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FEASIBILITY STUDY PROPYLENE PIPELINE NETWORK
BENELUX - COLOGNE - GELSENKIRCHEN
EXECUTIVE SUMMARY FEASIBILITY STUDY PROPYLENE PIPELINE NETWORK BENELUX - COLOGNE - GELSENKIRCHEN
NOVEMBER 1999
COMMISSIONED BY : CHEMVISION (NRW-G) IPOT (NL)
FACILITATOR : AETHYLEN-ROHRLEITUNGS- GESELLSCHAFT MBH & CO.KG
CONTRACTORS : GASUNIE ENGINEERING (NL) DTM PIPELINES (NL) INFRACOR (G)
Page - 2- Feasibility study into propylene pipeline network Benelux-Cologne -Gelsenkirchen
1. Preface
2. Summary
3. Studies
Analysis of propylene flows. Analysis of ethylene flows. Preferred routing; quick scan. Conceptual design of preferred route. Determination of solutions. Flow scenarios and options. Business Economic analysis. Social and political analysis.
4. Business plan
5. Recommendations
6. Conclusions
Attachments: List of related documents plans and studies List of members ChemVision Initiative Group Interdepartementale Project Organisatie Ondergronds Transport List of the subscribers Feasibility Study by Letter of Intent
Page - 3- 1. Preface
In Germany and the Netherlands initiatives have been developed by industry and the government to improve these countries’ infrastructure, especially for the petrochemical industry. The objectives are to reduce logistical and production costs and to improve the investment climate of the various industrial regions. The most important initiative groups are “ChemVision”, represented by the North Rhine Westphalian ministry of economic affairs, technology and transport and a number of companies (BASF, Celanese, DEA, DPO, DSM, EC, Elenac, Degussa/Hüls, Veba and Infraserv), and the Interdepartmental Project Group Underground Transport (IPOT) in the Netherlands, represented by the ministries of economic affairs and Transport. ARG has been asked by both initiative groups to carry out a feasibility study into a Common-Carrier Propylene pipeline network in the Benelux and Germany with the explicit objective of taking into consideration all existing propylene pipelines between Rotterdam and Gelsenkirchen. The pipeline grid should be developed for one quality of propylene as determined by the industry representatives. Apart from the two initiative groups, the following companies are subscribers to the feasibility study: BASF/Antwerp, Borealis, BP/Amoco, Dow, Fina, Lyondell, Shell, Exxon, Elf/Atochem. The study should be completed end of 1999 and should give answers to questions relating to Preferred routing, Economic feasibility, Social and Political implications and Public/Private Funding.
In the Chem-Vision meeting at Düsseldorf on 5 February, ARG accepted the assignment to operate as the facilitator for this study.
Managing Directors of ARG,
Werker Brögmann
Disclaimer: ARG excludes all liability for any information, data, predictions or recommendations whatsoever given or made in or outside of this feasibility study.
Page - 4- 2. Summary
The European chemical industry plays an important role in the world markets, generating over 35% of worldwide chemical sales. To be able to maintain and improve this strong position, the industry needs to make major efforts to use the latest technology and to optimise production capacities. NW Europe has a large cluster of petrochemical activities. As it is a high cost area in relation to energy, wages, logistics and responsible care systems, cost control is a key factor in keeping margins at an adequate level. In the field of logistics, transports via integrated pipeline networks are important.
By connecting the petrochemical clusters in NW Europe by common-carrier pipeline networks, the petrochemical industry will not only reduce transportation costs, but will also optimise the capacity use of production plants. Once the network is in place the industry will have the option to build world-scale and energy-efficient crackers along the pipeline network. The petrochemical industry already has a lot of experience with pipeline transports, synergy effects and common carrier systems. One well known common carrier is the ARG ethylene grid.
National and regional governments also benefit from common-carrier pipeline systems, because these systems strengthen one of their most important industries and so their region’s economic structure. Apart from this, common carriers have a positive effect on modal shift, the environment, safety and the effective use of space.
For these reasons, industry and governments should jointly strive to create the right conditions to stimulate the realisation and use of common-carrier pipeline networks. This feasibility study contains a proposal for a propylene pipeline integrated transport system from the North Sea coast, Rotterdam and Antwerp to the Ruhr area in Germany. The proposal consists of an analysis of propylene demand between now and 2010 along different scenarios, route possibilities, cost calculations, a social evaluation and a business plan.
Page - 5- The Framework
The feasibility study concerns a cross-border pipeline network. In view of the cross-border nature of the project, not only the international petrochemical industry but also three governments (of the Netherlands, Belgium and Germany) were involved in the study. In order to be able to get the appropriate input for the feasibility study it was necessary to establish three Steering committees and three project teams. These teams comprised representatives from the different governments as well as various industry representatives. The petrochemical industry’s commitment is reflected in several Letters of Intent. With the Dutch government and the government of North Rhine Westphalia (NRW) separate agreements were signed for financial and personnel support for this study.
The National Pipeline Company (NMP) is reluctant to co-fund this feasibility study because the first impression is, that this study is only in the interest of the Netherlands and Germany. The estimated costs were therefore shared between the commissioners and the subscribers to the study. All parties involved agreed to the role of ARG management as a facilitator of the total study.
