EPS Ethylene Pipeline South Press Conference on March 7, 2005 in Munich – Statement Dr. Gerhard Roiss

Dr. Gerhard Roiss
Chairperson of the Ethylene Pipeline South Advisory Board
Deputy General Director OMV Corporation

The spoken word applies!

Connecting the Bavarian petrochemical industry to the European ethylene network – liberating the industry from its isolation to secures it existence and create the prerequisites for continuing growth

The Chemical Industry in Bavaria – South-eastern Bavaria Chemical Triangle

Bavaria enjoys an excellent reputation worldwide as a business location for high-tech industry and services. The chemical industry in Bavaria offers an extensive product range that covers virtually the entire spectrum of the industry. Approximately 60,000 people in Bavaria work in the chemical companies. More than one third of them are employed in the chemical triangle of Burghausen-Trostberg-Gendorf in south-eastern Bavaria, making this the most important chemical region in the state. In addition, thousands of other jobs also dependindirectly on the chemical industry. Consequently, securing the competitiveness of the chemical industry in this region is a challenge that reflects far more than just representing the interests of the economy.

Ethylene and Transporting Ethylene via Pipelines

Ethylene is an important raw material for the chemical industry. It serves as a basis for many petrochemical and chemical products, the most important of which are synthetic materials, such as polyethylene and polyvinylchloride. Ethylene is produced by cracking petroleum products at high temperatures. It is a colorless gas with a faintly sweet odor and is somewhat lighter than air.

The disadvantage of ethylene: like natural gas, it can only be transported in pipelines. At the current time, there are no technically feasible methods of transporting ethylene via fuel tank trucks or tank wagons and neither road nor rail would be capable of transporting the quantities required. Pipelines are the environmentally friendly, safe alternative, which is why there already is an extensive pipeline network connecting the large ethylene producers and consumers in western Europe. The largest centers in the petrochemical industry can be found in north-western Germany around Cologne and Gelsenkirchen and in the area surrounding Antwerp and Rotterdam. These regions are connected by an ethylene pipeline network that reaches as far south as Ludwigshafen.

Problem of Isolation in the Bavarian Chemical Triangle

In the Bavarian chemical triangle, ethylene is produced by OMW and Ruhr Oel in Burghausen and in Münchsmünster and processed by five industrial companies in Burghausen, Gendorf and Münchsmünster. Although these companies are all connected with one another via ethylene pipelines, there is no link to the large western European pipeline network to the north.

The Bavarian ethylene network is currently quite stable (with a total capacity of some 650,000 t a year), but it is highly inflexible because of its isolated location: The ethylene that is produced in Bavaria also has to be consumed within this network of companies. There is no opportunity to import additional or export excess ethylene in or out of this system.

The production facilities are extremely capital-intensive, which makes it important to operate them continuously at full capacity. Should just one of the companies in the ethylene network encounter difficulties, regardless of whether it’s a producer or a consumer, this could lead to a type of domino effect and have seriously adverse effects on the entire industrial network. The companies would no longer be able to run their facilities profitably.

This situation also puts considerable limitations on the companies’ opportunities for growth, making them largely dependent on one another. It is very difficult to adapt the capacities to changing market conditions.

Let’s take OMV as one example: to remain competitive in the long term, we have only two options for the crackers in our refinery in Burghausen: either to expand the ethylene capacity from the current 340,000 t to at least 450 – 500,000 t a year, or in the medium or long term to close down. These facilities will soon be unable to compete on the global market because of their small size and high costs (naphtha crackers with a capacity of about 800,000 t a year are already being built in other locations around the world). Since our customers are only able to absorb part of this additional capacity, these investments will not be made unless we are able to export the excess quantities via the western European pipeline network.

Solution Concept: the Ethylene Pipeline South – Connection to the Western European Network

The Ethylene Pipeline South (EPS) offers us this option. This pipeline will finally help the Bavarian ethylene-producing and processing industry to escape their isolation. The EPS guarantees the connection to the ethylene pipeline network in western Germany via Ludwigshafen as well as further on to the large ethylene markets in Belgium and the Netherlands.

Opportunities and Benefits

The opportunities for the chemical industry in Bavaria that will be created by the connection to the ethylene pipeline are many and far-reaching. The companies will be able to take action and grow flexibly, with greater orientation towards the market and independently from the other players. Should the demand of the Bavarian ethylene consumers exceed the available production capacities, it will be possible to import additional ethylene via the pipeline. In the same way, if the processing companies require less than is produced, the production facilities can continue to operate to full capacity and export the excess to new buyers via the international network. This would virtually eliminate the domino effect currently threatening the industry.

At the same time, the region would also become more attractive to new industries that process ethylene or products manufactured from ethylene.

Consequently, virtually everyone will benefit from the advantages brought by the EPS (it’s a win-win situation)

• Consumers: a sure supply of ethylene and the resulting products
• Enterprises: an increase in the competitive edge of the companies
• The region: a promising future and good prospects for the south-eastern Bavarian chemical triangle with some 25,000 jobs
• The international ethylene market: an important step in creating a trans-European pipeline structure – a connection between the ethylene markets in north-western Germany, Benelux, France, Bavaria, and in the long term Austria and Eastern Europe.

Seven Companies Join Forces to Launch the EPS Project

To secure their competitive edge, an association of currently seven companies in the petrochemical and chemical industry have joined forces to form the EPS GbR (Ethylene Pipeline South). This joint venture consists of two ethylene producers – OMV (Burghausen) and Ruhr Oel (Münchsmünster) and four ethylene consumers in the Bavarian chemical triangle – Borealis, Clariant, Vinnolit and Wacker Chemie as well as BASF as an ethylene producer as well as processor. Approximately EUR 130 to 150 million will be invested in the ethylene pipeline project from Münchsmünster to Ludwigshafen. The Bavarian State Government is an active partner in this important addition to the state’s infrastructure and is providing positive support for the project.

Project Scheduling

Construction work is scheduled to commence at the beginning of 2007 and the raw materials pipeline is expected to start up operations by the end of 2007. In the first stage, the ethylene pipeline will transport 200,000 t a year; in the final stage, 400,000 t a year.

Thank you for your attention.