Reed Smith Client Alerts

The issue of water content in crude oil (and other) cargoes is not a new one. But the consequences of not identifying the water, managing notification procedures, and putting in place the necessary legal instruments is evolutionary and one that owners and cargo owners alike need to properly manage in order to best protect their legal interests.

The purpose of this article is threefold. First, we will review the various sources and mechanisms for water to be found in a ship’s crude oil cargo tanks. We will then discuss ways to detect water and the record keeping that should accompany this. We conclude with a number of legal considerations that follow water being identified in crude cargo tanks, together with a mention of the underlying sales contract and how the ship’s evidence can be important in resolving quality disputes under these contracts.

Auteurs: Peter Glover Dan Perera

1. Sources and mechanisms for water to be found in crude oil cargo tanks

The oil production and stabilization process

The starting point when considering sources and mechanisms is the origin of the oil and the production or extraction process. Oil is produced using different methods, with these methods varying depending on the geology of the region being exploited.

In broad terms, crude oil is extracted by creating pressure gradients within the target reservoir which serves to propel the liquid to the oil well. Oil recovery takes places over two phases: primary recovery and secondary recovery. Primary recovery can take a number of forms, one of which is known as a “water drive,” where the oil reservoir is fueled by a water drive, or an aquifer, that interacts with the oil and provides the drive energy. Another primary recovery mechanism is gravity drainage, which relies on density differences between oil, gas, and water. Axiomatically, these represent various mechanisms for introducing water into crude oil.

Following primary recovery, many oil wells will be subject to secondary recovery. Secondary recovery commonly involves waterflooding and gas injection of the oil reservoir.

While water can be introduced into the crude oil column in these ways, it is normal for crude oil to have a degree of retention or stabilization time in terminal tanks (shore side or FPSO) where gas is liberated and free water has time to coalesce into droplet sizes sufficient to descend through the oil column and be removed prior to export to a tanker. It follows that if the retention time is insufficient, or the viscosity of the oil is incorrectly calculated, water may be trapped in the oil column and be loaded onto the export ship.

Human error and structural failure

While the oil production and stabilization process is one mechanism for introducing water into a ship’s tanks, another means is human error. Human error can manifest itself in a number of ways. These include:

i. Terminal valve alignment error – permitting water to be drawn or educted into a loading line.

ii. Terminal line contamination – where a loading line already contains water which is displaced into one or more ship tanks prior to first oil being received by the ship.

iii. Steam heating coil failure or damage and leaking – where condensed water from a ship’s cargo heating system drains into a cargo tank, or steam escapes and condenses in the cargo tank.

iv. Ballast tank or ballast line leakage.

v. Crude oil washing system valve leakage or misalignment – permitting water to enter a cargo oil tank.

vi. Hull failure – seawater ingress.