The main objectives for the Steering committees were to define the scope, to instruct the project teams, to monitor progress and to take responsibility for the deployment of resources. The responsibilities of the project teams concerned the realisation of the study; the monitoring of progress and costs and the drawing up of interim and final reports.
The Steering Committees are mandated by one overall Supervisory Committee with representatives from industry and the government. This Supervisory Committee finally approves the results of the study and makes a go/no-go decision about the proposals. This decision will be taken towards the end of 1999. For further details about the organisation, communication plan and LOI, see the project plans.
Page - 6- Organisation of C3 Pipeline Initiative
Supervisory Committee Mr. Thünker Mr. Kruit Mr. Dixon, Mr. Noerenberg
Government - Holland - Belgium - N R W
A R G Facilitator
Steering Committee Holland Steering Committee N R W Steering Committee Belgium Mr. Hazejager - Shell Mr. Thünker - Veba BASF, Borealis, BP/Amoco, DOW, Fina, Lyonde Mr. Becker - DSM Mr. Noerenberg - EC Shell, Exxon, Elf Atochem Mr. v. Essen - RPM Mr. Reith - DEA, Mr. Schüddemage Infraserv
Government Government Government Mr. Muller Mr. Deitmer Mr. Verhagen Mr. Noll Mr. Sonck Mr v. Hauwermeiren
Page - 7- 3. Studies
Analysis of propylene flows
Propylene demand is expected to grow substantially, by 3-4% per year, up to the year 2010. In absolute figures consumption in NW Europe will increase by some 4 million tonnes compared with 1997. The higher demand will be met by expansion of existing cracker units, extension and construction of new conversion units in crackers and refineries, and in the longer term by the construction of world-scale crackers (>1 million tonnes of ethylene) in NW Europe. Any further volumes needed will be imported via propylene terminals along the coast line from Rotterdam to Antwerp or via direct transhipment into inland barges. The expected growth of propylene demand will increase the need for an integrated common-carrier pipeline network. Details of the propylene flows in the years 1997, 2002 and 2010 for three economic scenarios are reported in the study “Analysis of propylene flows”.
Analysis of ethylene flows
In order to be able to work out the optimal solutions for the propylene grid, it was necessary to carry out an analysis of the ethylene flows in the same area, according to the same three scenarios and regarding the same years 1997, 2002 and 2010. From this analysis it is clear that demand growth for ethylene over the same period will be substantially lower than for propylene, viz. 2%. This implies that there are opportunities to transform some of the existing ethylene pipelines into propylene service. For details see the document “Analysis of Ethylene flows”.
Preferred routing (Quick scan)
This quick scan investigates the possibilities of four different routes for a propylene pipeline grid within the Benelux and North Rhine Westphalia. The routes considered are: U-line, Betuwe route, RRP route and the PRB route.
Page - 8- Alternative routes
In order to be able to determine the most favourable routing on the basis of total costs, the following aspects were considered: investment costs, operating costs and town and country planning. The comparison was made on a relative basis, the U-line being assigned a factor of 1. The alternative routes have relative cost factors ranging from 1.48 to 1.72. So the most attractive routing is the U-Line. This will be worked out in the feasibility study. The details are enclosed in the document: Gasunie report Phase 1. Quick Scan.
Page - 9- “ U -lin e ”
new pipeline
(partly) existing line
Conceptual design of preferred route
Report: Gasunie Engineering Phase 2.
This report consists of the following chapters: Summary and Recommendations Cost estimate Technical aspects Town and country planning Contract strategy.
For details see the Gasunie Engineering report.
Page - 10 - Determination of solutions
After consultation with the different working parties, the facilitator suggested that the solutions for the common-carrier pipeline grid be determined as described below.
As far as flow scenarios and grid configurations are concerned a vast number of options (40) had been worked out for the U-Line solution. It was clear that we had to make a choice. We used the folllowing criteria: realisation time, investment costs, acceptance by industry and governments, and solution for the short and medium term including options for debottlenecking. On the basis of these criteria the number of options were reduced to 5. In examining these options, we have also evaluated the position of the 10” ARG ethylene line. On the basis of ethylene flows under “normal” circumstances (Healthy Europe scenario) the ARG 10” line could be made available between Antwerp and the Tessenderlo area for the transport of propylene until the year 2010. Even in case of an unplanned cracker shutdown in the Gelsenkirchen area, ARG is still able to make up for a deficiency of about 30 tonnes/hr of ethylene supply from Antwerp. If, based on ARG considerations, an additional amount of 40 tonnes/hr of ethylene (in total 70 tonnes/hr = 600kt/an) from the Antwerp area should be required for the Gelsenkirchen area, it is necessary to install one booster station between Geleen and Cologne. It might therefore be a realistic option to consider converting the 10“ ARG line from ethylene into propylene service.
