Limit of Liability for Deepwater Ports

SUMMARY: The Department of Transportation proposes to establish a limit

of liability for deepwater ports in general and for the Louisiana

Offshore Oil Port (LOOP) specifically. These limits apply only to

certain negligent oil spills for which a deepwater port would be

entitled to limit its liability under section 1004 of the Oil Pollution

Act of 1990 (OPA 90) (33 U.S.C. 2704). The proposed limits do not alter

a deepwater port's unlimited liability for spills caused by gross

negligence, willful misconduct, or violation of certain Federal

regulations. LOOP is the only U.S. deepwater port in operation at this

time; specific liability limits for other, future deepwater ports will

be established through separate rulemakings as necessary.

DATES: Comments must be received on or before April 10, 1995.

ADDRESSES: Comments may be mailed to Docket 50112, Office of

Documentary Services (C-55), U.S. Department of Transportation, PL-401,

Northeast Corner, 400 Seventh Street, SW., Washington, DC 20590-0001.

To expedite consideration of the Docket, please submit an original and

five copies. Certain studies referenced in this notice may be ordered

from the National Technical Information Service, Springfield, VA 22161;

phone orders (703) 487-4650 (Visa, Mastercard and American Express

accepted).

FOR FURTHER INFORMATION CONTACT:

For general questions, contact Mr. Robert Stein, OST/P-13, at (202)

366-4846. For engineering questions, contact Mr. Thomas Jordan, U.S.

Coast Guard OPA 90 Staff, at (202) 267-6751.

SUPPLEMENTARY INFORMATION:

Request for Comments

This notice of proposed rulemaking (NPRM) presents three proposed

options within a $50 million to $350 million range for LOOP's limit of

liability. The Department of Transportation seeks public comment on the

issue of limits of liability for deepwater ports in general and LOOP in

particular. We have numbered specific discussion paragraphs throughout

this NPRM and would appreciate it if commenters would reference those

numbers in their responses.

The Department plans no public hearing. Persons may request a

public hearing by writing to the address listed under ADDRESSES. The

request should include reasons why a hearing would be beneficial. If

the Department determines that the opportunity for oral presentations

will aid this rulemaking, it will hold a public hearing at a time and

place announced by a later notice in the Federal Register.

Statutory Basis and Purpose

The purpose of this regulatory action is to establish an

appropriate limit of liability for deepwater ports in accordance with

section 1004 of OPA 90.

Section 1004 sets the limit of liability for deepwater ports at

$350 million. However, it also allows the limit to be adjusted to a

lower amount as appropriate (but not less than $50 million), subject to

a study of the relative operational and environmental risks of

transporting oil to the United States by deepwater ports compared to

other ports.

The relative risk study, entitled the ``Deepwater Ports Study,''

has been completed and forwarded to Congress. The study concluded that

deepwater ports represent a lower operational and environmental risk

for delivering crude oil to the United States than the three other

common modes of crude oil delivery (direct vessel deliveries,

lightering, and offshore mooring stations).

At present, the only deepwater port in operation in the United

States is LOOP. However, other deepwater ports may be built in the

future. Because there may be significant engineering and environmental

differences between different deepwater ports, the Department has

determined that it is necessary to review any deepwater port

individually before setting its limit of liability within the statutory

limits of $50 million and $350 million. Limits for other deepwater

ports may be different from LOOP's limit.

Therefore, in accordance with its authority under section

1004(d)(2)(C) of OPA 90 (33 U.S.C. 2704(d)(2)(C)), and for reasons

explained in this preamble, the Department proposes to establish an

appropriate limit of liability for LOOP.

Background and Discussion of Proposed Regulations

1. Deepwater Ports

A deepwater port is a man-made offshore marine terminal located in

waters deep enough to accommodate Very Large and Ultra Large Crude

Carrier tankers (VLCCs and ULCCs) that are too large to enter the local

mainland port. A deepwater port marine terminal generally consists of

several tanker mooring buoys connected by seafloor pipelines to a

nearby pumping platform. The pumping platform is connected by seafloor

pipeline(s) to a mainland terminal. A tanker at a mooring buoy pumps

its cargo oil to the pumping platform, which then pumps the oil ashore.

The marine terminal complex typically contains operating stations,

booster pumps, control valves and manifolds, crew accommodations

(feeding and berthing), helicopter pad, radar and communication

facilities, and on-site pollution response equipment.

Although there are several deepwater ports around the world, at the

present time there is only one in the United States: the Louisiana

Offshore Oil Port, located in the Gulf of Mexico approximately 18 miles

off the Louisiana coast.

2. Louisiana Offshore Oil Port (LOOP)

The LOOP deepwater port has been in operation since May, 1981. The

total LOOP complex consists of the offshore marine terminal (pumping

platform, control platform, and three tanker mooring buoys with

pipelines connecting to the pumping platform), the 21-mile offshore

pipeline (connecting the marine terminal to a booster station on the

beach), the 22-mile onshore pipeline (crossing Mississippi River delta

bayous and marshes), an underground salt dome storage facility, and

overland pipelines connecting LOOP to various other inland pipeline

systems. As defined by the Deepwater Ports Act (Pub. L. 93-627),

however, only LOOP's marine terminal (including operations at the

terminal) and offshore pipeline are considered to be the actual

deepwater port. Therefore, the onshore portions of the complex are not

covered by this rulemaking.

