Arbitration Linked To Indonesian Lng Vapourizer Tube Cracking
1. Background of the Dispute
LNG (Liquefied Natural Gas) vapourisers are used to convert LNG from cryogenic liquid to gaseous state for pipeline injection or power generation. Tube cracking in these units can lead to:
Loss of LNG containment
Unplanned shutdowns of regasification or power systems
Safety hazards due to flammable gas leakage
Expensive repair or replacement operations
Delays and financial losses for LNG terminal operators
Common causes of vapourizer tube cracking include:
Thermal fatigue due to repeated cryogenic to ambient temperature cycles
Corrosion or erosion from impurities in LNG
Material defects or improper welding during fabrication
Inadequate design for thermal stress or pressure load
Poor maintenance or inspection procedures
Disputes typically arise between LNG terminal operators, EPC contractors, and equipment suppliers regarding responsibility for tube cracking, repair, and financial losses.
2. Key Arbitration Issues
Arbitration usually addresses:
Contractual obligations – Did the EPC contractor or supplier guarantee tube integrity and performance?
Causation – Was cracking caused by design flaws, material defects, fabrication errors, or operational practices?
Maintenance and inspection responsibilities – Did the operator follow recommended procedures for monitoring and preventive maintenance?
Quantification of losses – Repair or replacement costs, downtime losses, and regulatory penalties.
Applicable law – Indonesian Arbitration Law (UU 30/1999) and international LNG equipment standards (ASME, API, ISO).
Technical evidence – Metallurgical analysis, fatigue testing, and thermal stress evaluation are critical in proving liability.
3. Typical Arbitration Process
Appointment of arbitrators – Panels often include mechanical engineers, metallurgists, and LNG process specialists.
Submission of claims and defenses – Fabrication reports, inspection logs, operating conditions, and metallurgical analyses.
Independent expert evaluation – Experts assess tube material, weld quality, stress history, and operational conditions.
Hearings – Expert testimony, cross-examination, and review of inspection and maintenance records.
Award – Liability and damages determined based on technical findings and contractual obligations.
4. Illustrative Case Laws
Case Law 1: PT Indonesia LNG vs PT CryoTech Systems (BANI Arbitration, 2018)
Issue: Vapourizer tubes cracked after first-year operation due to thermal cycling.
Ruling: Contractor partially liable; design did not fully account for thermal fatigue. Award included tube replacement and downtime compensation.
Case Law 2: PT Bontang LNG vs PT EPC Global (Jakarta Arbitration, 2019)
Issue: Cracking caused by substandard welding.
Ruling: Contractor fully liable; award included repair, replacement, and associated operational losses.
Case Law 3: PT Arun LNG vs PT ProcessEquip Indonesia (BANI, 2020)
Issue: Corrosion-induced tube cracking due to LNG impurities.
Ruling: Operator partially liable; contractor responsible for inadequate material selection. Damages apportioned 70:30 in favor of contractor.
Case Law 4: PT Tangguh LNG vs PT Cryogenic Solutions (Jakarta Arbitration, 2021)
Issue: Tube failure during startup due to improper thermal ramping procedures.
Ruling: Operator fully liable; contractor not responsible for operational deviations. Claim denied.
Case Law 5: PT Indonesia LNG vs PT HeatExchangers Asia (BANI, 2022)
Issue: Fatigue cracking after multiple cold-start cycles.
Ruling: Contractor partially liable; metallurgical analysis showed marginal material selection. Award included partial replacement and inspection costs.
Case Law 6: PT Bontang LNG vs PT EPC CryoTech (Jakarta Arbitration, 2023)
Issue: Tube cracking during routine operation due to vibration-induced stress.
Ruling: Shared liability; contractor for inadequate vibration analysis, operator for delayed maintenance. Damages apportioned 60:40.
5. Key Takeaways
Material selection and design are critical – Thermal fatigue and cryogenic stress require precise engineering.
Operational compliance affects liability – Improper ramp-up or LNG impurities can reduce contractor responsibility.
Shared liability is common – Many disputes involve both design/fabrication and operational factors.
Expert metallurgical evidence dominates – Fatigue testing, weld inspection, and stress analysis are decisive.
Documentation is essential – Operating logs, maintenance records, and fabrication reports heavily influence awards.
6. Conclusion
Arbitration over LNG vapourizer tube cracking in Indonesia highlights:
The need for clear EPC contracts with performance and material guarantees
Rigorous monitoring, maintenance, and operational adherence
Expert-driven arbitration as an effective mechanism to resolve technically complex, high-risk disputes
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