The common carrier propylene line should start at Antwerp at least for the short term. For the time being, the existing propylene pipelines between Rotterdam and Antwerp should be considered as a regional network connected to the Common-Carrier grid. Should new propylene customers emerge for the region between the Rotterdam Maasvlakte and the Antwerp area who insist on being connected to a common-carrier pipeline grid, it can be considered to include the existing propylene line(s) in the propylene common carrier network from Antwerp to Gelsenkirchen. In the meantime, however the Rotterdam, Moerdijk and Terneuzen areas are connected to the German hinterland by the existing private lines, which will have a connection to the new common-carrier network. If the existing private lines between Rotterdam and Antwerp are integrated into the common carrier network on a lease basis, no further government support should be necessary. The same principles apply to the existing local networks in Belgium, the local network in the Huerth/Knapsack region and the Herne area. In the meantime representative working groups should work out economic and technical proposals regarding the existing lines and local networks, so that in case of changes in propylene demand and supply due to the emergence of new customers the “common-carrier management” can respond by converting the existing private lines into common carriers.
Page - 11 - Based on these thoughts, the following scenarios have been selected:
Flow scenarios / pipeline options
In discussions with the working parties, it has been understood that the most realistic propylene flows for the year 1997, 2002 and 2010 are the ones based on the Healthy Europe mid inland scenario. The following common carrier pipeline options are therefore realistic:
1. Antwerp to Gelsenkirchen Existing lines: ARG 10”; Antwerp to Tessenderlo. D/H 6” ; Worringen to Oberhausen. D/H 4” ; Oberhausen to Gelsenkirchen. New lines : 10” ; Tessenderlo to Worringen and Wesseling.
2. Antwerp to Marl The same as under 1, but including: Existing line :D/H 4” ; Gelsenkirchen to Marl. New line : 10” ; Oberhausen to Rheinberg and Moers.
3. Antwerp to Marl The same as under 2, but replacing: Existing line :D/H 4”; Oberhausen to Marl, By a new line : 10”; Oberhausen to Marl.
4. Antwerp to Marl Existing line : ARG 10”; Antwerp to Tessenderlo. New line : 10”; Tessenderlo to Marl.
5. Rotterdam to Marl Existing lines: Shell 6”; Rotterdam to Antwerp. Dow 6”; Rotterdam to Antwerp. ARG 10”; Antwerp to Tessenderlo. New line : 10”; Tessenderlo to Moers/Rheinberg/Marl.
The technical consequences of these options have been worked out in detail. The results are shown in the report: Gasunie Engineering Phase 2. For the grid configuration see page 25. For the basic details of the economic calculation see page 26.
Page - 12 - Calculations
DCF calculations have been worked out for the above-mentioned grid configurations, based on the investment and operating figures of Gasunie Engineering. For details see the chapter on Economic Analysis.
Economic analysis
One of the objectives of this study is to evaluate the economic feasibility of a common carrier propylene pipeline system for one quality of propylene, connecting the major petrochemical clusters in Benelux and Germany by new pipelines as well as by existing lines.
The following alternatives have been investigated:
Construction of a common carrier propylene grid based on new pipelines. Construction of a common carrier propylene grid based on the leasing of as many existing pipelines as possible. Construction of a common carrier propylene grid based on a lease agreement with ARG on the existing pipeline and for the rest of the grid based on new pipelines.
More than 40 different alternatives have been worked out. Out of these 40 different alternatives, we have selected the above-mentioned 5 cases for further economic evaluation.
For more details about the pipeline grid as well as the flow calculations in tonnes/hour see the relevant study report.
Page - 13 - The following basic assumptions were made in calculating the above-mentioned cases:
1. Investment costs and lease fee:
The investment costs of each pipeline section where calculated by Gasunie and are listed in the documents of the detailed studies. As a possible lease fee for existing pipelines we have taken the actual investment costs of this pipeline section divided by 25 as a yearly lease fee, since the economic life span of a pipeline system can be 25 years or longer.
2. Transport quantities:
The transport quantities used in our calculations are based on the figures given by the industry and on the scenario “healthy Europe”. We have only taken into account the transport of polymer grade quality. For each case we have made a sensitivity analysis with regard to the transported volumes in the first six years (see table below).
1. year = 50% of the transport quantities 2. year = 60% of the transport quantities 3. year = 70% of the transport quantities 4. year = 80% of the transport quantities 5. year = 90% of the transport quantities 6. year = 100% of the transport quantities
3. Tariff:
An analysis of the actual cost of propylene transportation by the other transport modalities, i.e. rail, truck, and barges, has shown that the average transportation costs are 0.109 Euro/tonne/km. In order to ensure that the common-carrier pipeline will be competitive with existing transport modalities, we have used this average transport cost as a reference in this study. This average transport figure has been calculated by the “industry” and is in detail reported in the study: Analysis of Ethylene flows and transport costs for propylene 1997. The calculation of the turnover has been based on this transport fee. However this does not mean that in the final to be agreed tariff system there should only be one figure based on ton and km. In case of public support for the propylene common carrier there will be open “General Conditions of Transport” and an open “Tariff System” tuned between the parties involved.
Page - 14 - 4. Line fill:
For the first line fill with propylene we have calculated a propylene transfer price of 360 Euro/tonne.
5. Operating costs:
The operating costs include a fee of 8.200 Euro/km for guarding the integrity of the pipeline and the variable compression costs.
6. Management fee:
The management fee of 0.5 million Euro/year includes the costs for a small independent management team.
7. Financial assumptions:
The following financial assumptions were made: Interest rates for loans = 6% per year Escalation of tariffs, costs and investment = 2% per year
Discounting of the new investments over a period of 25 years.