LOOP is strictly a crude oil off-loading facility, receiving cargo

oil from tankers and pumping it ashore to the Clovelly Dome storage

facility. In 1992, crude oil deliveries to LOOP averaged 816,000

barrels per day, accounting for 15 percent of the total amount

delivered by vessel to the United States for that year (excluding

Alaskan crude oil deliveries).

In the 12 years that LOOP has been in operation a total of 894

barrels of oil have been spilled from the deepwater port portion of

LOOP, the largest spill being 399 barrels (from data through December

31, 1992). [[Page 7653]]

3. Deepwater Ports Study

Section 1004(d) of OPA 90 directs the Secretary to conduct a study

of the relative operational and environmental risks posed by the marine

transportation of oil to deepwater ports versus other ports. If that

study finds that the risks are lower at deepwater ports, then the

Secretary is to initiate a rulemaking that establishes an appropriate

level of liability for deepwater ports (but not less than $50 million).

The Deepwater Ports Study has been completed and forwarded to Congress.

A copy of the study is available for reading in the public docket for

this rulemaking, and additional copies may be ordered from the National

Technical Information Service (publication number PB94-124054; see

ADDRESSES section of this notice for more details).

The Deepwater Ports Study examined the four basic modes of

delivering crude oil to ports in the United States: (1) Direct vessel

deliveries, by tankers small enough to enter U.S. ports directly; (2)

lightering, whereby tankers too large to enter port are off-loaded at

offshore locations onto smaller tankers or barges that carry the oil

cargo into port; (3) offshore mooring stations, whereby tankers moor at

a special buoy generally located within two miles of the beach and pump

their cargo ashore through seafloor pipelines; and (4) deepwater ports.

The study concluded that crude oil deliveries via deepwater ports

represent a lower risk to the environment than the other three delivery

modes. This is principally because the delivery tankers remain far

offshore, well away from most environmentally-sensitive waters, and

because the seafloor pipeline is relatively protected from the kinds of

damage that cause large oil spills. Furthermore, the total quantity of

oil in the deepwater port's pipeline system is less than the total

amount that could be spilled from a single typical tank ship.

4. Liability for Oil Spill Pollution

Section 311 of the Federal Water Pollution Control Act, as amended

by section 1002 of OPA 90, establishes that parties responsible for oil

pollution are liable for all cleanup costs, third-party compensation

claims, and natural resource damages as follows:

(a) A responsible party is totally liable (i.e., its liability is

unlimited) for spills resulting from gross negligence, willful

misconduct, or violation of certain Federal regulations;

(b) A responsible party's liability is limited if the spill is the

result of negligence, other than gross negligence, willful misconduct,

or violation of certain Federal regulations;

(c) A responsible party is totally absolved from liability for

spills caused solely by acts of God, war, unforeseeable acts of third

parties (except contractors and so long as the responsible party

exercised due care and took precautions against foreseeable acts of

third parties), or a combination of the three.

5. Limits of Liability

In general, section 1004 of OPA 90 (33 U.S.C. 2704) allows limited

liabilities for parties responsible for oil spills under certain

circumstances (essentially spills due to negligence other than gross

negligence, willful misconduct, or violation of certain Federal

regulations). Section 1004(a) sets specific limits for five categories

of vessels and facilities: tank vessels, other vessels, onshore

facilities, offshore facilities, and deepwater ports. For deepwater

ports, the limit of liability was set at $350 million. However, section

1004(d) recognizes that $350 million might be an inappropriately high

limit for deepwater ports and requires that, following a study of the

relative risks, a rulemaking be initiated for establishing an

appropriate liability limit for deepwater ports (but not less than $50

million).

It should be noted that other provisions in section 1004(d) of OPA

90 may also result in future adjustments of limits of liability for all

facilities, including deepwater ports. These adjustments may be made

from time to time to reflect significant increases in the Consumer

Price Index (CPI) since 1990.

6. Oil Spill Liability Trust Fund

The Oil Spill Liability Trust Fund (hereafter the ``Pollution

Fund'') is a Federally-managed trust fund for several oil pollution-

related purposes. It is funded by a 5-cent-per-barrel levy on domestic

crude oil and all imported oil (crude and product).

One of the Pollution Fund's more important purposes is to pay

cleanup costs, claims, and damages after the responsible party has met

its limit of liability for an accidental spill, or in the event that

the responsible party is totally absolved from liability (for spills

caused by acts of war, God, etc.). This ensures that innocent parties

injured by a spill are compensated for their losses, regardless of the

responsible party's liability. The Pollution Fund, in turn, is limited

in its liability to $1 billion per incident.

7. Factors for Determining an Appropriate Limit of Lliability

The Department of Transportation has determined that it is

appropriate national policy that the limit of liability for a deepwater

port should be sufficiently high enough to cover all costs associated

with the maximum credible negligent spill for which the port would be

liable. A ``credible accident'' would be one that was the result of

negligence other than gross negligence, willful misconduct, or

violation of applicable Federal regulations. A facility experiencing a

credible accident would have limited liability. Costs for a negligent

spill would be borne by the Pollution Fund once the deepwater port has

met its limit of liability.

