MARSH REPORT March 2018 The 100 Largest Losses 1978-2017
Large Property Damage Losses in the Hydrocarbon Industry 25th edition MARSH REPORT March 2018
CONTENTS
3 Foreword
4 Harnessing the Power of Data to Prevent Losses
5 Improving Process Safety Performance by Learning from Losses
6 Downstream Losses – 2016 - 2017
9 Newly Qualifying Losses Since March 2016
14 Refineries
23 Petrochemicals
28 Gas Processing
30 Terminals and Distribution
32 Upstream
37 About Marsh
2 Marsh MARSH REPORT March 2018
FOREWORD
Welcome to the 25th edition of Marsh’s 100 Largest Losses report. We hope that the information summarized in this publication proves to be a valuable resource for energy industry professionals. Given the challenges that face the energy industry today, ranging from adjusting to a prolonged period of low oil prices, to the evolution that new and disruptive technology will bring, considering the potential for serious incidents or major losses has never been more crucial. And in many cases, there are important lessons to be learned from the past. To help bring this information to the industry, Marsh has been collecting and recording data on major property damage losses in the energy industry since the publication of the first edition of this report, and now has a database with more than 10,000 incidents from across the global industry. This data can support organizations in their hazard identification activities, highlighting the particular exposures relevant to the technologies they are developing and managing these based on historical loss records. This information should be complimented by that collected and recorded on losses and near misses within organizations to further support improvements in risk management practice. Many risk improvement recommendations are based on the experience of energy industry insurers, including the experience from the major property damage losses summarized in this publication.
Ian Henderson Global Energy & Power Engineering Leader
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HARNESSING THE POWER OF DATA TO PREVENT LOSSES
As we enter the era of big data required and their effectiveness in INSURANCE MARKET and analytics, loss data, such reducing the likelihood of the loss. as that contained within this This also informs energy industry WORKS TO IDENTIFY report, is an invaluable resource insurance engineers in their CRITICAL RISK TOPICS that enables correlations to be assessment of the adequacy of risk identified between causes of losses, controls on sites when undertaking a Members of the London insurance risk management practices, and risk engineering survey. market organization the Lloyd’s possible outcomes. This will, Market Association (LMA) have in the future, allow for more A risk engineering survey of the sites undertaken work to identify the key detailed targeting of risk reduction covered by a policy is a key part of scenarios and failures associated and mitigation investment. the placement of energy industry with the major energy industry insurance. These surveys, conducted losses that have resulted in large Despite the significant efforts in by professional engineers, review the insurance claims. This work has safety design and management hardware, software, and emergency been used to help identify the systems, catastrophic incidents response capabilities in relation to critical topics to be focused on are still happening. Could it be the insurances in place to transfer during risk engineering surveys. that the industry is not learning the risk exposure. The surveys A paper summarizing the work lessons from the past? It is also collect data to enable the was presented at the international evident that losses with common calculation of a maximum property process safety conference Hazards causes continue to occur across damage loss value (normally called 27 in Birmingham, UK in 2017.1 various parts of the industry. the property damage estimated maximum loss). Depending on This analysis used a slightly different In many of the cases examined the insurance products in place, set of data than that presented in in this report, minor incidents maximum loss values will also be this document, with a shorter time have escalated in an uncontrolled estimated for other exposures (for frame (20 years), only considering manner to result in major events. example, business interruption and onshore losses, not including natural The consequences of those events machinery breakdown). catastrophe events, and including were not significantly mitigated and business interruption in the loss resulted in major physical damage Risk engineering surveys also values applied. and other significant impacts. routinely result in the survey team making recommendations The analysis of the losses As such, we hope that this to the site managers to improve highlights some dominant themes. publication can act as a spur to risk management practices. Approximately 43% of the losses organizations to collect and share Recommendations should be linked were identified as being the result information on industry losses by to the relevant insurances being of mechanical integrity failure, and demonstrating the value of being purchased for the exposed site this percentage was higher for the able to learn from the experience of and should - when implemented losses on oil refineries. Of these others to prevent the reoccurrence - result in a significant reduction mechanical integrity failures, 70% of accidents and incidents. in the likelihood of a major loss were identified as being as a result occurring, or reduction in the of corrosion of process piping, USING RISK foreseeable consequences of a loss. primarily due to internal corrosion. ENGINEERING SURVEYS They are typically linked to the site Where external corrosion was a TO EVALUATE RISKS hardware, management systems, or cause, it was as a result of corrosion emergency response arrangements. under insulation. A significant proportion of these mechanical Examining past events can help They should also be practical and integrity failures are identified as the industry think about the proportionate, considering the being a result of an inadequate or barriers that would have prevented risk profile of the site and the scale of the potential risk benefits. and mitigated these losses. This 1 Jarvis, R. and Goddard, A. “An Analysis understanding can then be used of Common Causes of Major Losses in to identify potential major hazard the Onshore Oil, Gas and Petrochemical exposures, as well as the measures Industries”, I.Chem.E, Symposium Series No. 162, Hazards 27. Paper 34.