8. Method of calculation:
For the method of calculation we have used the discounted cashflow (DCF) method over a period of 25 years. (Industry approach).
Page - 15 - Although we know that within the petrochemical industry a DCF rate of more than 15% over a maximum of 15 years is required for new projects, in this study we are calculating with an DCF rate over a period of 25 years because in an infrastructure project of this kind these rates cannot be achieved in a shorter period. However, we believe that a DCF rate of at least 10% over a period of 25 years is necessary to be able to guarantee the continuity of the common carrier system. This figure has been used as an example in calculations for this project.
A different method of calculating governmental support is based on “Unremunerative” costs. These costs are defined as the difference between earnings over a discounted period of, for instance, 15 years and the project costs. On these unremunerative costs public support could be awarded to a level of 50 to 80 % but only in, by government, predetermined area’s. This method is referred to as the “Government approach”. It is understood that in the concerned countries different methods are being used. Consultation within the supervisory committee is necessary to find an acceptable answer for National as well as European authorities with regard to the topic of public private partnership.
NOTE: Please note that in the economic evaluation of the common carrier, the economic impact of existing pipelines that have not yet been integrated into the common-carrier network, viz. Dow and Shell lines, has been assumed to be neutral. However, the propylene quantities out of these pipelines and fed into the common carrier propylene network have been taken into consideration in the mass flows.
Page - 16 - Conclusion
Based on the results of the economic analysis and the discussions with the owners of existing pipelines about the availability of their pipelines, case no. 3 and case no. 4 are the most realistic ones, with a DCF rate over 25 years of around 6% relating to investments in new pipelines only and for the alternatives referring to reduced volumes over the first six years. The feasibility of the project can be improved if the existing ARG pipeline can be leased for a lease fee equivalent to the actual investment cost divided by 25 years. The DCF rate over 25 years in this alternative is around 7%. The economic sensitivity related to propylene flows and investment costs are shown in the study: Business Economic Analysis. Although case 3, alternative 2 looks a bit better than case 4, alternative 2 as far as economics are concerned, its feasibility is less because of expected routing problems.
Case 3 alternative 2 Case 4 alternative 2 Lease-fee (Invest. Cost Lease-fee (Invest. Cost 25 yr.) for existing 25 yr.) for existing ARG pipeline ARG pipeline
Investment: 178.2 million Euro 179.8 million Euro
Lease fee: 1.5 million Euro 1.5 million Euro
DCF over 25 7,1% 6.5% years Risk deviation: investment - 15% 8.5% 7.9% investment - 30% 10.3% 9.6% investment + 15% 5.9% 5.4% investment + 30% 4.9% 4.4%
Page - 17 - Social analysis
The aim of this chapter is to analyse the (dis)advantages of the project to both the public and private sector. This analysis will serve as input for Public-Private Co-operation. The (dis)advantages are categorised in the following way: construction of the pipeline, pipeline system in operation and economic impacts.
Construction of the Pipeline During the construction phase the project will cause some inconvenience especially with regard to land use, traffic and noise. The negative effects concerning land use are not very significant because the new pipeline follows existing pipeline routes. The negative effects relating to noise and traffic will be temporary. Moreover, the construction activities will generate a temporary rise in employment.
Pipeline System in operation A realistic assumption is that a substantial modal shift will occur. Statistics show that pipelines are preferred over other modes of transport, in this case barge and rail tank car. Once the pipeline is in operation, the positive effects of substitution will dominate, especially in the field of safety, energy use and emissions. The advantages will become more pronounced as transport flows of propylene continue to grow. The public sector benefits because transport and related pollution as well as energy use will be reduced. Hence, a pipeline system can contribute to improving the quality of life. In addition, the right-of-way associated with the pipeline offers opportunities for ecological corridors or bicycle trails. Negative effects include noise caused by pump stations and, at specific times, traffic and noise relating to maintenance activities. These disadvantages are, however, more than offset by the above-mentioned advantages of the modal shift. Another disadvantage involves land use: some economic and residential activities will no longer be possible in the area where the pipeline will be located. The private sector will also benefit. Reduced safety problems and improved reliability and flexibility (in a logistical sense) are among the most important advantages. Furthermore, there is no need to keep large quantities of raw materials in stock.
Page - 18 - Economic impacts
The chemical industries of Belgium, the Netherlands and North Rhine Westphalia together generate employment for about 300,000 people. The base chemicals industry, the most important chemical-industry branch in these three regions, faced high job losses in the 1970s and 1980s and has recently come under pressure again. In cases where chemical companies have a choice between improving and using regional advantages and outsourcing more and more on a global scale, the public sector has good reasons to strengthen the competitive base of the base chemicals industry in order to avoid structural upheavals like the ones that hit the mining sector or the steel industry. Furthermore, base chemicals are strongly related to materially interlinked downstream activities and they provide a basis for ongoing innovations in sectors like specialty chemicals. A pipeline – offering propylene in a competitive way – can be seen as crucial for the competitiveness of the base chemicals industry because this industry is characterised by strong price competition. A pipeline can thus be seen as a basis for strengthening the competitive position of the region. A pipeline will have a greater impact if it is not just one isolated project but is integrated with other activities aimed at strengthening the region’s competitiveness and innovative power.