Setting a limit of liability in accordance with this policy entails

two studies: a risk analysis of the deepwater port to determine its

maximum credible spill, and an economic analysis to determine the costs

(cleanup, third party compensation, and natural resource damages) of

such a spill.

The risk analysis should consider the following factors:

--Physical layout and condition of the deepwater port,

--On-site spill response capability,

--Spill history of the deepwater port,

--The pipeline leak detection system,

--Section-by-section pipeline analysis of credible spill scenarios, and

--Other spills for which the deepwater port might be solely or jointly

liable (such as tanker spills).

The economic analysis should consider:

--Spill trajectories for the maximum credible spill,

--Potential response (cleanup) costs,

--Potential third party damage costs, and

--Potential natural resource damage costs.

8. Risk Analysis of LOOP

LOOP does not have any crude oil storage capacity within its

legally-defined boundaries as a deepwater port. Therefore, the two

largest sources of potential oil spillage for which LOOP might be

solely or jointly responsible are its pipeline system, and a tanker

calling at the port. Each of these were analyzed in a risk analysis.

Based upon engineering information provided by LOOP concerning the

pipeline system and tanker operations at the port, the Coast Guard has

prepared a risk analysis of the LOOP deepwater port in order to

determine the credible spillages that could occur under accidental

circumstances. This analysis, entitled ``Risk Analysis for the

Louisiana Offshore Oil Port (LOOP),'' is available in the public docket

for this rulemaking. [[Page 7654]]

The risk analysis examined each oil transferring component of the

LOOP deepwater port, from the floating hoses that connect the tanker at

an SPM to the main oil pipeline connecting the marine terminal to the

mainland. For each of these components, the analysis considered all

credible accident scenarios that could violate its oiltight integrity.

These scenarios included adverse weather, overruns by surface vessels,

propeller and anchor damage, material defects or failures, maintenance

mishaps, and corrosion leaks. For each scenario the leakage rate,

detection time, and consequential oil spillage were determined.

The risk analysis also looked at tanker spill scenarios where LOOP

might be solely or jointly responsible for accidental spills from a

tanker.

Scenarios based upon damage caused by acts of war, God, or third

parties were not evaluated because a deep-water port is not liable for

such spills.

9. LOOP's Pipeline System

LOOP's pipeline system is designed to transfer crude oil at rates

up to 100,000 bph (barrels per hour). However, the actual transfer rate

at any given time is dependent upon the cargo pumping capacity of the

discharging tanker. Most of the tankers calling at LOOP cannot

discharge at the maximum rate; LOOP estimates that the maximum transfer

rate actually occurs less than 10 percent of the time.

The pipeline system consists of two floating hoses that connect the

tanker to a single-point mooring (SPM) buoy, and a buried 56-inch

diameter seafloor pipeline that connects the SPM to the LOOP pumping

platform. There are three SPMs at the LOOP marine terminal (but only

one at a time actually transfers oil). A 21-mile, 48-inch diameter

seafloor pipeline connects the pumping platform to the Fourchon booster

station (located 3 miles inland from the beach) and then to the

Clovelly Dome storage facility (another 23 miles away). The pipelines

are constructed of \1/2\-inch-thick steel. Offshore, the tops of the

pipelines are buried at least 4 feet below the seafloor; as the

pipeline approaches the beach it is buried even deeper.

The two floating hoses are approximately 1,100 feet long; their

volumetric capacity is 570 barrels each. The SPM pipeline is 8,150 feet

long; its volumetric capacity is approximately 25,400 barrels. The main

oil pipeline is approximately 18 miles long from the marine terminal to

the beach; its volumetric capacity is 213,000 barrels. During a

transfer operation, the total pressurized pipeline fill from tanker to

beach, including the SPM and pumping platform components, is

approximately 240,000 barrels (the two other SPMs are not pressurized

and are isolated by control valves). By way of comparison, the total

cargo capacity of the EXXON VALDEX was 1.6 million barrels.

However, there is no credible accident that can split open any

pipeline along its entire length and completely spill its contents. A

more creditable scenario is a local rupture or fracture of the

pipeline. High leakage rates can only occur while the pipeline is

pressurized during transfer operations, when the internal oil pressure

is considerably higher than the external mud and seawater pressure. The

leakage rate will depend upon (1) The cross-sectional shape and area of

the rupture, and (2) the internal or external pressure differential,

which may be 200 to 450 psi (pounds per square inch) depending upon how

far offshore the leak occurs. The total amount of spillage will depend

upon how much time elapses before the leak is detected (or suspected)

and the pipeline is shut down and depressurized.

10. LOOP's Leak Detection System

LOOP's main oil pipeline (from the offshore marine terminal to the

Clovelly Dome storage facility 45 miles away) is computer-monitored by

a Supervisory Control And Data Acquisition (SCADA) system which

provides flow volume and leak detection service. LOOP's SCADA system

consists of 140 temperature, pressure, density, and other sensors that

provide oil flow data from three field sites along the pipeline: the

marine terminal, the Fourchon booster station, and Clovelly Dome. Each

field site has two redundant SCADA computers. Although one computer is

designated as primary and the other as backup, both computers are on-

line simultaneously and independently process all data. In addition to

performing normal data processing, both computers also monitor system

integrity to detect any component or system malfunctions (including

cross-checking each other several times per minute). Electrical power

to the computers and sensors is from uninterruptable power sources

(UPSs). The field site computers communicate with the computers at the

LOOP Operations Center via microwave transmissions. The SCADA system

can immediately detect any pipeline malfunction or anomaly and trigger

alarms at the Operations Control Center. The Operations console is

manned around the clock with two persons (Oil Movement Controllers,

OMCs) whenever oil transfer operations are occurring. From the

Operations console, the OMCs can shut down the pipeline by remotely

closing various control valves and tripping pumps off-line.

