An explosive problem

An explosive problem

The Beirut port blast in August highlighted the risks associated with ammonium nitrate, which is most commonly considered a fertiliser

By Bernice Han

The world was shaken by scenes of the massive destruction in Beirut following an explosion of 2750 tonnes of ammonium nitrate that was apparently abandoned in a warehouse.

The blast in the Lebanese capital’s port flattened a large section of the city, killing at least 200 people and injuring thousands. For Keith Craig, a chemical engineer who lives in the New South Wales city of Newcastle, it was a grim reminder of the devastation this widely used chemical can wreak.

Because while its primary purpose is as a fertiliser, ammonium nitrate is also commonly used for blasting in the mining industry. Just add some diesel and a detonator and it becomes an explosive.

For Mr Craig and the Newcastle community at large, the Beirut disaster has reignited long-running fears of a potentially similar fate in the event of an accident at a nearby ammonium nitrate plant that holds up to four times the amount that hit Beirut.

Located on Kooragang Island, the Newcastle facility is less than a kilometre away from the nearest homes and about three kilometres from the city’s central business district.

Orica, one of the world’s largest providers of commercial explosives, owns the plant. The site houses between 6000 and 12,000 tonnes of ammonium nitrate at any one time, depending on demand from the Hunter Valley coal mining industry.

Orica says all ammonium nitrate storage areas at the facility are fire-resistant and built exclusively from non-flammable materials as part of the company’s rigorous safety approach and risk management plan. An additional layer of security comes in the form of designated exclusion zones around these areas.

The plant must also comply with safety standards set by the NSW Government, and is regularly inspected by authorities. Orica also undertakes regular site-wide emergency response exercises, including an annual one with local emergency services.

But the assurances are not good enough for Mr Craig, who as a member of Stockton Community Group has been campaigning for at least 10 years for the plant to be relocated away from populated areas. The group has intensified its efforts since the Beirut incident, launching a public petition to pressure lawmakers into action.

“You can argue [that] in Beirut it wasn’t stored well and here they store it a lot better, but what we are saying is while it’s stored a lot better there is still a chance of an explosion,” Mr Craig told Insurance News.

“There’s a thing called a black swan event, it might be a very rare event but if it happens, boy it’s going to be catastrophic. Beirut is a classic example of that.

“The outcome would be catastrophic. It’s a real concern for the Newcastle community.”

Newcastle residents aren’t the only ones who are concerned. Just as worried about the widespread manufacture of ammonium nitrate is the global insurance industry.

Five years after the Tianjin port explosion in 2015, insurers are looking again at another hefty bill sparked by the same chemical.

Insured property losses from Tianjin reached about $US2.5-3.5 billion, according to Swiss Re. Various estimates have suggested the Beirut incident could well end up as one of the biggest man-made loss events since the Tianjin disaster, when ammonium nitrate stored illegally inside one of the warehouses at its port caught fire and detonated.

Fitch Ratings says Beirut losses could reach $US3 billion, with a large part of the bill to fall on European reinsurers. Munich Re has said the Beirut incident triggered the biggest man-made losses for the business during the September quarter. Swiss Re’s property and casualty arm lost $US201 million in the nine months to September, as earnings took a hit from the event.

An early analysis from Guy Carpenter predicts multiple lines will incur losses from the Beirut disaster. The reinsurance broker says similar industrial exposures could impact some of the international insurance market. Its initial estimates put the combined hull, cargo and port facility losses at about $US250 million.

Beyond the immediate hit to earnings and upward pressure on renewal rates, which typically follows after a significant loss event, the port disaster is a reminder of the risks associated with insuring facilities that are used for storing ammonium nitrate and other equally hazardous chemicals.

Ammonium nitrate by itself is not combustible. But concerns over the chemical have increased sharply because of a number of serious accidental explosions around the world including in Australia. (See panel on page 34).

In its natural state, the chemical is a white crystalline solid that looks like salt. It is a stable compound, but when it comes into contact with heat, it can set off an explosion. The material is one of the world’s most widely used fertilisers and also the main component in explosives used within the mining industry.

Poor storage and handling processes are what makes the material potentially dangerous. Before the Beirut and Tianjin industrial accidents, most of the major ammonium nitrate explosions going back to 1921 have been linked in one way or another to human negligence related to storage and lapses in control procedures.