Recommendations
There is no viable scientific method for assessing the (dis)advantages and distributing them over the public and the private sector, so we need to define the scope for negotiation. To start with, pipeline investment can always be regarded as a very important infrastructure investment in a region, especially if that region is facing ongoing restructuring. In this case public financial support amounting to 20% of total investment cost (in accordance with EC regional policy) is quite normal. In the case of this pipeline we may assume that the social benefits in ecological as well as economic (employment) terms are higher than in the case of ordinary investments. Therefore 20% can be regarded as the minimum level of public support. Given the above-mentioned public benefits, the Dutch approach provides an interesting starting point. Recently, the private sector (in this case financial institutions) expressed their views on participating in new infrastructure investment. Usually infrastructure projects are not interesting from a financial/economic point of view, because their earning power is less than the investment costs. In order to participate a Public-Private Co-operation is suggested. The private sector should take their share based upon commercial considerations; the rest should be financed by the public sector. The amount of investment accounted for by the public sector is an indicator of the social benefits of the project. In this particular case the public financial contribution accounts for one third of total investment cost.
Page - 19 - Summing up, the public financial contribution should be somewhere between one fifth (lower limit) and one third (upper limit) of total investment costs. However, the negotiators should bear in mind that a Public-Private Co-operation is not a zero sum game. As shown before, the public as well as the private sector can benefit from the project, especially if it is organised as a common carrier. Therefore, a private and public commitment to strengthen the competitive and innovative base of the chemical industries situated along the pipeline route in a co-operative way could be helpful in the search for a solution that suits both parties.
Page - 20 - 4. Business plan
Business environment analysis
The playing field of a “European Propylene pipeline Management Company” (EPMC) could be the petrochemical industry in the Benelux and Germany in general, or more specifically the industries situated along the pipelines between Rotterdam, Antwerp, Geleen, Cologne, Gelsenkirchen and Marl. The customers of this company are in principle the producers and consumers of Propylene along the above mentioned pipelines.
List of potential customers
In Germany ChemVision: BASF, Celanese, DEA, DPO, EC, Elenac, Hüls, Veba, Infraserv-Knapsack. In the Benelux Basf, Borealis, BP/Amoco, DOW, DSM, Fina, Lyondell, Shell, Exxon, Elf Atochem.
These companies are nearly all “global” players. In order for them to stay competitive world- wide the existing fragmented pipeline network in the Benelux and Germany should be “glued together” into one integrated propylene pipeline grid. This new grid will be more or less comparable with the network on the US Gulf Coast as far as cost effectiveness and transport flexibility between olefins producer and consumer is concerned. (Source: Parpinelli Technon). Besides the cost aspects there are other advantages too, relating to social gains in the following fields: safety, environment, health and quality.
Page - 21 - Market
The market developments are described in the report entitled Analysis of Propylene Flows. The main conclusion is that the propylene growth figures are around 4%/an in the period between 1997 and 2010, resulting in a total consumption of more than 5 million tonnes in the area concerned. The potential annual increase in pipeline transport to Belgium, Limburg and Ruhr area will be of the order of 6%/an because of supply/demand imbalances, or in absolute figures more than 3 million tonnes. It is therefore of the utmost importance for crackers and terminals to have a pipeline connection to this hinterland. This integrated propylene pipeline network will improve the economic structure of the region by reducing transportation costs, optimising plant utilisation rates and improving the conditions for increasing the economies of scale of the crackers.
The social aspects that determine the level of support by the various governments have been worked out in the TRAIL Report This study was carried out in cooperation with the Technical Institute “Arbeit und Technik” at Gelsenkirchen (G), the university of Leuven (B) and TRAIL, which is an association between the Delft Institute of Technology (technical aspects), Erasmus university Rotterdam (economics) and the university of Leiden (Legal). (For more details see the report entitled Social Analysis).
Page - 22 - European pipeline Management Company (EPMC)
In order to fully benefit from the propylene Common Carrier it is desirable that this transport modality be operated as an “Open Infrastructure”. This means that every producer and/or consumer abiding by the general terms of transport has access to the pipeline grid on a first come first served basis. To be able to guarantee this basic principle it is unavoidable to establish an independent management company. This EPMC should acquire the total transportation rights in the pipeline grid and run the transportation business in the common-carrier network, on the basis of public general terms of transportation and a public tariff system, to the benefit of all customers. The shareholders can be any interested private companies that bring in assets or financial resources to realise the propylene common carrier grid. The EPMC operates the pipeline grid on behalf of the “asset owners”.
Company scope
Mission: Establish Common-Carrier Pipeline systems in Benelux and Germany. Render services to the various asset owners.
Objectives: Exploit; Operate and Maintain Common Carriers in Benelux and Germany with a guaranteed return on investment to the asset owner.
Strategy: Acquire exclusive capacity rights of common carriers by leasing the pipelines from the asset owners.
Organisation of EPMC: Internationally oriented company. Shareholdership by private companies who are also shareholders in at least one of the propylene asset companies of the propylene polymer grade common carrier. Limited profit centre. Limited liability.(Legal structure). Full time, independent management. Small permanent staff. Company language: English. Head Office: Benelux and Germany (for operational and fiscal reasons).