4 Marsh MARSH REPORT March 2018
incomplete inspection program, Engineers should continue to MILFORD HAVEN or failure to manage construction analyze the experience of accidents materials and quality assurance. and near-miss events to identify The major accident on the oil any common issues or causes. This refinery in Milford Haven in the Other topics identified as important demonstrates barriers that must UK in 1994 was compounded by contributors to losses include: be in place and working effectively the overwhelming number of to prevent and mitigate major alarms received in the control •• Inadequate hazard identification. accidents. room by the panel operators, which significantly hindered their •• Inadequate risk assessment of This review of the lessons from ability to correctly diagnose what safety critical tasks (for example, losses, and assurance of the was occurring. This resulted in a assessment of plant start-up to adequacy of the measures in catastrophic failure of the flare develop the procedure). place, is an important component system, the release of a cloud of •• Reliance on remotely operated of any integrated process safety flammable vapor, and subsequent valves for safe isolations. management system. It confirms vapor cloud explosion which caused that the measures are focused on the major damage to the refinery. •• Failure to identify safety critical correct areas to control the risk of devices. accidents. On sites where the control rooms have not been subject to effective alarm rationalization, risk engineering surveys often IMPROVING PROCESS SAFETY recommend an alarm study to eliminate unnecessary alarms PERFORMANCE BY LEARNING and ensure that, in the event of a serious incident, panel operators FROM LOSSES will not be subject to a flood of alarms blinding them to the cause of The following examples of major loss events provide the upset and preventing effective and appropriate response. valuable lessons for energy risk mitigation in the future. DEEPWATER HORIZON PIPER ALPHA The Piper Alpha disaster was a demonstration of the importance Following the Deepwater Horizon/ This year sees the 30th anniversary of clear communication between Macondo loss in the Gulf of of the Piper Alpha disaster in the UK operating shifts, recording and Mexico in 2010, which resulted North Sea that resulted in the death understanding the status of in 11 fatalities, the US Chemical of 167 offshore workers. As a result of equipment under maintenance, and Safety and Hazard Investigation the loss, and the subsequent public the major loss mitigation benefits of Board (CSB) carried out a thorough inquiry led by the Honourable Lord remotely operated valves to isolate investigation and published a Cullen, there were major changes the flow of large inventories of comprehensive report. The report to the regulation of safety in the hazardous flammable materials. included several recommendations, UK Continental Shelf oil industry with the overall goal of reducing the and significant improvements in Shift handover, permit to work, and risks of major accidents in offshore the culture of loss prevention and remotely operated isolation valves drilling to a level as low as reasonably process safety. are all topics that are routinely practicable (ALARP). For example, reviewed during an insurance risk the recommendations relating The recommendations from the survey of an energy industry asset to the management of blow-out Cullen Report, published after the to determine their adequacy and preventers in order to ensure that public inquiry, include requirements effectiveness in preventing and there is a high reliability that they to improve the safety management mitigating accidents. These topics will operate on demand are typical systems, as well as more specific may also result in risk improvement of the type of recommendation recommendations relating to recommendations, if the standards that would be made following engineering hardware measures. observed are less than that a risk engineering survey. These critical findings continue considered necessary to adequately to inform the scrutiny of major control the risks. accident hazard plans carried out by insurance industry engineers.
