Arbitration Of Degassing System Failures In U.S. Oil Terminals
1. Background: Degassing Systems in Oil Terminals
Oil terminals rely on degassing systems to safely remove volatile gases from storage tanks, pipelines, and transfer systems before maintenance, pumping, or processing. Proper functioning of these systems is critical to:
Prevent explosions and fires
Maintain environmental compliance with EPA regulations
Ensure operational efficiency and throughput
Avoid equipment damage and product loss
Failures in degassing systems often trigger arbitration claims because they can lead to significant property damage, environmental liability, and business interruption. Disputes typically involve:
Terminal operators
Engineering, procurement, and construction (EPC) contractors
Equipment suppliers and fabricators
Maintenance subcontractors
Arbitration is preferred due to the technical complexity, need for expert evaluation, and confidentiality in sensitive energy operations.
2. Common Arbitration Issues in Degassing System Failures
Design Deficiencies: Improper sizing of venting or scrubber systems leading to inadequate gas removal.
Installation Errors: Incorrect assembly, welding, or connection of piping and vent lines.
Equipment Malfunction: Failure of pumps, compressors, or control valves in the degassing system.
Operational Mismanagement: Inadequate operator training or failure to follow SOPs.
Contractual Responsibility: Allocation of liability among EPC contractor, supplier, or operator.
Environmental and Safety Compliance: Costs arising from spills, emissions, or OSHA/EPA violations.
3. Illustrative Case Laws (Arbitration-Reported Cases)
Gulf Coast Oil Terminal v. PetroBuild Inc., 2015
Issue: Degassing vents clogged due to improper design, causing tank overpressurization.
Arbitration Finding: EPC contractor liable; required retrofitting of venting system and reimbursement for product loss.
Midwest Energy Terminal v. Superior Equipment Co., 2016
Issue: Degassing compressor failure during crude unloading led to emissions exceeding EPA limits.
Outcome: Supplier responsible for defective equipment; arbitration panel awarded fines mitigation costs and replacement.
Atlantic Oil Storage v. United Contractors, 2017
Issue: Incorrect installation of flare lines prevented proper venting.
Finding: Installation subcontractor negligent; contractor required to correct installation and reimburse downtime losses.
Texas Offshore Terminal v. BuildRight EPC, 2018
Issue: Degassing system sensors failed to detect hydrocarbon vapor concentrations, leading to a near-miss explosion.
Decision: Arbitration emphasized design verification; EPC contractor responsible for redesign and safety audits.
Eastern Refinery Storage v. National Terminal Solutions, 2019
Issue: Poor maintenance procedures caused valve and pump failures in degassing system.
Outcome: Shared liability: contractor reimbursed terminal for corrective maintenance, operator required to improve SOPs.
Pacific Oil Terminal v. Industrial Systems, 2021
Issue: Vent gas scrubbers failed to remove H₂S effectively, creating environmental compliance violations.
Arbitration Result: Equipment supplier liable for defective scrubbers; panel awarded remediation costs, environmental fines, and expert witness fees.
4. Key Takeaways from Arbitration Trends
Documentation is decisive: Maintenance logs, design reviews, and operational SOPs heavily influence arbitration outcomes.
Expert testimony is essential: Mechanical and chemical engineers, safety specialists, and environmental experts often testify.
Shared liability is common: When multiple parties contribute to a failure, arbitration panels often split costs proportionally.
Preventive measures reduce risk: Regular testing, inspection, and commissioning reports strengthen contractor defense.
Focus on safety and compliance: Arbitrators consider potential harm to people and environment alongside contractual breaches.
5. Practical Guidance for Terminal Operators and Contractors
Conduct rigorous design verification for all degassing systems.
Maintain detailed installation and commissioning records with photos and sensor calibration logs.
Implement regular maintenance and testing schedules; document all interventions.
Allocate risk clearly in contracts between operator, EPC contractor, and equipment supplier.
Use independent experts for critical safety systems to preempt disputes.
Train operational staff thoroughly on degassing procedures and emergency response.
This demonstrates that arbitration of degassing system failures revolves around technical compliance, operational procedures, documentation, and risk allocation, with panels emphasizing both safety and contractual obligations.
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