Page - 23 - EPMC services rendered by the operating companies:
Technical Management relating to exploiting, operating and maintaining the common-carrier pipeline system in accordance with best integrity practices in Europe. Dispatching, including control room. Business Management relating to exploiting, operating and maintaining the common-carrier pipeline systems. Accounting, Finance and Control activities.
Public Private Funding
Because both industry and the government benefit from the project, they should jointly create the right conditions for realisation of the project. Not only national and regional governments should support the establishment of common-carrier networks but this project should also be supported by the EU under the Infrastructure programmes. There should be a drive towards the integration of these networks into the TEN Programme. As soon as the petrochemical industry has developed a clear view of common-carrier pipeline networks and a clear strategy, the sector organisation CEFIC should communicate this strategy and the concrete plans derived from it to the relevant representatives of the European commission with the ultimate aim of including the pipeline networks in the programme of the Trans European Networks.
Page - 24 - 5. Recommendations
After an exchange of views in the Dutch, German and Belgian steering committees with representatives of industry in the Netherlands, Belgium and Germany and the governments in the Netherlands (Ministry of Economic Affairs and Transport), Germany (Ministry of Economic Affairs, Technology and Transport in NRW) and Belgium (via the National Pipeline Company (NMP)), case 4 alternative 2 was earmarked by the facilitator as the most feasible and useful case for the short and the longer term.
Case 4
Botlek (Targor ) Pernis Marl
Propylene Pipeline system Germany Botlek (Arco) 47,4 Moerdijk Case 4 Herne
Gelsenkirchen
Netherlands 8,6 Terneuzen Rheinberg (DOW) 34,8 Oberhausen 36,5 Antwerpen (BASF) Beringen Moers (Solvay) (Borealis) (AGT) 46,2 Geel Antwerpen (Gamatex) Worringen (Amoco) Geleen (DSM) Tessenderlo 41,1 73,1 73,1 56,5 Lövenich Antwerpen 15,4 (FAO) Germany Hürth/Knapsack Netherlands
Belgium (Elenac) Wesseling Feluy (DEA) (Petrofina) = Boosterstation XX,X = t/h propylene flow
Page - 25 - This selection was based on the industry’s wish to base the calculations on transport volumes according to the “Healthy Europe”, ignoring for the moment the impact of the “Industry cracker” because this cracker will start to have a major impact on volumes only after the year 2010 .The volume to be transported was therefore estimated at around 1 million tonnes / year, starting in the first year with 50% of this volume and increasing to 100% in the sixth year. As far as the propylene quality is concerned the ChemVision working group has decided that the propylene quality transported by the common carrier should be polymer grade.
However, it was also recommended by the working committee of Chem Vision, that on the route between Wesseling and Marl the existing chemical grade line should be kept dedicated for chemical grade transport. As a consequence, the existing propylene lines in this area will not be available for the common carrier project and therefore all cases which refer to existing pipelines in Germany are not feasible.
The estimated investment costs for case 4 alternative 2 are approx. 180 million Euro. The lease fee for the existing ARG line in Belgium has been estimated at 1.5 million Euro per year. In order for the DCF to be 10%, the public contribution would be around 60 million Euro.
Case 4 alternative 2
z Various transport quantities INVESTMENT COST z Various risk deviations in investment
Investment Lease fee Transport quantities: 1. year = 50 % for all new for existing 2. year = 60 % pipelines ARGpipeline 3. year = 70 % Mio Euro Mio Euro 4. year = 80 % New pipelines: 5. year = 90 % 6. year = 100 % = 1.025.000 t / yr
5,4 km BASF, Antwerpen - Solvay, Antw. 3,7 3,7 Tariff: 0,109 Euro / t and km 176,5 km Beringen - Worringen/Knapsack 87,4 87,4 Turnover: 9,8 - 19,5 mio Euro 40,0 km Oberhausen - Rheinberg - Moers 23,1 23,1 Line fill: 3,6 mio Euro 35,1 km Oberhausen - Gelsenkirchen - Marl 20,6 20,6 Operating cost: 3,7 mio Euro 56,6 km Worringen - Moers 31,3 31,3 Management fee: 0,5 mio Euro 313,6 km
Investment Lease-fee (Invest cost ÷ 25 yr) for for all new Existing pipeline grid : existing ARG (in case of new investment) pipelines pipeline 219,0 mio Euro 179,8 mio Euro Investment: 80,7 km Antwerpen - Tessenderlo 37,3 Lease fee: 1,5 mio Euro
DCF over 25 years: 5,9 % 6,5 % Booster, Scada-System, Dispatching, etc. 5,5 5,5 Risk deviation: Total excl. inflation: 208,9 171,6 investment –15 % 7,2 % 7,9 % Total incl. inflation: 219,0 179,8 investment –30 % 8,9 % 9,6 % investment +15 % 4,7 % 5,4 % investment +30 % 3,8 % 4,4 %
Page - 26 - Accumulated cash flow and sensitivity of turnover.
The graph below shows that the accumulated cash flow only breaks even in the year 2015. The accumulated and with 10% discounted cash flow - even after 25 years - is 50 Mio Euro negativ.
Accumulated cash flow .
