UK: Piracy Attacks On LNG Ships

Last Updated: 27 July 2009
Article by Clare Calnan

One could be easily forgiven for thinking that, despite the increasingly audacious attacks by Somali pirates on merchant shipping in recent months, LNG carriers are still relatively safe. The prospect of taking over a ship which is carrying liquefied natural gas at a temperature of minus 163°C ought to be enough to deter most pirates, particularly where more easy pickings are available. Piracy, however, is a booming commercial enterprise in Somalia. The frequency of attacks in recent months and the indiscriminate nature of those attacks suggest that LNG operators now need to consider and address the previously unthinkable questions of how to avoid or minimise the risk of capture of LNG carriers transiting the Gulf of Aden and what to do if a vessel is attacked and captured by pirates says Clare Calnan.

Increasing Frequency of Attacks

The Gulf of Aden is situated in the Arabian Sea between Yemen on the south coast of the Arabian peninsular and Somalia on the Horn of Africa and it connects with the Red Sea through the Bab-el-Mandeb Strait. As such, it is an important route for commercial shipping. It is reported that about 11% of the world's oil carried by sea passes through the Gulf of Aden on its way to the Suez Canal or to regional refineries. What has provoked Somali pirates to attack shipping in the Gulf of Aden is far from clear. However pirate attacks have almost doubled in the first quarter of this year compared with the same quarter in 2008. There were 102 attacks in the first three months of 2009 as compared with 53 attacks in the first three months of 2008.

The manner in which the attacks have been carried out has also changed. Pirate motherships have begun co-ordinating attacks on merchant vessels off Somalia. According to the European Union Naval Force's commander, of the 102 pirate attacks since December 2008, 31 were successful. Averaged out that is a capture rate of almost two ships a week. The pirates are reported to be ever more inventive and ruthless. Their attacks have become increasingly well planned and often take place up to 600 nautical miles from their pirate bases off the Somali Coast.

It is also clear that piracy has proved to be a successful commercial enterprise for the pirates who live in a country that has no formal government and where law and order has long ceased to have any meaning. In November 2008 the Kenyan Foreign Minister reported that the Somali pirates have been paid more than US$150 million in ransom in the previous 12 months. Given that Somalia is one of the poorest countries in the world, it is perhaps not surprising that the attacks continue and that the pirates seek ever more lucrative targets in order to increase their ransom demands

A turning point of sorts was thought to have been reached when, at Christmas last year, a Saudi oil tanker was captured carrying a US$100 million oil cargo. It was, at the time, the largest and the most valuable ship and cargo to have been hijacked. Since then a cruise ship has been attacked along with numerous other vessels. It is therefore perhaps only a matter of time before we hear that the first LNG vessel has been attacked or captured. Whilst this will no doubt cause immediate alarm in the world's press, in reality the carriage of LNG by sea is a remarkably safe operation. Thus, despite the almost inevitable alarmist media headlines, it is unlikely that there are any greater risks associated with a LNG vessel being captured by pirates as compared with any other vessel carrying a liquid cargo. In fact the risks may be considerably less than with other liquid cargoes.

Charter Protection

Given that the LNG spot market is still relatively small, the vast majority of the LNG carrier fleet is currently employed under long or medium term charters, many of which were negotiated long before pirate attacks off the cost of Somalia were thought to be a serious problem. Thus the prospect of the LNG carrier being hijacked was very far from the contemplation of those negotiating these charters. The ShellLNG Time form does at least make reference to acts of piracy as part of its definition of war, but there is very little of practical assistance to a LNG operator in this charter outside the terms of what is usually contained within a standard war risk clauses.

More recently both Intertanko and Bimco have published new standard clauses for time charters, the purpose of which is to expressly address the issue of obligations, costs and responsibilities in respect of trading to or proceeding through areas where there is a risk of piracy. These clauses deal first with the decision that the owner must take in respect of whether to proceed with the voyage through a risk area. Under the clauses the owner has the right to consider whether it is appropriate to proceed through the Gulf of Aden and to select an alternative route to the discharge port if the risks are considered too great. Alternatively, if the owner agrees to proceed but determines that the vessel, her crew and cargo may be exposed to the risk of acts of piracy, preventative measures can then be taken to protect the vessel, her cargo and crew including proceeding in convoy, using escorts, avoiding day or night navigation, adjusting speed or course, or engaging security personnel or equipment on or about the vessel. Both model clauses provide that the vessel is to remain on hire for all time lost and the charterers are to indemnify owners against all liabilities, costs and expenses arising out of actual or threatened acts of piracy or any preventative measures taken, including but not limited to, additional insurance premiums, crew bonus costs and the costs of security personnel or equipment.

It is far too early to predict how successful owners will be in persuading LNG charterers either to agree to these clauses in new charters being negotiated or to amend existing charters to incorporate them. Since most of the time and costs associated with risk prevention, attack and capture falls on charterers under the model clauses, charterers' willingness to agree them may in part depend on how successful they are in obtaining insurance cover for any likely exposure falling on them under the clause.

Orders to Proceed

As one might expect, under a LNG time charter the Master is obliged to comply with the lawful orders given by charterers. He is only entitled not to do so where to comply with such an order would in his view endanger the safety of the vessel or her cargo. The test is not a subjective one and in each case it is necessary to consider how a reasonably prudent Master would have acted in the circumstances. Thus it is not open to owners simply to refuse an order to transit the Gulf of Aden unless they can show that a reasonably prudent Master exercising reasonable precautions would have made the same decision in similar circumstances. The requirement for the Master to act reasonably is reinforced in the wording of most war risk clauses in time charters. Thus under the Conwartime 2004 clause, although the vessel cannot be ordered by charterers to proceed to or through an area where the vessel and her cargo may be exposed to War Risks the decision as to whether that exposure exists rests on the reasonable judgement of the Master and owner.

