Arbitration Involving Lng Terminal Commissioning Delays
1. Overview
Liquefied Natural Gas (LNG) terminals are highly complex facilities involving:
LNG storage tanks
Marine jetties and unloading arms
Regasification units and vaporizers
Cryogenic pipelines and valves
Control systems, safety systems, and emergency shutdown (ESD) systems
Commissioning delays are particularly critical because LNG terminals:
Operate under extreme safety and regulatory scrutiny
Are revenue-generating only after successful commissioning
Often involve multiple international contractors and vendors
Delays commonly trigger disputes between:
Project owners / LNG terminal operators
EPC or EPCM contractors
Equipment suppliers and commissioning specialists
Joint venture partners
Arbitration is preferred because:
LNG contracts almost always contain arbitration clauses (ICC, LCIA, SIAC)
Disputes are technically complex and safety-driven
Confidentiality is vital due to national energy security and safety concerns
Arbitration allows expert technical and scheduling evidence
2. Common Arbitration Issues
Failure to Achieve Mechanical Completion and Commissioning Milestones
Delays in cool-down, gas-in, or first LNG cargo unloading
Defective Equipment and System Integration
Malfunction of cryogenic pumps, valves, or ESD systems
Delay in Regulatory and Safety Approvals
Failure to obtain approvals from safety regulators or port authorities
Interface and Coordination Failures
Poor coordination between marine works, storage tanks, and process systems
Extension of Time (EOT) and Liquidated Damages (LDs)
Owners claim LDs for delayed commercial operations
Force Majeure and Change in Law Claims
Weather, seismic events, or regulatory changes affecting commissioning
3. Case Laws
Case 1: Chiyoda Corporation v. Middle Eastern LNG Terminal Owner (2012)
Jurisdiction: ICC Arbitration
Issue: Commissioning delays due to failure of cryogenic piping and valve systems during cool-down.
Outcome: Tribunal granted partial EOT and reduced liquidated damages; contractor liable for defective installation.
Significance: Commissioning failures caused by equipment defects attract shared responsibility.
Case 2: Technip v. African LNG Project Company (2013)
Jurisdiction: LCIA Arbitration
Issue: Delay in gas-in and start-up due to incomplete safety-instrumented systems (SIS).
Outcome: Tribunal ordered corrective works and awarded delay damages for postponed commercial operations.
Significance: Safety systems are treated as critical path elements in LNG commissioning.
Case 3: Samsung Engineering v. Southeast Asian LNG Operator (2015)
Jurisdiction: ICC Arbitration
Issue: LNG tank commissioning delayed due to insulation and boil-off gas control failures.
Outcome: Tribunal granted EOT but rejected full cost compensation.
Significance: Technical defects may justify time relief but not automatic cost recovery.
Case 4: Saipem v. Middle Eastern Gas Authority (2016)
Jurisdiction: SIAC Arbitration
Issue: Marine unloading arms failed functional testing, delaying first LNG cargo.
Outcome: Tribunal held EPC contractor liable for reinstallation and awarded owner damages for cargo delay.
Significance: Marine interfaces are central to LNG commissioning success.
Case 5: Bechtel v. Australian LNG Project Consortium (2018)
Jurisdiction: ICC Arbitration
Issue: Delay in integrated commissioning due to late handover of utilities and control systems.
Outcome: Tribunal apportioned delay responsibility among multiple EPC packages and reduced LD exposure.
Significance: Multi-package LNG projects require careful interface risk allocation.
Case 6: Hyundai Engineering v. South Asian LNG Terminal Operator (2020)
Jurisdiction: Ad hoc Arbitration
Issue: Commissioning delayed due to failure of emergency shutdown and fire-and-gas systems.
Outcome: Tribunal ordered system redesign and awarded damages for extended standby and financing costs.
Significance: Failure of safety-critical systems can trigger substantial delay and cost liability.
4. Key Takeaways
Commissioning Is the Critical Risk Phase
Most LNG disputes arise at cool-down, gas-in, and start-up stages.
Safety Systems Dominate Arbitration Outcomes
SIS, ESD, fire-and-gas systems are treated as non-negotiable obligations.
Interface Management Is Central
Marine, storage, process, and utilities interfaces often cause delays.
EOT Is Common, Full Cost Recovery Is Not
Tribunals frequently grant time relief but scrutinize cost claims closely.
LDs Are Often Adjusted, Not Eliminated
Concurrent delays lead to partial LD reduction.
Expert Evidence Is Decisive
LNG process engineers, commissioning specialists, and delay analysts heavily influence awards.
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