300 250 200 150 100 year 50 2000 2027 0 2015 1 3 5 7 9 Mio Euro -50 11 13 15 17 19 21 23 25 27 -100 -150 -200 -250
acc. Cash flow acc. with 10 % discounted Cash flow
Page - 27 - A sensitivity analysis with a turnover of -30% shows that the break-even point of the accumulative cash flow will only be in 2022 (see graph below).
Accumulated cash flow with risk deviation turnover = - 30 % 100
50 2000 2027 2015 year 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 -50
Mio Euro -100
-150
-200
acc. Cash flow acc. with 10 % discounted Cash flow
It’s therefore recommended to work out a public private partnership construction in order to be able to bridge the financial gap.
Page - 28 - As far as timing is concerned it is assumed that the grid could be designed, engineered, built and commissioned in a period between 40 to 48 months depending on the time needed for acquiring concessions and the necessary permits in Germany, The Netherlands and Belgium. So, in case in January 2000 the go-ahead is given for the first step, the common carrier pipeline grid could be completed in January 2004.
It should also be mentioned that another initiative has been taken for the most northern part of the projected pipeline between Oberhausen and Marl. It is an initiative to connect the propylene storage facilities of the harbour of Duisburg via an existing pipeline to Oberhausen. From here on a new pipeline to Marl will be constructed . This pipeline section must be completed in January 2003 and cannot wait until the total common carrier is available. However, from one of the parties involved the facilitator learnt that it was the intention of all partners of this initiative to integrate this pipeline section with the overall propylene common carrier project as soon as possible. This part might perhaps even be regarded and handled as the first part of the common carrier.
Given the expectation that a substantial volume of polymer grade propylene will have to be imported into NW Europe, it is necessary to connect the common carrier to independent storage facilities. There are several possibilities on the coasts of Belgium (AGT, Gamatex) as well as the Netherlands (Eurogas) and Germany (Duisburg Terminal). These terminals could be regarded as customers of the common carrier management company. This means that this company has no intention yet to manage and operate these terminals.
With regard to the structure of the company the facilitator had the impression that in the industry there is a preference for a structure where there is a clear distinction between asset owners, the management company and the service (operating ) companies.
Page - 29 - For the operating phase, the companies could be structured as follows:
Operating phase Legal structure organisational Shareholders structure
Asset Co. NL Shareholders NL-ARG-B-G Shareholders
Asset Co. ARG EPMC
Shareholders Operating Co 1 Operating Co 2 Operating Co 3 Asset Co. B
Shareholders
Asset Co. G
The scope, objectives and strategy of the EPMC has already been defined in the business plan. As far as the shareholders in the EPMC are concerned it is recommendable that only those companies that are shareholders in one of the propylene common carrier asset companies be allowed to become a shareholder in EPMC.
The EPMC should be an independent management organisation with a small staff. In the operating phase they will use expert companies along the pipeline route to operate and maintain the pipeline grid.
Page - 30 - In the construction phase of the pipeline grid the EPMC will have a small staff to manage the project by project leaders for the different countries. They will also act as co-ordinators vis-à- vis the different EPC contractors.
Construction Phase legal structure organisational structure Shareholders
Asset Co. NL Shareholders NL-ARG-B-G Shareholders
Asset Co. ARG EPMC
Shareholders Proj. Lead. B Proj. Lead. ARG Proj. Lead. G Asset Co. B
Shareholders EPC EPC EPC
Asset Co. G
Page - 31 - 6. Conclusions
This study gives clear qualitative and quantitative answers to technical questions as far as routing , difficult crossings, right of ways, permits, possible availability of existing pipelines, construction timetables, mass flows for ethylene and propylene in different scenario’s are concerned. The conclusion, from a technical point of view, is that the construction of a common carrier pipeline network, from Rotterdam to the Ruhr area, via the U-Line routing by new pipelines as well as by building in and exploiting existing lines is definitely feasible.
However, the economic analysis has been based on certain arbitral assumptions, especially in relation to discounting periods, DCF rates and possible PPC constructions. Not all possibilities in the concerned countries have been looked at, but the study shows clearly that, even by calculating over a DCF period of 25 years, there is a potential deficit between earnings and costs. It is now up to the Industry and concerned Governments to find an, for both parties, acceptable construction for a Public Private Partnership.
Although this study is, in some parts, of a more qualitative than quantitative nature and definitely in regard to the macro economic analysis in the concerned countries ,it is quite clear from this study, that many industrial area’s will benefit and gain from this common carrier system. This applies not only to the existing industrial sites like: the Maasvlakte, Moerdijk, Terneuzen, Vlissingen, Antwerp, Tessenderlo, Geleen, Cologne and the Ruhr area but also to the new to be developed industrial regions in the Netherlands, Belgium and NRW. This pipeline network is a precondition for attracting new investors to the existing as well as new industrial sites. To supply the building blocks (ethylene and propylene) for the petrochemical industry via common carrier systems is of equal importance as supplying energy and utilities via independent systems. Apart from the benefits to the regions, it is shown in the study, that there are advantages to the national governments as well, with regard to : industrial and transport policy, employment and the objectives in relation to safety, health and environmental aspects. In this study the aspects related to contribution to the national industry and transport policy and the aspect of employment have been covered in a more qualitative way, whereas impact on safety, health and environment was dealt with in a more quantitative way. The conclusion of this study is that pipeline networks for the transportation of big volumes of dangerous gases over long distances contributes to the realisation of the general objectives of National and European governments and in particular to the objectives in relation to safety, health, environment and avoiding congestion.
