Organic chlorides (compounds in which a chlorine atom is attached to a carbon atom) are not naturally occurring components in crude oil, but are sometimes used in oil production processes. If organic chlorides enter commercial crude oil volumes and reach a refinery, they break down into corrosive elements during heating and processing. These byproducts, including hydrochloric acid, can cause excessive corrosion and equipment damage, among other problems. In addition to the costs for repairing equipment damage, the lost profit from unwittingly processing contaminated crude oil can be significant due to extended refinery outages for repair.

A cargo of crude oil was received at a coastal terminal for storage and subsequent transport via pipeline to an inland refinery. Shortly after receipt, it was discovered that the crude oil was contaminated with organic chlorides at levels far exceeding the acceptable limit for processing in a refinery. Although the crude oil pipeline operation was stopped before the refinery processed significant quantities, there remained the problem of how to manage the contaminated crude oil now stored in the coastal tanks at the terminal.

The crude oil supplier and the refiner engaged in discussions about where to store the contaminated crude and the cost of storage. Ultimately, the cost of storing the contaminated crude oil became the main point of dispute after other issues had been resolved. The crude oil supplier proposed applying a lower market rate typically charged for longer-term contracted storage for uncontaminated crude oil. The refiner, however, argued that the short-term, emergency nature of the storage requirement justified a much higher rate imposed by the terminal operator.

Baker & O’Brien was engaged to provide an expert opinion of the appropriate storage costs, considering all factors, including prevailing tanker rates at the time and the potential to use floating storage. We submitted two expert reports, collaborated on a joint expert report, and testified at a court hearing.