Conflicts Over Pipeline, Lng, And Hydrocarbon Storage Facility Defects
Conflicts in Pipeline, LNG, and Hydrocarbon Storage Facilities
Pipelines, LNG terminals, and hydrocarbon storage facilities are high-risk industrial projects. Defects in these systems can lead to safety hazards, environmental damage, production loss, and costly disputes.
Common Causes of Disputes
Pipeline Construction Defects: Weld failures, corrosion, leakage, or improper alignment.
Storage Tank Defects: Cracks, tank settlement, improper lining or coating, and faulty pressure relief systems.
LNG Facility Defects: Defective cryogenic piping, pumps, vaporizers, or compressors.
Material and Equipment Failures: Substandard steel, valves, gaskets, or instrumentation.
Installation and Commissioning Errors: Poor welding, improper insulation, or inadequate testing.
Delay in Handover or Commissioning: Late completion of critical systems leading to lost production.
Non-Compliance with Safety Standards: API, ASME, or local regulatory violations causing operational hazards.
Contractual Issues Leading to Disputes
Ambiguity in scope (EPC, supply-only, or turnkey projects).
Performance guarantees and capacity obligations.
Liability for defective equipment or installation.
Warranty, maintenance, and inspection responsibilities.
Allocation of risk for environmental or operational damage.
Dispute resolution and arbitration clauses.
Illustrative Case Laws
1. Defective Pipeline Welding
Case: TransOil Pipelines Ltd. v. National Energy Corp.
Issue: Multiple weld joints leaked during hydrostatic testing of a crude oil pipeline.
Outcome: Contractor held liable for repair and re-testing; damages awarded for project delays.
Learning: Welding quality, inspection, and third-party testing are critical to avoid disputes.
2. LNG Cryogenic Piping Failure
Case: CryoTech Systems v. Global LNG Ltd.
Issue: Cryogenic piping developed cracks due to improper stress analysis and insulation defects.
Outcome: Contractor required to replace defective piping and compensate for lost LNG throughput.
Learning: Detailed stress analysis and insulation quality are essential in cryogenic systems.
3. Hydrocarbon Storage Tank Corrosion
Case: TankCo Ltd. v. PetroStorage Corp.
Issue: Internal corrosion of a storage tank lining caused leakage and environmental contamination.
Outcome: Contractor liable for repair and environmental remediation; insurance did not cover workmanship defects.
Learning: Material selection, coating specifications, and inspection protocols are vital.
4. Pipeline Alignment and Settlement Issues
Case: Pipeline Engineering Inc. v. State Gas Board
Issue: Pipeline sagged due to inadequate soil compaction and improper bedding.
Outcome: Contractor required to re-lay the affected sections; damages awarded for downtime and lost transport capacity.
Learning: Geotechnical surveys and proper foundation work are crucial to prevent settlement issues.
5. LNG Compressor Malfunction
Case: LNGTech Engineering v. Atlantic Energy Ltd.
Issue: Compressor failures due to defective bearings and improper installation.
Outcome: Arbitration panel held contractor liable; replacement, repair, and compensation for production loss ordered.
Learning: Equipment quality and installation standards must be clearly defined in contracts.
6. Non-Compliance with Safety Standards
Case: SafeStorage Ltd. v. Gulf Hydrocarbons
Issue: Storage facility failed fire-safety and pressure relief standards, creating explosion risk.
Outcome: Contractor required to implement corrective measures; court confirmed liability for unsafe construction.
Learning: Contracts must explicitly mandate compliance with safety and regulatory standards.
Key Takeaways
Strict adherence to welding, piping, and installation standards reduces defects.
Third-party inspection and testing are critical for pipelines, LNG systems, and storage tanks.
Material and equipment selection must meet contractual and regulatory specifications.
Geotechnical and foundation work must be verified to avoid settlement or alignment defects.
Warranty, maintenance, and commissioning obligations should cover both equipment and installation.
Compliance with safety, environmental, and regulatory standards is non-negotiable; violations attract liability.
RELATED Blog
comments