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One of the benefits of Risk Management and Insurance is Increased efficiency. By identifying potential risks and developing plans to manage them, risk management can help companies operate more efficiently and avoid interruptions to their operations.
As a senior insurance broker, I will discuss the Risks and Insurance needs for the construction of oil and gas facilities, mainly storage, processing, and distribution plants.
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Understanding EPC Construction
For your information, Engineering, Procurement, and Construction (EPC) is the term used in the oil and gas industry to describe a specific project delivery method. EPC contracts are commonly used to construct oil and gas facilities such as pipelines, refineries, and offshore platforms.
For a better understanding, here’s a breakdown of each of the three components of an EPC contract:
- Engineering
The engineering component of an EPC contract involves the design and planning of the project. This includes developing detailed engineering drawings, identifying equipment and materials needed for the project, and creating a timeline and budget.
- Procurement
The procurement component of an EPC contract involves sourcing and acquiring the necessary equipment and materials for the project. This includes identifying suppliers, negotiating contracts, and managing the logistics of transporting equipment and materials to the job site.
- Construction
The construction component of an EPC contract involves the project’s actual construction. This includes site preparation, installation of equipment and materials, and project management to ensure that the project is completed on time and within budget.
By bundling these three components into a single EPC contract, the project owner can streamline the construction process and reduce the risks associated with managing multiple contractors.
EPC contracts are typically awarded to a single contractor, who assumes responsibility for the entire project from start to finish. This approach can result in greater efficiency, better communication, and reduced costs for the project owner.
What type of facility construction is usually made under EPC?
Engineering, Procurement, and Construction (EPC) contracts are commonly used in the oil and gas industry to construct various facilities. Some of the facilities that are typically built under EPC contracts include:
- Refineries
EPC contracts are commonly used in the construction of oil refineries, which process crude oil into various refined products such as gasoline, diesel, and jet fuel.
- Pipelines
EPC contracts are also used to construct pipelines that transport oil and gas from production sites to refineries and other facilities.
- LNG plants
EPC contracts are used to construct liquefied natural gas (LNG) plants, which convert natural gas into a liquid form for transport and storage.
- Offshore platforms
EPC contracts are also used in constructing offshore platforms, which are structures built in the ocean to support oil and gas production operations.
- Petrochemical plants
EPC contracts are used in constructing petrochemical plants, which are facilities that convert raw materials such as oil and gas into chemicals and other products used in various industries.
Overall, EPC contracts are a common approach used in constructing various oil and gas facilities. They provide a streamlined project delivery method that can help ensure that projects are completed on time and within budget.
What are the values for each type of facility construction of oil and gas that are usually made under EPC?
The value of each type of oil and gas facility construction project that is typically made under an Engineering, Procurement, and Construction (EPC) contract can vary widely depending on a range of factors such as the size and complexity of the project, the location, and the specific requirements of the owner.
However, here are some estimated values for each type of facility:
- Refineries
The cost of constructing a new oil refinery can range from hundreds of millions to billions of dollars. According to one report, the average cost of a new refinery in the United States is around $6.5 billion.
- Pipelines
The cost of constructing a pipeline can also vary widely depending on the length and diameter of the pipeline, the type of terrain it crosses, and other factors. For example, a recent project to construct a 1,172-mile pipeline to transport crude oil from North Dakota to Illinois had an estimated cost of $3.8 billion.
- LNG plants
The cost of constructing a liquefied natural gas (LNG) plant can also vary widely depending on the size and complexity of the facility. According to one report, the cost of a new LNG plant can range from $1,000 to $2,000 per ton of capacity, with typical plant sizes ranging from 1 million to 10 million tons per year.
- Offshore platforms
The cost of constructing an offshore platform can range from tens of millions to billions of dollars depending on the size and complexity of the structure, the location, and the type of equipment and materials used. For example, a recent project to construct a new oil and gas platform in the North Sea had an estimated cost of over $5 billion.
- Petrochemical plants
The cost of constructing a petrochemical plant can also vary widely depending on the size and complexity of the facility, the type of equipment and materials used, and other factors. According to one report, the cost of a new petrochemical plant can range from $1 billion to $10 billion or more, depending on the size and scope of the project.
Overall, the cost of each oil and gas facility construction project typically made under an EPC contract can vary widely depending on a range of factors, and the values provided here are only estimates.
What are the risks of the construction of oil and gas that are usually made under EPC?
The potential risks and accidents associated with the construction of oil and gas facilities can vary widely depending on the type of facility being constructed, the location, and a range of other factors.
Here are some potential risks and accidents associated with every kind of facility construction that is usually made under an Engineering, Procurement, and Construction (EPC) contract:
- Refineries
Some potential risks associated with the construction of oil refineries include fire and explosion hazards, chemical spills, and worker safety risks.
The large amounts of flammable and combustible materials used in refining processes can create significant safety risks if not properly handled and managed. Additionally, using heavy equipment and machinery during construction can create risks for workers if not properly maintained and operated.
- Pipelines
The construction of pipelines can also pose various risks and hazards, including excavation and trenching hazards, worker safety risks, and environmental risks if not properly designed, installed, and maintained.
Other potential risks include equipment failures, leaks, and spills resulting in property damage, injuries, and environmental contamination.