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BIG SPRING risk engineers carrying out surveys found that there was no common practice for the inspection and maintenance The refinery loss at Big Spring in the US in February of the pressure containment envelope for pumps of 2008 is believed to have been as a result of the failure of this design, and, in some cases, it was found that the a propylene pump leading to the release of a vapor cloud pump barrels had never been inspected since they were of light hydrocarbon that found a source of ignition, installed. resulting in a vapor cloud explosion. Following the experience from the Big Spring incident, it The design of the pump – a long-shaft vertical-buried is now common practice to examine the inspection and can pump – is common in refinery operations for the maintenance regimes for vertical can pumps to ensure transfer of low flash-point liquids. Insurance industry the management of their long-term integrity.
FIGURE 1 DISTRIBUTION OF THE 100 LARGEST LOSSES BY YEAR Source: Marsh Research
2000
1500
1000
500
0 Total value of upstream losses (million US$) – 2017 values losses of upstream value Total 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
DOWNSTREAM LOSSES – 2016 - 2017
There has been a significant spike in the number of high-value downstream losses over the past two years. The insurance industry is also responding to a large number of losses which, although not large enough to make the 100 Largest Losses list, have had a high impact on the global energy industry.
NOTABLE LOSSES IN THE DOWNSTREAM ENERGY SECTOR
LOSS ESTIMATE (PROPERTY DAMAGE PLUS YEAR LOCATION LOSS DESCRIPTION BUSINESS INTERRUPTION) US$ MILLION
2016 GERMANY PETROCHEMICALS 500
2017 IVORY COAST REFINERY 210
2016 US GAS PLANT 100
2016 THAILAND PETROCHEMICALS 95
2016 BAHRAIN REFINERY 90
2017 JAPAN REFINERY 85
2016 RUSSIA REFINERY 80
2017 US PETROCHEMICALS 67
2017 NORWAY CHEMICALS 46
There are no obvious common themes driving these; the recent downstream losses have occurred across refining, petrochemicals, chemicals, and oil sands operations.
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THE IMPACT OF THE PRICE OF OIL
In the 24th edition of 100 Largest losses shows some correlation, around US$40/bbl, the lowest Losses, we commented on the with some major losses occurring point since 2005. As we prepare historical correlation between low in the years following significant this edition, the Brent crude oil oil prices and loss trends in the reductions in the oil price. At the price stands at just below US$70/ hydrocarbon industry. The graph of time of publication of the 24th bbl. There has been a fairly steady crude oil price and upstream energy edition, the price of oil stood rise over that two-year period.
FIGURE 2 CRUDE OIL PRICE VERSUS UPSTREAM LOSSES BY YEAR – 1974-2015 Source: Marsh Research
120 2000
100
1500 80 Low oil price
60 1000
Low oil price 40 Low oil price
500 20 Year-end price of Brent crude (US$/barrel) price of Brent Year-end
0 Total value of upstream losses (US$ million ) – 2015 values losses of upstream value Total 1989 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0
The downstream sector is more the substantial cost saving programs day in 2017 (increase in the daily insulated from variations in crude taken by many organizations since production capacity of US refineries prices than the upstream businesses. 2015 (which saw major reductions over the year). However, it was also Downstream margins are positively in investments and in the working reported that US refinery utilization affected as the drop represents a population), it’s not unreasonable increased and at the end of 2017 potential reduction in feedstock to ask if these are factors that have was at 96.7%, its highest level since costs. Indeed, during this period of contributed to the spike in losses. 2005. It could be argued therefore commercial opportunity, Marsh has that US refineries are being pushed noted an increase in the number of It was reported that US refinery to operate at greater capacity and downstream sites that have extended throughput growth rates slowed that increase in demand is not being shutdowns and turnaround from 1.8 million barrels per day addressed through investment in maintenance intervals. Coupled with in 2015 to 0.6 million barrels per new refinery projects.
SPOTLIGHT
The Effect of Low Oil Prices on Upstream Assets
In the upstream sector, lower oil prices have led to the divestment by some of the oil majors of mature assets that are no longer giving a high rate of return on investment, as they develop projects in newer oil and gas producing regions. In many cases, this has led to older assets being taken over by smaller organizations, sometimes with limited previous corporate experience in the oil and gas sector. It is important that these new entrants maintain the competency to understand the risks associated with the assets that they have acquired.
