European pipeline project gets major boost

Aug. 9, 2004
Plans for a major European petrochemical pipeline took an important step forward earlier this summer when a commission of the European Union approved subsidies for the project by the governments of Belgium, Holland, and Germany.

Plans for a major European petrochemical pipeline took an important step forward earlier this summer when a commission of the European Union approved subsidies for the project by the governments of Belgium, Holland, and Germany.

The low profitability of the project made subsidy support critical, according to the eight-company consortium European Pipeline Development Co. BV (EPDC) that is advancing plans for the propylene pipeline.

Because the consortium and the three governments had formed a joint public-private partnership to execute and operate the pipeline, EU approval of the subsidies was necessary.

Planned start-up for the 500-km pipeline between Rotterdam and Antwerp on the western end and Germany's Ruhr area in the east is second-quarter 2007. The propylene pipeline will be a common carrier, for all users at equal public tariff conditions (map), said the company's announcement last month.

Growth

In 1998, an initiative by DSM, Veba, Hüls, and BP PLC advanced the idea of a propylene pipeline in Northwest Europe to connect Rotterdam and Antwerp with the Ruhr area.

The three main reasons, according to EPDC, were to improve Western Europe's competitive position with new infrastructure, improve strategic and operational flexibility, and "enable a modal shift in transportation."

All European propylene producers and consumers were invited to join a development company. In September 2000, EPDC formed among 15 companies. Following consolidation among petrochemical companies in Northwest Europe, EPDC became the eight founding project shareholders, all holding equal shares: BASF Aktiengesellshaft, BP Refining & Petrochemicals GmbH, Celanese Chemicals Europe GMBH, Konindlijke DSM NV, Sabic Hydrocarbons BV, Sasol Germany GMBH, Shell Nederland Chemie BV, and Westgas GMBY & Co. KG (a unit of Degussa).

The consortium began to prepare a project proposal and to seek governmental subsidies and outside financing.

In 2003, Belgium, Holland, and Germany notified the EU of their intention to supply subsidy and their willingness to support this project. EU approval of the subsidies came in June of this year.

EPDC said in announcing the approval last month: "This is a very important project for the European chemical industry as well for the future development of a range of other industries in Holland, Belgium, and Germany as it improves the competitive position of the European industry through more-efficient and reliable transport of a key raw material."

Sections; financing

From Rotterdam to Antwerp, EPDC BV will lease capacity on the existing Shell propylene pipeline that runs 80 km from Rotterdam to Antwerp. The 400-km new pipeline section will be built from Antwerp via Tessenderloo, Geleen, and Cologne to Moers, Oberhausen, and Marl to transport polymer-grade propylene.

Propylene is mainly (70%) produced in steam crackers based on crude oil products. The Western Europe market in 2001 was about 14.7 million tonnes, according to EPDC, half of which is used in the region of the pipeline.

In Duisburg, EPDC will create a barge-unloading station with buffer storage to deliver propylene at the eastern end of the system. Existing independent terminals in Antwerp will be connected to the system to create access to the sea at both Rotterdam and Antwerp.

The new 10 and 12-in. buried pipeline will operate at a maximum operating pressure of 98.5 barg (about 1,430 psig) and "will combine facilities with existing pipelines in the region where it is suitable to do so," said EPDC which "is working with the many permitting authorities in each country to minimize the environmental impact of construction and the long-term impact of the pipeline on planning issues."

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Total investment cost of the project will be about 200 million euros (nearly $250 million), of which about 10 million euros had been spent when EPDC announced EU approval of the subsidy in early July. The consortium said about 60% of the total costs will be spent in North Rhine Westphalia with the balance in the Benelux.

Total subsidies will be 45 million euros, of which 38 million euros have been been allocated by North Rhine Westphalia, 4 million euros by Holland, and 3 million euros by the government of Flanders.

In addition to the governmental subsidies and shareholders' equity, Fortis Bank Global Energy Group, Rotterdam, has set up for EPDC as sole arranger and underwriter, a 10 year, 150-million-euro facility for the construction and operation of the propylene pipeline. EPDC said Deloitte Financial Advisory Services has been acting as its financial advisor for preparing the financial plan.

EPDC said that from the beginning, Rabobank Venlo has helped "with the complex matters of international transfer of payments. Rabobank Venlo will remain the 'House Banking' company."

Organization; schedule

As a Dutch company, EPDC has set up head offices in Venlo with a subsidiary in Belgium (EPDC Flanders) and one in Germany (EPDC PRG). Peter Skelley of BP Chemicals, who remains seconded to EPDC as managing director, will be responsible for all issues of project implementation. The consortium said that the next months' activities focus on permitting in Germany, the Netherlands, and in Flanders.

For the detailed engineering and contract supervision services, the client management engineer E-on Engineering had been nominated by mid-July and was subject to shareholder approval, following a joint EU and German public tendering process.

Detail design has begun with design surveying of the route, including third-party data, crossing surveys, and soil investigations, complete system simulations "to ensure safe operation and control philosophies" throughout the system; design of the supervisory control and data acquisition system, telecommunications, and instrumentation and electrical systems; location and design of custody transfer (metering) stations; location and design of block valve stations and booster stations; developing a full suite of permitting applications and conducting scoping meetings with local authorities, environmental impact assessment studies, and archaeological studies.

EPDC said it hopes to start the construction by third-quarter 2005 and commission the system as sections become available.