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UNIVERSITEIT GENT
FACULTEIT ECONOMIE EN BEDRIJFSKUNDE
ACADEMIEJAAR 2009 – 2010
An economic analysis of pipeline
transport in Flanders
Masterproef voorgedragen tot het bekomen van de graad van
Master in de Toegepaste Economische Wetenschappen
Thomas Capiau
Onder leiding van
Prof. dr. Eddy Van de Voorde
UNIVERSITEIT GENT
FACULTEIT ECONOMIE EN BEDRIJFSKUNDE
ACADEMIEJAAR 2009 – 2010
An economic analysis of pipeline
transport in Flanders
Masterproef voorgedragen tot het bekomen van de graad van
Master in de Toegepaste Economische Wetenschappen
Thomas Capiau
Onder leiding van
Prof. dr. Eddy Van de Voorde
PERMISSION
Ondergetekende verklaart dat de inhoud van deze masterproef mag geraadpleegd en/of
gereproduceerd worden, mits bronvermelding.
Thomas Capiau
I
Woord vooraf
Het voorbije jaar heb ik me met volle overgave gestort in de wereld van pijpleidingtransport.
Het resultaat is een economische analyse van pijpleidingtransport in Vlaanderen. Bij aanvang
zou ik een aantal mensen willen bedanken die mij geholpen hebben bij het tot stand brengen
van mijn masterproef.
Deze masterproef zou nooit verwezenlijkt zijn zonder de hulp Prof. dr. Eddy Van de Voorde
en Prof. dr. Thierry Vanelslander. Een oprechte dank voor de kritische opmerkingen en de
interessante voorstellen.
Evenzeer wil ik mijn familie bedanken voor de morele steun en positieve aanmoediging. In
het bijzonder wil ik mijn grootvader bedanken voor de nodige contacten bij firma Denys.
Tevens wil ik mijn dank betuigen aan meneer Goethals die mij geholpen heeft bij het
dissecteren van Fluxys.
Ik hoop dat ik met deze masterproef een bijdrage heb geleverd aan de bestaande studies.
II
Content
Introduction ............................................................................................................................................. 1
1. History ................................................................................................................................................. 2
2. Typology .............................................................................................................................................. 2
2.1. Energy pipelines ........................................................................................................................... 3
2.2. Water and sewage pipelines ........................................................................................................ 4
2.3. Slurry pipelines ............................................................................................................................. 4
2.4. Pneumatic pipelines ..................................................................................................................... 5
2.5. Capsule pipelines .......................................................................................................................... 5
2.6. Other pipelines ............................................................................................................................. 7
3. SWOT-analysis ..................................................................................................................................... 7
3.1. Pipeline as a mode of transport ................................................................................................... 8
3.1.2. Benefits ................................................................................................................................ 10
3.1.3. Drawbacks ........................................................................................................................... 11
3.1.4.Opportunities ....................................................................................................................... 12
3.1.5. Hostile environments .......................................................................................................... 13
3.1.6. Bottlenecks .......................................................................................................................... 14
4. Pipeline versus other modes of transport ......................................................................................... 16
4.1. Pipeline transportation VS air transportation ............................................................................ 19
4.2. Pipeline transportation VS rail road transportation ................................................................... 19
4.3. Pipeline transportation VS sea shipping ..................................................................................... 20
4.4. Pipeline transportation VS road transportation ......................................................................... 20
5. Pipeline transportation...................................................................................................................... 22
6. Pipeline systems ................................................................................................................................ 23
6.1. Natural gas .................................................................................................................................. 23
6.1.1. Fluxys ................................................................................................................................... 23
6.1.2. CREG (Commissie voor de Regulering van de Elektriciteit en het Gas) ............................... 35
6.2. Petroleum ................................................................................................................................... 36
6.2.1. The Belgian Pipeline Organisation ....................................................................................... 37
6.2.2. RAPL ..................................................................................................................................... 42
6.2.3. Example: Kerosene pipeline ................................................................................................ 42
6.3. Water .......................................................................................................................................... 43
III
6.3.1. SVW (Samenwerking Vlaams Water) .................................................................................. 44
6.3.2. VMW (Vlaamse Maatschappij voor Watervoorziening) ...................................................... 45
6.4. Technical gasses ......................................................................................................................... 46