The pipeline sensors are scanned every 3 to 5 seconds by the SCADA

computers, which immediately compare them to allowable high and low

values. A major rupture of the pipeline system will cause out-of-bounds

readings at several different sensors, and trigger alarms at the

Operations Control Center.

To detect smaller leaks that do not cause out-of-bounds readings,

the SCADA computer also continuously compares the actual metered inflow

volume at the marine terminal with the estimated flow volume at various

points in the pipeline (as calculated from the sensor data), looking

for volumetric discrepancies. Short-term discrepancies of 50 cubic

meters (314 barrels) in 13 minutes or 80 cubic meters (503 barrels) in

one hour will trigger an alarm. Even smaller leaks will be detected on

the basis of long-term discrepancies of 200 cubic meters (1,257

barrels) in 48 hours, based upon the metered inflow at the offshore

terminal and the metered outflow at Clovelly Dome. This threshold is

the limit of the line surveillance sensitivity.

LOOP investigates a discrepancy by performing calibration checks of

the sensors and meters. If these do not reveal any malfunctions or

resolve the imbalance, then a special pipeline overflight will be

initiated to visually search for any leakage. If necessary, the

pipeline can also be pressure-tested in conjunction with the

overflight. A pressure test would consist of stopping the oil flow,

statically pressurizing the pipeline to 200 psi, and monitoring the

pressure for a minimum of 1 hour. Any loss in pressure would indicate a

leakage. In its 12-year operating history, LOOP has never had to

pressure test the main pipeline due to a volumetric flow discrepancy.

(The pipeline has been pressure-tested twice for other reasons not

related to volumetric discrepancies, and the floating hose and SPM

sections of the pipeline are routinely pressure-tested as part of post-

maintenance integrity verification before being put back into service).

In addition to the SCADA system, LOOP also conducts weekly

overflights of the entire 45-mile pipeline right-of-way for visual

detection of any leaks and to ensure that no unauthorized third-party

activity (ashore or afloat) is occurring which may damage the pipeline.

Such activity might be a dredging operation in the marshes or an oil

drilling rig being positioned in the vicinity of the LOOP pipeline.

The floating hose and SPM seafloor pipeline section between tanker

and [[Page 7655]] pumping platform (approximately one and a half miles)

is not directly computer-monitored. A major pipeline rupture along this

section will create an abnormal pressure drop at the suction side of

the booster pumps on the pumping platform, detectable by the SCADA

sensors. Such a pressure drop would also be apparent to personnel on

watch in the tanker's cargo control room, who would initiate a shutdown

of the tanker's cargo pumps. A minor leak will create a surface slick,

visually detectable from the tanker, pumping platform, or service

vessels always operating around the Marine terminal. Whenever a tanker

is discharging at an SPM, a LOOP service vessel also conducts sunrise

and sunset inspections each day along the SPM pipeline and around the

tanker.

11. Major Pipeline Spill Scenarios

Major pipeline spill scenarios are based upon total severance of

the pipeline during a full-capacity transfer operation at 100,000 bph

flow rate. There are two points in the pipeline system where maximum

spills could occur: Severance of the main oil pipeline (which connects

the terminal to shore), and severance of a floating hose (that connects

the tanker to the SPM).

(a) Severance of main oil pipeline: The scenario assumed complete

severance and offset of the pipeline by 48 inches, allowing full,

unimpeded discharge from the severed end. This severance was assumed to

occur at the midway point (56,000 feet) between the marine terminal and

the Fourchon booster station, which is the furthest distance (10.6

miles) from any of the SCADA sensors. This represents the longest time

delay (16 seconds) before the transient pressure wave would reach a

sensor. The water depth at that point is 50 to 60 feet, well within the

working range of divers to effect repairs.

The failure analysis determined that, within 24 seconds of the

rupture, the SCADA computer would identify abnormal pressure data at

both the marine terminal and Fourchon booster station sensors and

trigger alarms at the LOOP Operation Control Center. Full system

shutdown (tripping booster pumps off-line, hydraulically closing

control valves, and depressurization of the pipeline) would be

accomplished in 3 minutes from rupture. The estimated spillage during

this shutdown period would be 2,785 barrels.

After shutdown, and because its density is heavier than crude oil,

seawater will begin to flow into the ``offshore'' ruptured pipemouth,

displacing an equal volume of crude oil out of the pipe. Because the

seafloor gradient is nearly flat (110 feet of water depth over 18 miles

of pipeline length), this will be a low-energy displacement process.

For the first few minutes after rupture the displacement rate will be

approximately 1,366 bph, but will slow down rapidly as the seawater

intrudes deeper into the pipeline and must overcome the increasing

resistance (viscosity and other frictional losses) of displacing oil

back out of the pipe. After 14 minutes the displacement rate would be

approximately 877 bph, and after 5 hours it would be approximately 367

bph. Over a 5-hour period it is estimated that the seawater will

intrude approximately 2,150 feet into the pipeline, displacing 2,409

barrels of crude oil.

