The risks of stockpiling fuels

The dramatic increase in energy prices and significantly reduced flow of gas from Russia to Europe throughout the second half of 2022 has created an energy crisis that may possibly get worse as the region enters the darker and colder winter months. The suspected sabotage of the Nord Stream gas pipeline in the Baltic Sea on 27 September, only served to highlight the increased risk of potential fuel shortages due to lack of supply or even deliberate attacks on physical energy infrastructure.

As a result, many European governments and industry figures have warned of the possibility of energy rationing and have indicated that both their citizens and businesses could experience energy shortfalls and even blackouts during the winter. The impact of the evolving war, the front-page news stories detailing the worsening energy crisis and many other logistical challenges has caused some companies to begin stockpiling fuels on site, due to worries they will have insufficient energy over the winter to support their traditionally gas-intensive processes and operations.

According to recent articles in Bloomberg and the Financial Times, some companies are already actively making contingency plans. Mercedes Benz Trucks recently revealed it was switching to diesel oil for a significant part of its production in Germany, and Traton SE, owner of the Scania truck brand, has secured large gas tanks as well as indicated it is returning to the use of coal. In addition, the world’s two biggest data centre operators, Equinix and Digital Realty Trust, have intensified their stockpiling of diesel fuel for their generators to help secure the generation of electricity at their European sites.

Strict legislation in place  

On the legal requirements of stockpiling fuels, begins Fredrik Holmqvist, Head of Property Risk Management Services at If, “In each and every country, there is legislation surrounding inflammable and combustible liquids and gases. And there are different government agencies in each country that direct companies how to store and handle flammable liquids and gases, and this includes what the amount should be and how it should be secured.

When installing tanks and handling flammable liquids and gases, local and national rules and legislation should be adhered to. This is from a fire safety point of view, but it is also, critically, from an environmental point of view.”

It is vital that companies are open about their activities when it comes to the stockpiling of alternative fuels on site. In some policies, companies are obliged to inform the insurance companies if there are major changes in the risk, or if there is an increase in risk. This refers to new fuel storage installations.

Mobile tanks, or large plastic tanks (IPC) with oil waiting to be used on machines, motors and emergency generators can represent a major risk if something goes wrong. When considering installing new tanks, it is beneficial to inform the insurance company and their risk engineers so they can support the client in the planning phase of the project. In addition, the new circumstances also need to be accounted for in insurance values.

‘Bending’ the rules

As the European region scrabbles to deal with the worsening impact of the energy crisis, fears are rising that the crisis is likely to also prove a long-term issue, an increased risk management issue, and that some companies are resorting to ‘bending’ the rules.

“There is some concern at If that some companies, in their current need to secure alternative fuel supplies, may not be abiding by all the guidelines and legislation. We can see that some facilities are really cramped and there is very little space to put in a new fuel tank. If you have a building, for example, with the boiler traditionally running on gas, and then a company decides to make this into a multi-fuel boiler, a tank with fuel oil is then installed.

An increasing risk is the fact that the new solution is implemented as a short-term or intermediate solution but can then quickly turn into being a permanent solution. This is not ideal, if the rules are being bent. If they were to do it properly, a company may decide to have a fixed tank outside of the building with piping going inside, but that, of course, takes time and significant cost to implement,” says Holmqvist.

In addition to a short term ‘quick fix’ turning into a long-term solution, it can be the case that the new tank is installed in perhaps not the most suitable location, and it could also be that the handling of the fuel oil itself is not optimally implemented.