Where cargo has been loaded it is essential that, before any decision is taken to re-route the vessel, owners consider not only their obligations under the time charter but also under any bills of lading issued for the LNG cargo if at the relevant time the cargo is owned by a party who is not the charterer. An unlawful decision to take an alternative route to the discharge port may expose owners to claims from cargo interests for a failure to prosecute the voyage with utmost dispatch and for claims for deviation and late delivery.

On the assumption that the owners deem it sufficiently safe to comply with charterers' orders to proceed through the Gulf of Aden, owners then need to consider what reasonable measures they need to take in order to protect the vessel, her crew and cargo. Owners must ensure that the vessel follows the recommendation of the relevant authorities. They must also show that effective risk assessments have been carried out and that the crew is trained and vigilant. It is unlikely that these will be matters that owners will consider and address without any input from the charterers. Under most LNG charters owners are required to maintain up to date and tested emergency response procedures and it is probable that charterers, particularly if they are a major oil or gas company, will have the right to either see or approve these procedures.

The best source of practical information for owners and a good starting point is undoubtedly the P&I Clubs, most of whom have regular bulletins about pirate attacks on their websites based on information obtained from IMB. The Clubs also regularly publish excellent up-to-date information regarding preventative measures that owners can take to protect the vessel and her cargo, to train the crew in addition to providing advice as to what to do in the event of an attack.

In terms of more general protection for shipping, in August 2008 the Combined Task Force 150 (a multinational coalition task force) was formed and took on the role of fighting Somali piracy by establishing a Maritime Security Patrol Area within the Gulf of Aden. On 7 October 2008 the United Nations Security Council adopted Resolution 1838 calling on nations with vessels in the area to apply military force to resist the acts of piracy. There is a joint European naval force operating in the area as well as group transit schemes that allows vessels to proceed in convoy escorted by armed vessels.

There has also been considerable discussion as to the use of armed guards on board vessels. It has been reported that the USA now requires all US flagged ships to be armed. Other flag states are more neutral about the use of armed guards on board vessels with some fearing that their presence might escalate the risks to the vessel and her crew if attacked. As some commentators have noted, having armed guards on board a merchant vessel raises interesting questions of law as to who is in control of the vessel during an attack when force is used and who on board the vessel can authorise the use of that force.

There is little doubt that protecting a ship against piracy is expensive. Security guards and sonic deterrent equipment do not come cheaply and there is no obvious means whereby owners can recover these costs from charterers. In addition there are additional war risk premiums to pay as well as crew bonus payments. These may be recoverable from charterers under the terms of the war risk clauses but there is no guarantee.

Capture

In the event of the capture of the LNG vessel by pirates, owners will look first to their hull underwriters and P&I club to provide immediate support. There is, it appears, a tried and tested procedure for releasing vessels from capture. The process of release is likely to take about 60 days and the owner will require a team of skilled negotiators who have proven connections to the pirates. These negotiators will look to make contact and negotiate both the amount and the payment terms of any ransom. It is a slow business and the cost of the negotiating process can in itself be substantial.

As far as charterers are concerned, owners will look to them to continue to pay hire throughout the period of the detainment. Whether hire is payable will depend on the terms of the charter and it should not be assumed that, simply because the vessel is not available for charterers' service, hire is not payable. A vessel can only be placed off hire if there is an express right to do so under the charter. In the ShellLNG Time form there is no off hire event which covers the capture of the vessel by pirates. The War Risk in the same charter clause reinforces charterers' obligations to pay hire where there has been a loss of time or an interruption of the service caused by a war risk event. Where however the vessel is detained for a lengthy period of time, this may increase the prospects of charterers seeking to terminate the charter on the grounds that it has been frustrated. This is less likely with the long term LNG charters for periods in excess of ten years, but it might well prove a problem with some charters for shorter periods.

Once the ransom is paid and the vessel released, the owner may wish to try and recover a proportion of the costs of negotiating and paying the ransom, as well as the ransom itself, as general average. The definition of a general average act is where an extraordinary sacrifice or expenditure is intentionally or reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure. It would seem difficult for anyone to argue that the payment of a ransom to secure the release of a vessel and her cargo is not extraordinary expenditure incurred for the purpose of preserving the vessel and her cargo from peril.

Where owners seek to claim general average from cargo interests, they should declare general average as soon as possible after the capture and appoint adjusters who can take steps to seek general average security from cargo interests in the usual way. Owners should be aware however that cargo interests may be relieved from their obligation to contribute in general average if they can show that there has been a breach of the contract of carriage, be that the charter or a bill of lading. It is certainly possible that, if owners were to fail to put in place reasonable preventative measures against the risk of capture or the master or crew are negligent and this exposed the vessel to the risk of capture, cargo interests might seek to argue that they have a defence to any claim by owners in general average.

Conclusion

Whilst the risk of a pirate attack on an LNG vessel transiting through the Gulf of Aden may have increased in the last few months, it seems unlikely that the consequences of a capture, both in physical or legal terms, are any greater for an LNG vessel compared with any other vessel carrying a liquid cargo. What is clear, though, is that piracy on the high seas is now a vibrant commercial business. As such, there are considerable benefits for LNG operators to start thinking about the unthinkable, if only because experience to date shows that undoubtedly the best defence to a risk of capture by pirates is to be prepared for it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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