Connection to the olefins pipeline network is vitally important for the operation of European petrochemical plants. Roger Longley examines the development of the network and the sudden increase in the construction of new pipelines
The petrochemical industry in Europe has evolved from various origins. Steam crackers have been located on former coal chemicals sites, added to oil refineries, or built at coastal ports or near gas feedstocks. National pride dictated projects in each country. Connectivity was not a major issue.
By good fortune, many of these sites followed the Rhine basin, with a few along the Rhone. In due course it was not too large a step to build ethylene pipelines to join about half of European capacity in common producer/consumer networks. The backbone of the larger system is the ARG line, to which lines owned by BASF, Shell, Solvay and others have been added.
As the ARG, with its connected lines, is the grandfather of the olefins system, let us start with this. One of the tests normally applied to any projected new line is the flow of ethylene and thus the effective cost per tonne carried. If this test were applied to the ARG network it would show some nasty surprises.
According to Nexant/Chem Systems' estimates, while the Antwerp end shows a consistent flow eastwards of 600 000 to 1m tonne/year, some parts have only a variable flow of up to 200 000 tonne/year, and some north German sections have almost no flow. On these data the ARG would not now be built, but that is to fly in the face of the very high utility value it is proven to have had.
The beauty of a connected market is the freedom it gives to any ethylene company with access to it, to be able to expand, build, close or reduce the flow of ethylene in small or large increments. This frees it from the need to balance supply and demand within one company or site, but instead opens up a large part of the European market to achieve a balance.
This has been very important as steam crackers and derivatives plants use newer technology to debottleneck. Without this possibility, plants would tend to become trapped in a time warp of obsolescence. This has now become so important that those not connected risk being starved of investments and some face uncertain futures.
After a gap of many years since olefin pipelines were last built, the past five years have seen a sudden increase in activity. This is not driven by major changes in the steam cracker supply. Ethylene capacity has increased slowly by evolutionary expansions, and Nexant/Chem Systems does not foresee any major new projects in the outlook period.
One driver is that, in many products, a new plant has become too expensive to consider, or too large a market step. Thus, it has become more attractive to revive the fortunes of the orphan plants by connecting them to wider markets, than to scrap and build anew. This is supported by regional governments willing to help local industry survive, and the possibility of subsidies for infrastructure such as pipelines.
Some of the more important projects are listed opposite, while the general parameters of pipeline economics are summarised in the top table.
These parameters are used to make provisional estimates around the projects discussed. What this means in simple terms is that 100km of pipeline needs a flow of 100 000 tonne/year to justify itself.
The structure and problems differ widely between these projects. Some of the variations may be shown by taking examples.
The north German region has been the focus of several schemes, led jointly by the German chemical industry association and companies. This is being promoted overall as Chemcoast, but within this are three different elements that are progressing differently.
Elbe crossing - pipeline bundle; Stade to Brunsbttel
On the east coast of the Elbe between Hamburg and the sea lie the small refinery and steam cracker at Heide and the chemical sites of Sasol (ex-Condea) and Bayer. These already had limited connectivity, with an ethylene pipeline from Heide to the other sites, plus a hydrogen network. While ethylene is in balance, propylene is all railed out and hydrogen is used in large volumes.
On the west bank we find Stade, a major Dow Chemical site with olefins terminals and large chlorine production. Without a connection Dow Chemical has to fuel a large part of its hydrogen coproduct and its ethylene terminal is remote from the other bank. The bundle concept is to build up to four lines across the Elbe - moving ethylene and hydrogen to the east and propylene and gas to the west.
The distance involved is only 50km, but involves a deep river crossing. The cost for the four lines may total E800 000/km. The volumes involved are low, about 75000 - 150 000 tonne/ year, but the added value is high, making the cost of around E50/ tonne in the right direction, but still too much to be a clear winner. This project is still actively going to detailed planning and negotiations, but looks as though it will need to seek some public money to move it into the 'go' mode.
Dow Chemical olefins pipeline
Unlike most other lines this is driving ahead at an impressive rate. It started planning separately, but at the same time as the Elbe bundle. Trenches are already being dug and completion is expected end 2003/start 2004.