Depressurization of the ``onshore'' pipeline (from rupture to

Clovelly Dome 33 miles away) would take 51 seconds, during which time

approximately 500 barrels of seawater will be sucked into the ruptured

pipemouth. LOOP would keep the shoreside pumps on line in order to

maintain suction on the pipeline and continue drawing in seawater; 30

minutes of this suction would assure a full water plug in the pipeline,

precluding any oil backflow out of that ruptured pipemouth (a full

water plug would be approximately 3,868 barrels).

In the meantime, LOOP will also activate its response plan for

locating and plugging a pipeline rupture. LOOP maintains a service

vessel and a team of divers continuously on-duty at the marine

terminal. The service vessel can transit the 18-mile offshore distance

in less than 2 hours, following the pipeline and searching for the

surface slick. Once located, divers would be able to temporarily seal

off the open pipemouth within 3 hours. Complete repairs to the pipeline

would be accomplished without further spillage, using pipe stoppling

and repair techniques already developed by industry.

Therefore, the maximum spillage expected from severance of the main

oil pipeline is not more than 5,194 barrels.

(b) Severance of a floating hose: Two 24-inch ID floating hoses

connect the tanker to the pipeline manifold located on the seafloor at

the base of the SPM. Each hose string is designed for a flow rate of

50,000 bph, and is approximately 1,100 feet long, made up of 24 to 26

hoses bolted together. The wall construction of a hose is an inner

liner of \1/4\-inch-thick rubber, surrounded by \3/4\ inches of multi-

ply cord reinforcement (either steel wire or poly cord), two helix

windings of \1/2\-inch steel wire, a \1/4\-inch outer liner, and a \1/

4\-inch reinforced rubber covering.

Total severance of a floating hose would cause a substantial

pressure drop in the pipeline. This pressure drop would be detected by

the SCADA sensors at the suction side of the booster pumps on the

pumping platform, triggering alarms at the LOOP operations center.

Simultaneously, the pressure drop would also be apparent to the cargo

officer in the pump room aboard the tanker. The risk analysis

determined that emergency shutdown and depressurization would take 3

minutes (1 minute for failure recognition, 2 minutes to trip pumps

offline and close control valves on the tanker and SPM manifolds).

Pressurized outflow during that period is estimated to be 1,667

barrels. Assuming complete volumetric loss of the hose contents itself

(570 barrels) and the SPM manifold (96 barrels), the total spillage

would be 2,333 barrels.

12. Other Pipeline Spills

The leak detection thresholds of the SCADA system are 314 barrels

within 13 minutes, 503 barrels within 1 hour, and 1,257 barrels within

48 hours. Thus, the SCADA system is expected to detect any leak of 26

bph or more, for a maximum spillage of 1,257 barrels before discovery.

Leaks of a lesser rate would be below the detection level of the

SCADA system and would therefore have to be detected visually as

surface slicks, discovered from service vessels or overhead flights.

Because of the high level of service vessel activity around the port,

the risk analysis assumes that surface slicks within the LOOP safety

zone will be discovered within 24 hours. Because of the high level of

aviation (helicopter) activity around the waters of the Gulf, the risk

analysis assumes that slicks in open water will be discovered within 72

hours. These discovery time delays are conservatively long, allowing

for periods of night (when visual detection is unlikely) and also

recognizing that small leaks from a seafloor pipeline (in 100 feet of

water) may be thinly dispersed, and therefore more difficult to notice,

by the time the oil reaches the surface. However, once discovered,

leakages would be reduced to trickle amounts by shutting down and

depressurizing the pipeline.

The LOOP risk analysis determined that small pipeline spills could

result from corrosion pits, failure of bolted connections (gasket or

flange leaks), lesser pipeline ruptures, or maintenance mishaps.

Leakage from corrosion pits in the pipeline would depend upon the

size of the corrosion hole and the oil pressure within the pipeline.

Initially, the hole [[Page 7656]] would be no more than a pinhole in

size, but would enlarge over time. The leakage rate from a \1/8\-inch

diameter hole at a pressure of 172 psi would be 6 bph. If the leak

occurred within the safety zone (i.e., discovered within 24 hours),

spillage would be no more than 144 barrels. If the leak occurred in

open water somewhere between terminal and shore (i.e., discovered

within 72 hours), spillage would be no more than 432 barrels.

Total failure of a bolted connection (i.e., complete separation) is

considered unlikely because of the number of bolts involved. More-

likely are partial failures resulting in gasket or flange leaks; at

normal working pressures, leakage rates are estimated to be 8 bph. All

bolted pipeline connections are within the safety zone; therefore,

leaks would be discovered within 24 hours. A leaking connection from a

floating hose might spill 204 barrels before discovery. However, many

of the bolted connections are on the tanker or pumping platform where

leaked oil would be contained by spill coamings or troughs and

discovered during normal watchkeeping rounds.

Another possible spill source would be from a floating hose if run

over by a service craft or fishing vessel that slashes the hose with

its propellers. The risk analysis determined that the steel-reinforced

wall construction of the hoses makes it unlikely that they could be

fully severed by the propellers of service vessels. Rather, a slash

might penetrate through the inner wall of the hose. Such a slash would

leak only when the pipeline was pressurized; total leakage is estimated

to be not more than 165 barrels.