- LNG plants
Some potential risks associated with the construction of liquefied natural gas (LNG) plants include fire and explosion hazards, cryogenic hazards, and worker safety risks. LNG is stored and transported at extremely low temperatures, creating risks if not properly managed.
The potential risks and accidents associated with the construction of oil and gas facilities can be significant and require careful management and planning to ensure the safety of workers, the environment, and surrounding communities.
Additionally, high-pressure equipment and machinery can create additional safety risks if not properly designed, installed, and maintained.
- Offshore platforms
The construction of offshore platforms can pose various risks and hazards, including equipment failures, worker safety risks associated with working at height or in hazardous marine environments, and environmental risks associated with oil spills and other forms of pollution.
- Petrochemical plants
Some potential risks associated with constructing petrochemical plants include fire and explosion hazards, chemical exposure risks, and worker safety risks associated with using heavy equipment and machinery. Additionally, the storage and handling of hazardous chemicals can create significant environmental risks if not properly managed.
The types of insurance are needed for EPC facility construction.
The types of insurance needed for each type of facility construction of oil and gas, usually made under Engineering, Procurement, and Construction (EPC) contracts, can vary depending on the specific project and its unique risks and requirements.
However, here are some common types of insurance that may be needed for each type of facility:
- Refineries
Builders Risk Insurance, General Liability Insurance, Workers’ Compensation Insurance, Professional Liability Insurance, Environmental Liability Insurance, and Pollution Liability Insurance.
- Pipelines
Builders Risk Insurance, General Liability Insurance, Workers’ Compensation Insurance, Environmental Liability Insurance, and Pollution Liability Insurance.
- LNG plants
Builders Risk Insurance, General Liability Insurance, Workers’ Compensation Insurance, Professional Liability Insurance, Environmental Liability Insurance, and Pollution Liability Insurance.
- Offshore platforms
Builders Risk Insurance, General Liability Insurance, Workers’ Compensation Insurance, Marine Liability Insurance, Environmental Liability Insurance, and Pollution Liability Insurance.
- Petrochemical plants
Builders Risk Insurance, General Liability Insurance, Workers’ Compensation Insurance, Professional Liability Insurance, Environmental Liability Insurance, and Pollution Liability Insurance.
In addition to these types of insurance, project owners and contractors may also need to consider other types of insurance, such as Cyber Liability Insurance, Directors, Officers Liability Insurance, and Business Interruption Insurance, depending on the unique risks associated with each project.
Project owners and contractors need to work closely with an experienced insurance broker to identify their specific risks and insurance needs and ensure that they have appropriate coverage to manage those risks.
The accidents and losses for each type of Oil and Gas facility construction
The types of accidents and losses that can occur during the construction of oil and gas facilities under Engineering, Procurement, and Construction (EPC) contracts can vary depending on the specific project and its unique risks and requirements.
Here are some common types of accidents and losses that may occur during the construction of each type of facility:
- Refineries
Fire and explosions, chemical spills, worker injuries, equipment failures, and project completion delays.
- Pipelines
Excavation accidents, trench collapses, pipeline failures, spills and leaks, worker injuries, and project completion delays.
- LNG plants
Fire and explosions, cryogenic accidents, worker injuries, equipment failures, and project completion delays.
- Offshore platforms
Worker injuries fall from heights, accidents during transportation of materials and equipment to the platform, equipment failures, environmental damage due to oil spills, and delays in project completion.
- Petrochemical plants
Fire and explosions, chemical spills, worker injuries, equipment failures, and project completion delays.
In addition to these accidents and losses, project owners and contractors may also face risks associated with weather events, natural disasters, supply chain disruptions, and other unforeseen events that can impact the construction timeline and budget.
Project owners and contractors must work closely with their insurance broker to identify and manage their specific risks and insurance needs throughout the construction process.
Why do owners and contracts need an insurance broker for insurance coverage for oil and gas facility construction under EPC?
Owners and contractors need an insurance broker for insurance coverage for oil and gas facility construction under Engineering, Procurement, and Construction (EPC) contracts for several reasons:
- Expertise and knowledge
An insurance broker specializing in the oil and gas industry can provide valuable expertise and knowledge about the unique risks and insurance requirements associated with each type of facility construction.
They can also provide guidance on risk management strategies and best practices for minimizing potential losses.
- Access to insurance markets
An insurance broker can help project owners and contractors access insurance markets that may need help to reach on their own, including markets for specialized coverage such as environmental liability or pollution liability insurance.
- Customized coverage
An insurance broker can work with project owners and contractors to customize insurance coverage to meet their specific needs and risks associated with the project, taking into account factors such as the size and scope of the project, the location, the type of facility being constructed, and the potential hazards and risks.
- Competitive Pricing
An insurance broker can help project owners and contractors obtain competitive pricing for insurance coverage by leveraging their relationships with insurance carriers and negotiating on their behalf.
- Claims management.
In the event of a loss or accident during construction, an insurance broker can provide valuable assistance with claims management, helping project owners and contractors navigate the claims process and ensure that they receive a fair and timely settlement.
Working with an insurance broker can help project owners and contractors ensure they have the appropriate insurance coverage to manage risks and protect their assets throughout the construction process.
One of the leading insurance broker in Indonesia focusing on oil and gas risks is L&G Insurance Broker.
Please call L&G now for all your insurance needs!
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