There are two reasons that enable this. First, only one company is involved: Dow Chemical will own the sites at both ends and all the product flows. Second, the line lies entirely in the former eastern Germany, which is very receptive towards new infrastructure investments and has dispensation to offer a subsidy with few administrative problems and delays. In addition, there are already hydrocarbon pipe tracks for most of the route from Stade to BSL and olefins storage at either end.
By following those tracks the route is increased to 390km, but the cost will be relatively low. At the bottom end of our range this would cost E120m before subsidy, which is a lot to invest for reasons that initially seemed rather vague. So how does Dow Chemical, a hard-nosed company, justify an investment that even a group of companies sharing the costs seem unable to put together quickly?
Clearly there must be real numbers behind a project that was announced 'to support Dow Chemical's strategic investment in BSL as a spearhead eastwards from mainstream Europe'. First, look at Stade. This site imports around 500 000 tonne/year of propylene and 60 000 tonne/year of ethylene. Dow Chemical has large storage to allow it to flex its purchasing muscle.
BSL, on the contrary, is landlocked and depends on the Boehlen cracker to produce the 510 000 tonne/year of ethylene to which it has been expanded. Demand for ethylene at BSL potentially can exceed this by up to 200 000 tonne/year. Part of the deficit has been supplied by the pipeline from the inland cracker at Litvinov, but as Chemopetrol is expanding its own polyethylene output this is about to dry up.
Dow Chemical can point in the near term to a need to use the line to import this 200 000 tonne/year of ethylene, and the line could handle double that when the company expands at BSL again. Eventually, and we are looking past 2010, a new cracker will be justified at BSL. This will give the second arm to Dow Chemical's strategy - the ability to reverse the flow and export propylene to Stade.
Currently Boehlen has a surplus of propylene that is taken away expensively. Add this to the output from the envisaged new cracker and it would be close to balancing the demand at Stade. The attractiveness of the plan is enhanced by the flexibility it will give Dow Chemical to handle shutdowns and cover unplanned outages of its plants.
The economics can only be guessed at, but the operating costs may come out at E11m/year. If the average flow is 400 000 tonne/year over the long term, this gives E28/tonne of olefin movement. This is very competitive to the tariffs for an average ARG movement and lower than the company's current costs of moving propylene. On this strategic view, Dow Chemical has played a bold winning move.
Chemcoast connection - Marl to Wilhelmshaven
This is moving the most slowly of the three northern projects. The EVC plant at Wilhelmshaven ships in ethylene from Huntsman's cracker at Wilton in the UK. This survives only because there is a mutual need to move ethylene. It is, however, one of the more expensive ethylene movements in Europe and a competitive disadvantage that a VCM producer could well find difficult to pass on profitably.
In 2000 Veba Oel was assembling a gas cracker project to make 800 000 tonne/year of ethylene from NGLs extracted from North Sea gas. Veba needed to find new markets for part of this ethylene; EVC needed about 130000 tonne/year of it and Dow Chemical Stade could top this up to about 200000 tonne/year. On this basis, a 230km line following some existing tracks, costing say E350 000/km, could give a transport cost of E50/tonne.
This is high by ARG standards and, as Dow Chemical has now taken its own connectivity steps, part of the volume is eroded. With the gas cracker project no longer looking likely, the possible source of low-cost ethylene has also receded. This project seems to need both a supply-led ethylene partner and aninjection of funds to get it back on track.
Southern Germany - Bayernverbund concept
The sub-region of Bavaria has some excellent petrochemical assets. The base support comes from two medium-sized steam crackers which have an above average refinery integration. Several companies share the demand - Borealis and Basell for polyolefins, Wacker for acetyls, Vinnolit for EDC/VCM and Clariant for ethylene oxide. All of these provide above average value enhancement downstream, for example, Wacker with high value VAM lattices and Clariant with ethoxylates. There is an ethylene pipeline partly connecting all these units.
All this seems positive, but there is one potentially fatal problem - the distance from the rest of the industry. None of these plants is free to vary its ethylene flow and any change requires long and coordinated negotiations between cracker operators and users. The crackers both have expansion potential, very necessary to keep them from falling behind the capacity creep elsewhere, but cannot easily implement these. As a result the region is in danger of falling into obsolescence.