The largest maintenance accident would be spillage of the entire

contents of a floating hose and the SPM base (approximately 667

barrels).

13. Tanker Spill Analysis

OPA 90 relieves a deepwater port of any liability for tanker spills

caused solely by the tanker. Thus, LOOP is not responsible for spills

solely caused by malfunctioning tanker equipment (such as valves or

seachests), or human error by tanker personnel (such as discharge of

oily bilgewater), or from other accidents aboard the tanker (such as

fire or explosion) which are not caused by LOOP.

For most of the time during its call at LOOP, a tanker is under

sole command and control of its master and officers, who are

responsible for safe operation and maintenance of their vessel and its

equipment, and for compliance with all applicable Federal regulations.

However, there are certain tanker spill scenarios for which LOOP might

be liable (solely, or jointly with the tanker). These scenarios arise

during those periods when the tanker is under joint navigational

responsibility of LOOP and its own master, or joint transfer

responsibility during discharge of the tanker's cargo oil. Because of

these joint responsibility situations, LOOP's potential liability for a

tanker spill must be reviewed as part of this rulemaking.

14. Navigation-Related Tanker Spill

Joint navigational responsibility exists when the tanker is

maneuvering within the port's safety zone under direction of LOOP's

Vessel Traffic Controller, or is maneuvering to or from the SPMs with

the LOOP mooring master on board. (Although LOOP reports that the

mooring masters are independent contractors to LOOP, OPA 90 does not

limit or relieve the liability of a responsible party for acts or

omissions by its agents or contractors.)

The most serious navigation-related accident that could occur at a

deepwater port would be a collision between a tanker and another tanker

or platform. A possible cause for such a collision could be mechanical

failure of the tanker's steering system. In 1990, LOOP conducted a risk

analysis that examined steering and propulsion failure scenarios of

tankers maneuvering around the safety zone. As a result of this study,

LOOP contracted a purpose-built tractor tug that is specifically

designed for controlling disabled tankers. This tractor tug, the LOOP

RESPONDER, has been in service at LOOP since 1992.

Lesser navigation-related tanker spills, resulting from bona fide

accidents where LOOP might be found solely or jointly liable, are more

possible. One of these is a mooring overrun where the tanker runs over

the SPM while maneuvering to or from the buoy. The risk analysis

determined that the worst-case outcome for a mooring overrun would be

severance of the two floating hoses, spilling a maximum of 209 barrels.

Because of the slow tanker speeds during mooring and unmooring

operations (less than 5 knots), and the heavy fendering arrangements on

the SPM buoy, rupture of the tanker's hull (by impact with the SPM

buoy) is not expected.

Another possible accident is a collision between a service vessel

and a tanker. Once again, however, the tanker hull is not expected to

be ruptured because of the slow relative speeds and fendering

arrangements on the service vessels.

The risk analysis concluded that it was not possible to predict a

maximum spill size from an accident involving a tanker. This is because

there are too many circumstances and variables that influence the

outflow. However, it is unlikely that such accidents could occur

without being in violation of Federal regulations, particularly those

governing tanker movements within the safety zone. In such a case, the

responsible party (LOOP or the tanker) would not be allowed to limit

its liability, regardless of the limits established by this rulemaking.

15. Transfer-Related Tanker Spill

Joint transfer responsibility occurs when the tanker operates its

cargo pumping system in response to directions from LOOP's Oil Movement

Controller. A tanker spill during transfer operations is expected to be

associated with the bolted connections where LOOP's floating hoses

connect to the tanker's cargo manifold. Because LOOP furnishes the

gaskets and bolts used in making the connection, and oversees the

bolting and unbolting of the hoses, LOOP is potentially liable for any

spillage from the connection.

The risk analysis determined that complete failure (separation) of

the bolted connection was improbable because of the size and number of

bolts used. It is more likely that spills would be caused by leaks

resulting from a poorly-sealed connection. The risk analysis determined

that such spills would be less than 10 barrels (the most serious being

the result of a gasket failure).

16. Historical Spill Costs

At this time there is no economic model for projecting costs of an

oil spill along the Louisiana Gulf coast. There have been some recent

crude oil spills in those waters, but the final costs are not yet

known. Accordingly, estimating the cost of a maximum credible spill

must be done from broader historical data on U.S. spills.

The Coast Guard and Volpe National Transportation Systems Center

(TSC) commissioned the Unisys Corporation and Mercer Management, Inc.

to study and develop oil spill cleanup costs, third-party compensation,

and natural resource damage data.

The results are presented in the draft Interim Report ``OPA 90:

Regulatory Impact Analysis Review--Spill Unit Values,'' dated September

15, 1992. The study researched all tank vessel oil spills of over

100,000 gallons (2,381 barrels) that occurred in U.S. waters between

1980 and 1990. The study's oil spill database contains cost information

for some 59 incidents, representing 76 percent of the total volume

spilled from [[Page 7657]] 1980 to 1990, and 89 percent of all oil

spilled in incidents of at least 100,000 gallons. Although cleanup

costs and third-party damages are well documented, natural resource

damage settlements are relatively few.

