues for Midstream• Nuisance / breach of privacy (personal injury coverage?)• 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.

4 Emerging Risks

Drones – Main Issues


Questions?


5 Q&A

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THANK YOU

XL CatlinCasualty Risk EngineeringXL House20 Gracechurch StreetLondon

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US Legal Disclaimer

• In the US, the insurance companies of XL Group plc 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.


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W5. MIDSTREAM AND PIPELINES: A CASUALTY RISK ENGINEERING PERSPECTIVE

Rating scale for all questions:

4 = Excellent 3 = Very Good 2 = Average 1 = Somewhat Disappointing 0 = Very Disappointing

Overall rating for this workshop? 4 3 2 1 0 John Elvidge Preparation and quality of information 4 3 2 1 0

Energy and enthusiasm of delivery 4 3 2 1 0

Educational focus (not a sales pitch) 4 3 2 1 0

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midstream and pipelines: a casualty risk engineering

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