The companies and local government have banded together to form a Bayernverbund initiative which included a study by McKinsey. Among the options identified was an ethylene line to join Bavaria to the ARG. This is being discussed very actively by the Bayernverbund committee. The distance involved is up to 500km, depending on the route selected, and there are existing or planned pipelines along much of the way.
Based on a mid-range estimate, the cost for the shortest distance of 320km would be about E120m, giving a funding need of E14m/year. To bring the transport cost down to the affordable E30-35/tonne level, this needs about 400 000 tonne/year ethylene flow. The cracker debottlenecking potential is about half that, thus leading to the familiar equation that a significant subsidy is needed to make this project viable.
The rationale for building this line is powerful. It would connect to the ARG and have a greater flow than some parts of that line. If Bavaria were to go out of the petrochemical business, replacing the ethylene capacity alone, say, for example, at E850/tonne on a brownfield site elsewhere in Germany, it would cost E560m, and a similar sum for the derivatives bringing the cost to over E1bn. This is a significant part of the industrial infrastructure of Bavaria and the employment and financial impact of a decline on the region would be very damaging. Against that the pipeline seems a cheap option.
The European Pipeline Development Company (EPDC) is the only major propylene line actively being evaluated. Much has been published about this, so it suffices to refer to it as a propylene copy of the ARG. The U-line is to complete the connection of a propylene network from the coast to the Ruhr. The latter region has a propylene deficit of 1m tonne/year, much of which moves expensively by rail, road or barge across densely populated parts of Europe.
The line is supported by the regional government in Nordrhein-Westfalen (NRW) and a number of major companies, currently about nine. This qualifies for European Union funding for the parts of the line that run through the area in Germany blighted by closures of coal mining. The EPDC is seeking funding for the rest, mainly covering Belgium and the Netherlands.
This is where the U-line becomes so important a project. With two national and one regional government plus some of the most powerful chemical companies in Europe behind the project, EPDC has strong political support. The industry, in the form of APPE, was already motivated to campaign to have olefin lines included in the Trans-European Networks infrastructure projects that automatically make them eligible to apply for EU or regional subsidies.
The U-line is a classical example of a desirable community investment - apart from economic and environmental aspects, the NRW claims 200000 new jobs will be created on the back of it. If approval is achieved, possibly by 2004, the other lines will take on a new lease of life and accelerate. They will still need to make a case on economic, structural and environmental grounds.
The connectivity of olefins has been proven by the ARG to be of enormous value to the petrochemical sector and to the communities it serves. The industry needs to overcome the simple economics to make another pipeline breakthrough. This would catalyse another round of cracker debottlenecking, which can significantly enhance the sector competitiveness and prolong the economic life of ageing assets, thus delaying the need for new grassroots plants. It will give a new lease of life to regions away from the ARG corridor and open up further connection possibilities in future. n
Roger Longley is an independent consultant in strategy in the petrochemical sector. He can be contacted on firstname.lastname@example.org
Pipeline economics summary
Greenfield cross-country pipelines
Pipelines along existing tracks
Maintenance and operations
|1.5-2% of capital|
Capital repayments, 20 years
|5% of capital|
|4.5-5.5% of capital|
Total costs, approx
|12.5% of capital|
|SOURCE: Roger Longley|
European olefins pipeline projects
|Propylene||Rhine/Ruhr to Netherlands||230km*||Planning|
|Ethylene||Marl to Wilhelmshaven and||230km||Concept|
|other N German connections|
|Ethylene, propylene, H2, gas||Stade to Brunsbttel||50km||Planning|
|Ethylene or propylene||Stade to Leuna||390km||Under construction|
|Ethylene||Mnchsmunster to ARG||320km||Concept|
Central European Consortium
|Ethylene||Several Central European sites||
Options from 40km to 1000+km
|Ethylene||Wilton to Hull||150km||Built|
|Ethylene||Feyzin to Carling||398km||Built|
* Only the German section
|SOURCE: Roger Longley|