The deployment of Electrically Trace Heated Pipe-in-Pipe (ETH-PiP) brings the challenges of reliable protection selection and setting. This paper presents a study of relays and protection function optimization for ETH-PiP systems. The study is based on the developed simulation model of a typical ETH-PiP system. The paper presents simulation studies of physical phenomena occurring during electrical disturbances in the ETH-PiP system and offers detailed analyses applicable to system protection, including detection of disturbances, location, and elimination.