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NATURAL CATASTROPHES LEAD TO SIGNIFICANT LOSSES IN NORTH AMERICA
Following several benign years Individual losses from 2017 an indication of the risk control for natural catastrophes in North hurricanes failed to make the 100 measures that were considered as America, 2017 entered history as Largest Losses, however, it should being below the best practices in a significant loss year, with the be noted that this does not include industry. The dominant topics of the energy industry being affected by business interruption impacts, recommendations are “systems of hurricanes, severe weather, storms, which was the most significant work” (for example, permit to work, flooding, and wildfires. Insured component of many of the losses. shift handover communication, losses from natural catastrophes last Such events also bring into focus the and management of change) and year are estimated to have reached risks that the energy industry faces “inspection” (for example, staffing a record amount of US$135 billion from flooding; after all, as the 100 levels, competency, philosophy, and globally.2 Such events have caused Largest Losses highlights, some of data analysis). physical damage and business the largest losses have occurred as a interruption for the energy industry. result of flooding. Focus on “systems of work” as cited in loss reports reflects their The 2017 Atlantic hurricane season Elsewhere in North America, the critical importance to the safe heated up after a benign few worst year on record for wildfires operation of energy facilities. years, with several major storms in British Columbia, Canada4 led Furthermore, the study by the affecting the US East Coast and to firms having to temporarily Lloyd’s Market Association cited Caribbean, resulting in business shut down natural gas wells, earlier in this document concluded interruption and property damage pipelines, and other facilities as a that “mechanical integrity in the oil and gas sector. Hurricane precaution where wildfires came failure” was responsible for 57% Harvey, which made landfall in dangerously close to operations. For of man-made losses. Given these the Texas Gulf Coast as a Category energy companies, property losses concerns, and combined with 4 storm on the Saffir-Simpson remained low, but the closures led to high operating rates, reduced scale, caused significant flooding costly business interruption. staffing levels, and other cost to local refineries in the area. saving programs, operators must TRENDS IN RISK maintain high levels of monitoring Much of the US refining capacity, RANKING and vigilance to ensure that asset as well as a significant amount of integrity is being maintained petrochemical and LNG production, Analysis of risk improvement and accidents are eliminated. is concentrated along the Gulf Coast, recommendations made during meaning losses and supply chain the course of engineering surveys disruption is a particular worry in over the past two years provides this region. As a result of the storm, approximately 22% of US refinery FIGURE 3 10 Most Commonly Cited Topics, Full Dataset (By %) capabilities were shut down due Source: Marsh to flooding,3 leading to business interruption and property damage 18 losses for the downstream sector. 16 For the upstream sector, crude oil 14 production in the region slowed due 12 to Harvey, but the impact was not as 10 severe as in the downstream sector. 8
6 2 Munich Re. “Natural catastrophe review: of Citation (%) Frequency Series of hurricanes makes 2017 year of 4 highest insured losses ever”, available 2
at https://www.munichre.com/en/ 0 S. S. H. S. ER. ER. Fire ER. ER. H. ER. media-relations/publications/press- Systems Inspection Fireproofing Ergonomics Maintenance Detection Fire Water Emergency Engineering Fixed Fire releases/2018/2018-01-04-press-release/ of Work & Operability /Testing & Alarm System Plans Standards Protection index.html, accessed 13 February 2018. 3 Platts. “Oil factbox: USGC refinery outages, port closures continue to increase Aug 30”, 4 Government of British Columbia. “Wildfire available at https://www.platts.com/latest- Statistics”, available at https://www2.gov. news/oil/newyork/oil-factbox-usgc-refinery- bc.ca/gov/content/safety/wildfire-status/ outages-port-closures-26796285, accessed wildfire-statistics, accessed 13 February 13 February 2018. 2018.
