Arbitration Connected To Indonesian Lng High-Pressure Pipeline Strikes
1. Technical and Contractual Background
In Indonesian LNG projects, high-pressure pipelines transport natural gas between:
Upstream facilities and LNG liquefaction plants
Storage, regasification, and export terminals
Offshore platforms and onshore processing units
A pipeline strike—typically caused by excavation, piling, dredging, or marine construction—can result in:
Immediate gas release and safety shutdowns
Fire or explosion risk
Extended plant outages and LNG cargo delays
Regulatory intervention and reputational damage
Such disputes commonly arise under:
EPC and Design-Build contracts
Pipeline installation and protection agreements
Third-party construction or dredging contracts
O&M agreements and right-of-way arrangements
Arbitration focuses on duty of care, pipeline protection measures, disclosure of pipeline data, and allocation of third-party risk.
2. Typical Arbitration Issues in Pipeline Strike Disputes
2.1 Pipeline Location and Disclosure
Whether accurate as-built drawings and GIS data were provided to contractors.
2.2 Duty to Protect and Mark Pipelines
Adequacy of burial depth, concrete coating, warning tapes, and exclusion zones.
2.3 Contractor Negligence
Failure to follow permit-to-work, excavation clearance, or marine exclusion procedures.
2.4 Force Majeure and Third-Party Acts
Whether a pipeline strike constitutes force majeure or a foreseeable construction risk.
2.5 Consequential Loss and Shutdown Damages
Claims for LNG cargo delay, lost production, and contractual penalties.
2.6 Insurance and Indemnity
Interpretation of CAR, third-party liability, and business interruption coverage.
3. Illustrative Case Laws (Arbitral Case References)
Case 1: Indonesian LNG Operator vs EPC Contractor
Issue: High-pressure pipeline struck during foundation piling works inside LNG plant boundary.
Tribunal Finding: EPC contractor failed to comply with approved excavation and verification procedures.
Outcome: Contractor liable for repair costs, shutdown losses, and safety remediation expenses.
Case 2: LNG Project Company vs Marine Dredging Contractor
Issue: Offshore pipeline damaged during dredging for LNG jetty approach channel.
Tribunal Finding: Contractor ignored pipeline exclusion zone shown in marine drawings.
Outcome: Full liability imposed on dredging contractor for pipeline repair and LNG export delay damages.
Case 3: LNG Operator vs Engineering Consultant
Issue: Consultant provided inaccurate pipeline route drawings used during construction.
Tribunal Finding: Consultant negligent in failing to update as-built alignment data.
Outcome: Consultant held partially liable; damages apportioned with construction contractor.
Case 4: LNG Joint Venture vs International EPC Consortium
Issue: Consortium claimed pipeline strike was force majeure due to undocumented legacy pipeline.
Tribunal Finding: Risk of undocumented pipelines was foreseeable and required pre-construction surveys.
Outcome: Force majeure rejected; EPC consortium liable for resulting losses.
Case 5: LNG Operator vs Third-Party Utility Contractor
Issue: Third-party utility contractor struck gas pipeline during roadworks near LNG facility.
Tribunal Finding: Contractor failed to obtain clearance and conduct trial excavation.
Outcome: Contractor ordered to indemnify LNG operator for repair costs and lost production.
Case 6: LNG Operator vs Insurer
Issue: Insurer denied coverage, asserting damage resulted from contractor negligence.
Tribunal Finding: Policy covered accidental physical damage regardless of fault allocation.
Outcome: Insurance payout granted for repair and business interruption losses, with insurer subrogation rights preserved.
4. Key Legal and Technical Principles Applied by Tribunals
Foreseeability of Pipeline Strike Risk
Excavation and dredging risks are rarely treated as extraordinary.
Strict Compliance with Permit-to-Work Systems
Failure to follow clearance procedures weighs heavily against contractors.
Shared Liability Where Information Is Defective
Inaccurate drawings often result in apportioned damages.
High Standard of Care for High-Pressure Gas Lines
Tribunals impose enhanced duty due to catastrophic risk potential.
Force Majeure Narrowly Interpreted
Third-party acts are not force majeure if controllable through procedures.
Insurance as Risk Allocation Tool
Coverage often applies even where liability is disputed.
5. Practical Lessons for LNG Projects in Indonesia
Maintain accurate, updated as-built pipeline data.
Enforce strict excavation and marine exclusion protocols.
Clearly allocate third-party pipeline strike risk in contracts.
Require pre-construction surveys and trial digs.
Align insurance coverage with pipeline exposure and shutdown risk.
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