Page - 32 - The result of the social analysis, in this study, shows that a public support of between 20 and 30 % of the total project costs is defendable.
This study has shown, under the assumptions made, that constructing a common carrier network for the transportation of propylene in the Netherlands, Belgium and Germany, along the U-Line trajectory, is feasible. However there are questions left to be answered by the “Industry” and “Governments” with regard to: choice of the definite routing, the availability of existing pipelines, common carrier for polymer grade and possibly a dedicated common carrier for chemical grade, Public Private Partnership and the organisation of the asset-, management- and operating companies.
It is recommended by the facilitator to address these topics as soon as possible, in order to: “ Keep the train on track and at speed “.
Page - 33 - List of Related Documents, Plans and Studies
Projectplan Netherlands (872/99 ARG d.d. 11.02.1999 J. Werker, M. Brögmann) Germany (885/99 ARG d.d. 11.02.1999 J. Werker, M. Brögmann) Belgium (3530/99 ARG, d.d. 15.06.1999 J. Werker)
Commissioning letters: “Opdrachtverlening t.b.v. onderzoek Propyleenleiding” Letter Ministerie van Economische Zaken (Mr. E.J. de Vries - Directeur Chemie, Bouw en Bedrijfsvoering to mr J.H. Kruit - Directeur DSM Hydrocarbons, nr ID/CBB/C 98083840 dated 18.02.1999). “Projektantrag: “Erstellung einer Feasibility-Studie für ein Propylen-Pipelinesystem im Raum NRW”. (Mr W. Noll Min. NRW to Mr. W. Reith - DEA Mineralöl AG, nr. 211-44-00, dated 02.03.1999)
LOI’s Study Sponsors: Letter of Intent nr. JW 98283v3 d.d. April 28, 1999.
Analysis propylene flows: Project: Propylene Pipeline Benelux-Cologne-Gelsenkirchen (Report: Mr.Becker DSM, February 1999)
Analysis of ethylene flows and transport costs for Propylene 1997: Project: Propylene Pipeline Benelux-Cologne-Gelsenkirchen (Report: Mr.Becker DSM, August 1999)
Gasunie Report : Phase 1 Report nr. DTM-72091-1001 dated May 3.1999. Preferred Routing. Gasunie Report : Phase 2 Report nr. DTM-72091- 1004 dated Oct.19.1999. Conceptual Design.
Business Economic Analysis: ARG Report: Dated: 28th October 1999. Flow scenario’s and Options. Social Analysis (TU-Delft,NL / KU-Leuven, B/ Inst.Arb.&Techn.Gelsenk. G.)
Page - 34 - Members Chem Vision Initiative Group
MWMT/NRW Haroldstrasse 4, 40190 Düsseldorf, Germany
BASF AG 67056 Ludwigshafen, Germany
Celanese Chemicals Europe GmbH Lurgiallee 14, 60439 Frankfurt, Germany
DEA Mineralöl AG Überseering 40, 22297 Hamburg, Germany
DSM Hydrocarbons BV Poststraat 1, 6135 KR Sittard, The Netherlands
Elenac GmbH 50389 Wesseling, Germany
Erdölchemie GmbH Postfach 750212, 50754 Köln, Germany
Infracor GmbH 45764 Marl, Germany
Infraserv GmbH 50351 Hürth, Germany
Veba Oel AG Alexander-von-Humboldt Strasse, 45896, Gelsenkirchen, Germany
Page - 35 - Interdepartementale Project Organisatie Ondergronds Transport (IPOT)
Represented by:
Ministry of Economic Affairs Bezuidenhoutseweg 6, PO Box 20101, 2500 EC The Hague, The Netherlands
Ministry of Transportation and Public Works Artillerie, Nieuwe Uitleg 1, 2514 BP The Hague, The Netherlands
Page - 36 - Subscribers Feasibility Study by Letter of Intent, dated April 1999
1. ARG, 45764 Marl, Germany
2. BASF AG, 67056 Ludwigshafen, Germany
3. Borealis A/S, Lyngby Hovedgade 96, 2800 Lyngby, Denmark
4. BP Amoco Chemicals, Pinners Hall, 105-108 Old Broad Street, London EC2N 1 ER, UK
5. DOW Europe S.A., Bachtobelstrasse 3, CH-8810 Horgen, Switzerland
6. Elf Atochem, Chemin de la Lône-B.P. no.32, 69492 Pierre-Benite Cédex, France
7. DSM Hydrocarbons BV, Poststraat 1, 6135 KR Sittard, The Netherlands
8. Exxon Chemicals Europe Inc., Vorstlaan 280, B-1160 Brussels, Belgium
9. Fina Chemicals S.A., Rue de L’Industrie 52, B-1040 Brussels, Belgium
10.Lyondel Chemicals Nederland Ltd, Postfach 2416, 3000 CK Rotterdam, The Netherlands
11.Shell Chemicals Limited, Shell Centre London, SE 1 7 NA, UK
Page - 37 - Notes
Page - 38 - Notes
Page - 39 - Page - 40 -