The study determined that location of a spill was a significant

factor in cleanup and third party costs. For example, the weighted

average cost for a dirty product spill in internal or headland waters

was $41,652 per metric ton but only $8,364 per metric ton for spills 12

to 200 miles offshore (costs in 1992 dollars for U.S. spills 1980-1990,

weighted by spill size). The study developed a range of unit cost

values for ``clean'' and ``dirty'' product spills. For dirty product

spills, which would include crude oil, the range of unit values was

from $121 to $264 per gallon ($5,082 to $11,088 per barrel).

It is noted that several recent spills are in the process of

litigation or settlement, and may therefore provide more-current cost

data by the time of the final rule for this rulemaking. Accordingly,

the Department may find it appropriate to use the more current cost

data for its limit of liability determination.

17. LOOP's certification of financial responsibility

Under the original Deepwater Port Act of 1974 (DPA), the deepwater

port had a liability limit of $50 million except for spills caused by

gross negligence or willful misconduct, whereupon liability was

unlimited. Section 18 of the DPA required the deepwater port to ``carry

insurance or give evidence of other financial responsibility in an

amount sufficient to meet the liabilities imposed by [the DPA].'' In

1980, LOOP and the Department of Transportation signed a memorandum of

understanding (MOU) which established that LOOP must provide annually

evidence of financial responsibility in the amount of $150 million. The

MOU outlines a two-part requirement: that LOOP must maintain 1) a net

worth, including fixed assets, of $50 million, and 2) a combination of

working capital and insurance totalling $100 million (after deducting

any claims and insurance deductibles). Shortfalls in these minimum

levels must be made up with insurance. Thus, the MOU established a

minimum financial worth of LOOP of $150 million. LOOP submits quarterly

reports to the Department demonstrating that it is meeting the minimum

requirements as set forth in the MOU. Although OPA 90 revised the DPA

(specifically deleting section 18) and established a new liability

limit at $350 million, the terms of the MOU are still being observed,

pending the outcome of this rulemaking.

Adoption of a $150 million liability limit would confirm DOT's past

requirement for LOOP's financial responsibility. DOT's assessment was

that $150 million would suffice for most oil spills. A liability limit

in the $150 million range would not cause additional expense for LOOP.

18. Background on the $350 million statutory limit on liability for

negligence

OPA 90, Section 1004, establishes a liability limit of $350 million

``for any onshore facility and a deepwater port.'' In the context of

the Exxon Valdez oil spill which significantly influenced the shaping

of OPA 90, Congress decided that the $350 million level of liability

fitted into the other liability provisions of OPA 90, in particular the

liability for tank vessels. The Congress believed that the risk of oil

spills of deepwater ports warranted a $350 million limit and it

believed that insurance would be available to support liability up to

this level. For damages above the $350 million limit OPA granted the

deepwater ports the benefit of payment of the damage claims out of the

Oil Spill Liability Trust Fund. Deepwater ports have been subject to

this level of liability for their negligence since 1990.

In OPA 90, Section 1004(d), Congress gave the Executive Branch

authority to adjust the liability limit for onshore and deepwater port

facilities downwards if such an adjustment could be justified. The

assumption of OPA 90 is that the liability limit set by the law remains

as provided by the statute, unless good reason can be established for a

lower limitation. At this time, the limit of liability for onshore

facilities remains at $350 million.

Congress did not require the Executive Branch to study adjustment

of the limit for onshore facilities within any specific time limit. The

authority to study may be used at any time. However, in regard to

deepwater ports, OPA 90 requires a study of oil spill risks in one year

after enactment of OPA 90. The results of that study are described

elsewhere in this NPRM. Thus the question becomes whether the DOT study

has uncovered new information which would cause the Secretary to

establish liability limits lower than those established by Congress. If

new information of sufficient weight and magnitude showing that the

risk of ``transportation of oil by vessel results in a lower

operational or environmental risk than the use of other ports,'' then

the Secretary may initiate rulemaking to find the level of liability

which is more appropriate than the level established by the statute.

19. Proposed Sec. 137.603 Limit of Lability

The Department has determined that it is not appropriate to assign

a single, universal limit of liability for all deepwater ports. Rather,

a limit should be set individually for each deepwater port, on the

basis of its design, location, spillage risk, and estimated costs

(clean up costs, third party compensation, and natural resource

damages). Therefore, through this proposed rule, the Secretary of

Transportation would establish an appropriate limit of liability for

negligence, between the statutory limits of $350 million and $50

million, for individual deepwater ports.

Although the regulatory text section of this NPRM proposes a range

of possible limits of liability for LOOP ($50-$350 million), the

Department is particularly focusing on three possible limits, as

follows:

(1) Maintain the present limit of liability for negligence at $350

million, as established by OPA 90; or

(2) Establish a limit of liability for negligence at $58 million,

based on LOOP's maximum pipeline spill of 5,194 barrels and the TSC

recommended worst-case cost of $11,088 per barrel for dirty product

spills; or

(3) Establish a limit of liability for negligence at $150 million,

reflective of the 1980 memorandum of understanding between the

Department and LOOP. It reflects DOT's risk assessment in 1980, based

upon the TSC range of spill unit costs for dirty products ($5,082 to

$11,088 per barrel), this limit of liability would provide for a spill

of 13,500 barrels to 29,500 barrels.