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NEWLY FIGURE 4 LARGEST LOSSES 2016-2017 Source: Marsh Research
QUALIFYING PROPERTY DATE PLANT TYPE EVENT TYPE LOCATION COUNTRY LOSS (US$M)
EXPLORATION AND MECHANICAL LOSSES SINCE 02/11/2016 JUBILEE FIELD GHANA 450 PRODUCTION (E&P) OFFSHORE DAMAGE
SANNAZZARO DE’ MARCH 2016 12/01/2016 REFINERY FIRE ITALY 250 BURGONDI
RUWAIS, ABU UNITED ARAB 01/11/2017 REFINERY FIRE 1,000+ Figure 4 shows the largest DHABI EMIRATES property damage losses 01/30/2017 CHEMICAL FIRE PORI FINLAND 267 FORT MCMURRAY, 03/14/2017 REFINERY FIRE CANADA 220 to have occurred in the ALBERTA hydrocarbon industry FIGURE 5 THE 20 LARGEST LOSSES 1978 - 2017 since the publication of Source: Marsh Research
PROPERTY the 24th edition of the DATE PLANT TYPE EVENT TYPE LOCATION COUNTRY DAMAGE1 100 Largest Losses. We (US$ M) PIPER ALPHA, UNITED 07/06/1988 E&P OFFSHORE EXPLOSION, FIRE 1,960 have also identified the NORTH SEA KINGDOM RUWAIS, ABU UNITED ARAB 01/11/2017 REFINERY FIRE 1,000+ 20 largest losses in the DHABI EMIRATES
EXPLOSION, VAPOR UNITED 10/23/1989 CHEMICAL PASADENA, TEXAS 1,520 industry, according to CLOUD EXPLOSION (VCE) STATES Marsh data (Figure 5). 06/08/2009 E&P OFFSHORE BUSINESS INTERRUPTION NORTH SEA NORWAY 910
BAKER, GULF OF UNITED 03/19/1989 E&P OFFSHORE EXPLOSION, FIRE 900 The following pages MEXICO STATES
RONCADOR FIELD, provide insight on 03/15/2001 E&P OFFSHORE EXPLOSION BRAZIL 850 CAMPOS BASIN the distribution of the GAS SALE, LONGFORD, 09/25/1998 EXPLOSION, VCE AUSTRALIA 810 100 largest losses by PROCESSING VICTORIA ENCHOVA, 04/24/1988 E&P OFFSHORE BLOWOUT BRAZIL 760 year (Figure 6) and by CAMPOS BASIN geographical distribution 09/21/2001 FERTILIZER EXPLOSION TOULOUSE FRANCE 730 (Figure 7). Further 06/25/2000 REFINERY EXPLOSION, FIRE MINA AL-AHMADI KUWAIT 720
HENDERSON, UNITED 05/04/1988 CHEMICAL EXPLOSION 690 details of these losses are NEVADA STATES
GAS available in the relevant 01/19/2004 EXPLOSION, FIRE SKIKDA ALGERIA 690 PROCESSING sections of the publication. ABKATUN, BAY OF 04/01/2015 E&P OFFSHORE FIRE MEXICO 690 CAMPECHE
NORCO, UNITED 05/05/1988 REFINERY EXPLOSION, VCE 670 LOUISIANA STATES
03/11/2011 REFINERY EXPLOSION, FIRE SENDAI JAPAN 650
UNITED 04/21/2010 E&P OFFSHORE EXPLOSION, FIRE GULF OF MEXICO 640 STATES
MUMBAI, HIGH 07/27/2005 E&P OFFSHORE EXPLOSION, FIRE INDIA 520 NORTH
UNITED 11/14/1987 CHEMICAL EXPLOSION, VCE PAMPA, TEXAS 520 STATES
GAS BINTULU, 12/25/1997 EXPLOSION MALAYSIA 510 PROCESSING SARAWAK
5 Inflated to December 2017 values. Values are UNITED 02/04/2011 E&P OFFSHORE BUSINESS INTERRUPTION NORTH SEA 500 ground-up, property damage only. KINGDOM
100 Largest Losses 9 MARSH REPORT March 2018
FIGURE 6 PROPERTY DAMAGE VALUE OF 100 LARGEST LOSSES BY SECTOR Source: Marsh Research
Refineries S S S S Petrochemicals Norco, Louisiana, US Mina Al-Ahmadi, Kuwait Texas City, Ruwais, Texas, Abu Dhabi, US UAE Gas processing S S Pasadena, Texas, US Toulouse, France Terminals and distribution S Sendai, Japan Upstream S Henderson, Nevada, US