“The recurrence of such explosions indicates that lessons from the past are either not being learnt, or are being forgotten, and a greater industry focus is required to prevent similar tragedies in future,” Marsh JLT Specialty says in a paper issued after the Beirut blast.

The paper outlines key areas in need of good practices to prevent future similar incidents. For a start, the storage area for ammonium nitrate is of paramount importance. Its construction should be designed to minimise the risk of contamination, exposure shock, confinement and heat sources.

The paper also calls for strong regulation, good housekeeping, enhanced security around storage sites, fire safety measures and ensuring employees are trained in the hazards of ammonium nitrate.

Australian risk modeller Risk Frontiers says the Beirut incident underscores how frequent and deadly these events are. Since 1900, ammonium nitrate accidents have occurred at a uniform rate of 0.75 per year, with an increase of about one per year since 2000.

In Australia there have been a number of such accidental explosions, although these are confined to the transport of the chemical.

In September 2014 a truck carrying 56 tonnes of ammonium nitrate rolled over a bridge in southwest Queensland and exploded, injuring eight people including the driver and six firefighters. Two months later a trailer carrying the material caught fire on the Stuart Highway in the Northern Territory and exploded shortly after.

While storage of ammonium nitrate is heavily regulated in Australia, the Beirut explosion illustrates the obvious dangers of the material, Risk Frontiers says.

“A key learning from this event is the complexity of risk,” Andrew Gissing, the risk modelling firm’s General Manager, told Insurance News. “Though much of our risk profile from natural and technological disasters can be anticipated and modelled, there are still events that we have perhaps not imagined.

“The Beirut explosion has illustrated the dramatic impacts of a low probability, high consequence disaster event.”

Swiss Re Corporate Solutions, the commercial insurance arm of Swiss Re Group, says the main threats for ammonium nitrate storage are contamination, confinement and construction.

The best risk mitigation is elimination, but because ammonium nitrate is a very valuable material with a myriad of uses, the insurer told Insurance News that “managing it scientifically in a targeted manner is of highest priority in risk management and control”.

“The hazards of ammonium nitrate are well known by the people that manufacture it, but less so by the multiple organisations that transport and store it around the world,” Swiss Re Corporate Solutions says. “Because of its widespread use, it can be found in ports, warehouses and other logistical facilities in all corners of the world.”

In a statement of the obvious, the latest loss prevention advisory from Swiss Re Corporate Solutions advises sites designed for making and handling the material are not constructed using combustible materials, and that efforts should also be made to ensure the material is stored away from flammable materials or other sensitisers.

Unlike natural disasters such as earthquakes and cyclones, modelling man-made risks where there are elements of human decision-making involved is not an easy task.

Rade Musulin, a Principal with actuarial firm Finity, says “modelling of this stuff is necessarily a combination of looking at limited historical experience and constructing scenarios”.

“It’s a mixture of history, engineering scenarios, understanding changing technology, etc,” Mr Musulin told Insurance News. “This is not like modelling earthquakes or cyclones where you’ve got a large number of natural disasters which have not changed much over time.

“You have a human element here which is challenging to model in a traditional sense. There’s art and science involved in modelling anything like this, particularly because human decisions are involved. When you have things like terrorism or ones where human errors cause risk, it makes the modelling much trickier.”

Mr Craig, the Newcastle resident who is campaigning for the relocation of the Orica plant, is adamant the risk is simply far too high even if modellers get their calculations right.

“If Orica has an explosion (at the Kooragang plant), the amount of insurance that would have to be paid out would basically destroy that company,” Mr Craig says.

He has the support of University of Adelaide’s chemistry Professor Stephen Lincoln, who told Insurance News “it is best not to have ammonium nitrate plants close to human habitation”.

South Australia’s main supplier of ammonium nitrate, Incitec Pivot, moved into a new area with state-of-the-art safety systems after the SA Government purchased its facility in Port Adelaide. Local groups, SafeWork SA and SA Health had expressed concerns the facility posed an unacceptable risk to residents of the Dock One residential development.

“In the case of most ammonium nitrate manufacturing companies, certainly in Australia they operate very safely,” Professor Lincoln says.

“But even so, there is a small possibility that something can go wrong and maybe it’s one or two per cent. But if they do happen, the consequences are really huge.”