Alarming risks in the petrochemical industry

As China's economy grows, so too does the number of industrial accidents. One area of concern is the storage and production of highly flammable and explosive chemicals such as petrochemicals. Swiss Re is working to better understand the risks involved, to better manage their impact on the people living and working in these areas, and to reduce losses for businesses and their insurance partners. 

China’s economy has grown rapidly in recent years, with strong expansion in the chemical and petrochemical industries transforming the country into one of the world's largest producers of chemical products. However, these industries’ growth has been accompanied by severe safety issues, with industrial accidents now a constant occurrence. Since the beginning of the year, there have been numerous large-scale industrial fires and explosions, causing widespread public concern and significantly impacting prospects for further development of the chemical industry.

High risk exposure of petrochemical enterprises

The scale and intensity of explosions at Fujian Zhangzhou Dragon Aromatics Company on 6 April, Shandong Rizhao Shida Technology Company on 16 July, and Tianjin Ruihai Hazardous Chemicals Warehouse on 12 August have shocked the nation and garnered widespread media coverage. However, there have been many lesser-known accidents that caused severe property damages and casualties. The following table lists major fire and explosion accidents involving chemical companies so far this year (excluding the three large incidents mentioned above).

26July 2015

Leaks and fires at a 3MT/year atmospheric distillation unit of PetroChina Qingyang Petrochemical Co., Ltd.

3 dead and 4 injured

28 June 2015

Explosions and fires at Jiuding Chemical Co. Ltd. of the Ito Group in Erdos, Inner Mongolia

3 dead and 6 with minor injuries

12 June 2015

Explosions at a polyethylene glycol ether unit of Dana Chemical Co., Ltd. in Nanjing Chemical Industry Park

4 with minor burns

18 March 2015

At Shandong Haiming Chemical Co. Ltd., an explosion in a hydrogenated tower of a hydrogen peroxide plant during entry operations of confined space

4 employees dead and 2 injured

19 February 2015

Explosions and fires at a granulation tower of a nitrogen compound fertiliser plant  in Yichang Fusheng Chemical Co. Ltd., Hubei

5 dead and 2 injured

8 February 2015

Explosions at Xinrui Industrial Co. in Guan County, Liaocheng, Shandong

3 dead and 5 injured

The following table indicates the different types of fire and explosions that could occur at chemical and petrochemical companies; the different colours represent the risk level. As shown below, the most serious accidents occurred at petrochemical companies with complex operations, liquefied hydrocarbon tank areas, ammonium nitrate factories and warehouses. 

Based on the categories listed in the table, the accident at Zhangzhou Dragon Aromatics is classified as a Class 8 incident, while the Shandong Rizhao incident is Class 3. Although the results of the official investigation into the Tianjin Ruihai warehouse explosion have not been released, the size of the explosion and inventory information obtained by the media point to the possibility that the explosion was caused by ammonium nitrate or other similar highly explosive compounds. If this is proven to be the case, the accident will then be classified as a Class 7 incident.

Risk assessment solutions urgently needed

These accidents have set alarm bells ringing for insurance companies and have made properly assessing the risks of production, storage and transportation of petrochemical products and reducing insured losses an important focus for these companies. Swiss Re, for instance, has a team of risk engineers specialising in the petrochemical industry and has established a complete systematic risk assessment system for petrochemical companies. This system also applies to non-petrochemical companies with potential large-scale fire and explosion risks (particularly those involved in the production of ammonia and nitrogen fertiliser).

The Swiss Re systematic risk assessment system uses a two-dimensional evaluation matrix and the assessment result is plotted in a two-dimensional graph: the vertical axis denotes the protection level of the evaluation object, while the horizontal axis denotes the relative inherent risk. The assessment result is then compared with Swiss Re’s historical database to determine the risk level and insured rates of the evaluation object.

The assessments of relative inherent risk and protection level are based on a more detailed evaluation matrix, as shown below.

For the risk assessment of a company, the maximum possible loss (MPL) is also an important aspect. The following figure shows the comparison of MPL between different types of chemical companies, including property damages and losses from business interruption.

Swiss Re also developed proprietary software (ExTool®) to calculate the MPL on a risk object. The most important feature of the software is that it combines the values of production units in the petrochemical and chemical industries, and directly calculates the MPL through an explosion simulation model.

We hope that, with our expertise and technology in risk assessment for the global petrochemical industry, we could help Chinese companies reduce risk, promote the development of the insurance industry, and protect lives and properties

Published 26 August 2015