The Department presents these three limits, but may select a limit

within the $50-$350 million range in the final rule after reviewing

specific public comments on these limits. Additionally, the Department

seeks comments on whether it should reassess and possibly readjust the

liability limit at fixed time intervals.

It is reiterated here that the unlimited liability provisions of

the law are not affected by this rulemaking. LOOP would not be allowed

to limit its liability for spills caused by gross negligence, willful

misconduct, or violation of certain Federal regulations in accordance

with section 1004 of OPA 90 (33 U.S.C. 2704). [[Page 7658]]

Regulatory Analysis and Notice

DOT Regulatory Policies and Procedures

This NPRM is considered to be a significant rulemaking under DOT

Regulatory Policies and Procedures, 44 FR 11040, because of substantial

industry interest.

Executive Order 12866

This NPRM has been analyzed in accordance with the principles and

criteria contained in Executive Order 12866, and it has been determined

that it is not an economically significant rulemaking.

Executive Order 12612

This NPRM has been analyzed in accordance with the principles and

criteria contained in Executive Order 12612, and it has been determined

that it does not have sufficient federalism implications to warrant the

preparation of a Federalism Assessment.

Regulatory Flexibility Act

The Department must consider whether this proposal will have a

significant impact on a substantial number of small entities.

This proposal only affects a single company, Louisiana Offshore Oil

Port (LOOP), Inc., which owns and operates the only deepwater port in

the United States at present. Neither LOOP specifically, nor deepwater

ports in general, qualify as small business concerns. Accordingly, the

Department has determined that this proposal does not affect any small

business entities.

If a company affected by the proposed regulations thinks it

qualifies as a small entity, and that the proposed regulations will

have an adverse economic impact, then it should submit a comment (see

ADDRESSES) explaining why it qualifies as a small entity, and in what

way and to what degree the proposed regulations will affect it.

Paperwork Reduction Act

This NPRM contains no collection of information requirements under

the Paperwork Reduction Act.

Assessment

The original Deepwater Port Act of 1974 (DPA) (33 U.S.C. 1501, et

seq. and 43 U.S.C. 1333) set the limit of liability for a deepwater

port at $50 million, except for unlimited liability for spills caused

by gross negligence or willful misconduct. Under a 1980 Memorandum of

Understanding (MOU) between LOOP and the Department of Transportation,

LOOP has been periodically certifying to the Department that it is

maintaining a combined total of $150 million of insurance, working

capital and net worth. This is the amount that the Department

determined to be necessary to ensure that LOOP could meet all of its

liabilities (limited and unlimited) in accordance with the DPA.

OPA 90 established a new, $350 million limit of liability for the

negligence of deepwater ports, but allows for the Secretary to set

lower limits as appropriate (but not less than $50 million). This NPRM

presents three proposed limits of liability under consideration for the

LOOP deepwater port within the range $50-$350 million: (1) $350 million

(the status quo limit set by OPA 90), (2) $58 million (based upon the

worst-case cost of maximum pipeline spill), and (3) $150 million

(reflective of the total financial worth requirement per the MOU).

Selecting either the $58 million or $150 million options would have

minimal economic effect because LOOP is already required to maintain a

minimum worth of $150 million. Selecting the $350 million may or may

not have an impact on LOOP, depending upon its present net worth,

working capital, and insurance coverage. None of the options,

regardless of which one is selected, is likely to affect the general

private sector, consumers, or Federal, state or local governments.

Accordingly, the anticipated impact of this proposal is considered so

minimal that it does not warrant a full regulatory assessment or

evaluation.

National Environmental Policy Act

The Department has determined that this rulemaking is

administrative in nature and therefore is categorically excludable from

further environmental assessment.

List of Subjects in 33 CFR Part 137

Claims, Harbors, Insurance, Oil pollution.

For the reasons set out in the preamble, the Department proposes to

amend 33 CFR part 137 as follows:

SUBCHAPTER M--MARINE POLLUTION FINANCIAL RESPONSIBILITY AND

COMPENSATION

PART 137--DEEPWATER PORT LIABILITY FUND

1. The authority citation for 33 CFR part 137 is revised to read as

follows:

Authority: 33 U.S.C. 1509(a), 1512(a), 1517(j)(1)), 2704; 49 CFR

1.46.

2. Subpart G is added as follows:

Subpart G--Limits of Liability

Sec.

137.601 Purpose.

137.603 Limits of Liability

Subpart G--Limits of Liability

Sec. 137.601 Purpose.

(a) This subpart sets forth the limits of liability for U.S.

deepwater ports in accordance with section 1004 of the Oil Pollution

Act of 1990 (33 U.S.C. 2704).

(b) In general, the limits of liability for U.S. deepwater ports

will be established by the Secretary of Transportation on a port-by-

port basis, after reviewing a spill risk analysis and associated costs

for which the port could be liable. The limit for negligence of the

deepwater port will not be less than $50 million or more than $350

million.

Sec. 137.603 Limits of Liability.

(a) The limit of liability for negligence of the deepwater port

licensed and operated by Louisiana Offshore Oil Port (LOOP), Inc., is

(range $50,000 to $350,000).

(b) [Reserved]

Dated: February 2, 1995.

Federico Pena,

Secretary of Transportation.

[FR Doc. 95-3039 Filed 2-3-95; 8:45 am]

BILLING CODE 4910-62-M