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Maintaining an exceptional 43-year record as LNG trade increases

  13.04.2007    

The  insurance claims record of liquefied natural gas carriers has generally been  very good in the 43 years they have been plying the world's oceans. However, it  was essential to pay close attention to the growing demand for LNG and the  technology associated with its delivery if this record was to be  maintained.
Over  45,000 voyages had passed without a major incident but prospective changes in  the market and business practices would present changing risks to the  insurer.
Karl  Lumbers, Loss Prevention Director of the UK P I Club, told delegates at the  Sea Asia Conference on April 4th that the UK Club had long led the  field in P I cover for the LNG sector with between 40 and 45 per cent of
ships, owners and gross tonnage on its books.
He  stressed that LNG, which is only transported by ship, is not explosive because  it is not stored under pressure; is not toxic, corrosive or carcinogenic; does  not burn as it contains no oxygen; and, when released to the air, converts  immediately back to a gas. However, LNG is an asphyxiant, is cryogenic and is  flammable when mixed with air concentration of five to 15 per cent.
Non-personal injury LNG vessel incidents involved valve leakage, overfilling, pressure increase, premature arm disconnection, groundings, collisions and failures of liquid level instrumentation, pipes, glands, moorings, steering gear and engines.
In theUK P I Club, LNG ships had produced well under half of one per cent of the number and value of large claims (over $100,000) from the entire entered fleet over the period 1987-2004. Some 34 large claims had cost just $15 million. Yet the proportion of LNG tonnage entered with the UK Club is nearly eight per cent of the
total.
There had been no environmental pollution and very few cargo claims of any size. Crew injury claims had been infrequent and the manner and location of incidents remained typical of that for all merchant ships. Slips, falls and being struck by objects in the engine room or on the weather deck accounted for the lion's share of claims. Back injuries were cited by 44 per cent of claimants. However, personnel injury claims needed careful monitoring.
Looking ahead, Mr. Lumbers anticipated a more variegated  LNG industry and indicated a wide range of developments of concern to insurers.  Market growth could mean more players, pressure on time, more competition and  short term contracts. A growing spot market was a distinct prospect with the  increased likelihood of contractual disputes and revisions to performance  criteria. Time considerations would become more important as commercial  operators encouraged swift turnaround in  berths.
There  would be a rise in newbuildings as more ships reached the end of their envisaged  lifespans of 40 years or more, and as demand grew. Many vessels would be bigger----up to 240,000 cubic metres' capacity with high freeboards. Experimental ship to ship cargo transfers had taken place and might come into general practice. A second hand market in older ships was beginning to get under way.
There will be a greater demand for skilled crews. There are signs that theUS authorities are encouraging the  deployment of American crews for trade with theUnited States. Over 30 per cent of potential LNG cargoes is located in Russia, much of it involving cold weather operations. This means ships both strengthened against the ice and with ice breaking capacity. These considerations were likely to increase the cost of crews, their training and their claims.
Larger, technologically more advanced vessels would require more sophisticated terminal facilities and procedures and skilled operators. The close association between terminals, vessels and multinational carriers was likely to diminish as terminals and routes increased. More ships were likely to find themselves trading to unfamiliar terminals and perhaps faced with more onerous conditions of use from terminal operators.
Ship and terminal repairs would become more expensive and there could be difficulty in finding the necessary, yards, facilities and skills.
Despite these challenges, Mr. Lumbers felt the U.S. Sandia Report in 2004 continued to provide a sound perspective on the industry and an endorsement of its safety record.
The combination of LNG ship designs and current safety management practices for LNG transportation has reduced accidents to a level such that there is little historical or empirical information on breaches or spills. Large unignited vapour releases are unlikely. Beyond approximately 750 metres for small accidental spills and 1600 metres for large spills, the impacts on public safety should generally be low.
Mr Lumbers concluded: "The future does pose problems but we see no reason to  suspect they can't be resolved. Insurers need to work closely with their  assureds to ensure the risks are minimised."



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