6.4.1. Air Liquide ............................................................................................................................ 47
6.5. Chemicals .................................................................................................................................... 48
7. The pipeline network in Flanders ...................................................................................................... 49
8. Price mechanism and governmental control .................................................................................... 49
9. Recommendations ............................................................................................................................. 51
10. Conclusion ....................................................................................................................................... 54
Sources .................................................................................................................................................. VII
Appendix 1 ............................................................................................................................................... X
Appendix 2 ............................................................................................................................................ XIII
IV
Abbreviations
BC Before Christ
TAPS Trans Alaska Pipeline System
PCP pneumatic capsule pipeline
HCP hydraulic capsule pipeline
CLP coal log pipeline
CONCAWE CONservation of Clean Air and Water in Europe
RAPL Rotterdam Antwerp PipeLine
LNG liquefied natural gas
BBL Balgzand Bacton Line
CREG Commissie voor de Regulering van de Elektriciteit en het Gas
KLIM Kabels en Leidingen Informatie Meldpunt
KLIP Kabel en Leiding Informatie Portaal
BPO Belgian Pipeline Organisation
CEPS Central European Pipeline System
CEPMO Central Europe Pipeline Management Organisation
NPS North Atlantic Treaty Organisation Pipeline System
PLUTO Pipeline Under The Ocean
CEPMO BoD CEPMO Board of Directors
CEPMA Central European Pipeline Management Agency
NMDW Nationale Maatschappij der Waterleidingen
VMW Vlaamse Maatschappij voor Watervoorziening
SVW Samenwerking Vlaams Water
IWA International Water Association
ARA-area Amsterdam-Rotterdam-Antwerp area
V
Tables
Table 1: Different types of pipeline
Table 2: SWOT-analysis
Table 3: Externalities
Table 4: 3 conditions
Table 5: General characteristics of the pipeline network in Flanders
VI
Figures
Figure 1: A pneumatic capsule pipeline
Figure 2: A coal log
Figure 3: Emission
Figure 4: Emission (environmental impact calculation of transport)
Figure 5: Safety ranking
Figure 6: Distribution of incidents per cause of the European Gas Incident Data Group
Figure 7: Fluxys at the centre of Western Europe’s gas pipeline network
Figure 8: Infrastructure
Figure 9: New pipelines 2008 & 2009
Figure 10: New capacity
Figure 11: Fluctuation in demand
Figure 12: The BBL
Figure 13: A gauge pig
Figure 14: Investments
Figure 15: The CEPS map
Figure 16: Distribution of the water companies in Flanders
Figure 17: Air Liquide its gas pipeline network
1
Introduction
When asked about transportation in general, people usually think about road transport,
railroad transport, aviation or shipping. Pipeline transport will be the last mode of transport on
their mind.
The 1957 Treaty of Rome was designed to liberalize the European market by
promoting the free movement of products. Article 75 of the Treaty of Rome –e.g. the common
transport policy- imposed common rules for international transport which tried to improve
and liberalize the European market. Transport as formulated in the Treaty of Rome, however,
did not embody pipeline transport. Later, when this oblivion was discovered, pipeline
transport was made part of the energy department because it was too difficult to adapt the
Treaty of Rome. This course of action, however, split up the responsibility which made the
governing of European transport disorderly.
In the Flemish governing agreement 2009 – 2014 the word pipeline appears only
once1. Moreover, the statistics of Flemish transport do not even contain pipeline transport as a
mode of transport1.
The most troubling fact is that the government does not consider pipeline transport as
a public utility. It leaves the discovering, planning and construction of pipelines in the hands
of individuals. Meaning, the government is not inclined to invest in pipeline transport.
Because the government thinks it is not their job to facilitate pipeline transport and most
pipeline projects are much too big for private firms, there is little initiative for building
pipeline networks. Only pipeline systems that have proven their value in the past receive
attention and meddling by the government in the present. Fluxys, BPO and the water
networks are one of the few pipeline systems that are controlled –one more than the other- by
the government.
The Flemish Institute of Logisticsa has recognized this problem of undervaluation of pipeline
transport. It has made the government aware of this problem and proposed several courses of
action to improve the Flemish pipeline transport.
2
1. History
Pipelines are an ancient technology that has served many different civilisations in different
regions. They were -and still are- part of the development and progress of society. Many of
the ancient applications of pipeline transportation are still being applied in a contemporary
way.
The first pipelines date back to 3000 BCb in Mesopotamia, Egypt and China. They were
primarily used to supply water but were all made out of different materials. In Mesopotamia
pipelines were made out of clay, in Egypt out of copper and in China out of bamboo2.
The Romansc were the first to build a gigantic pipeline network that could transport
water all around their city. Thanks to the overflow of water, even the poorest citizens of Rome
could afford going to the bathhouse. This enabled Rome to create a relatively hygienic
environment and to limit outbursts of epidemics. The Romans used many different materials
such as lead, bronze, silver and wood to construct their pipelines2.
In the Middle Ages the technologies and developments discovered by the Romans
were disregarded. There were no comparable water networks like in ancient Rome.
Later on, in the 15th
century iron pipelines were introduced. Thanks to these iron
pipelines and newly developed pumping system a decent European water network arose in the
16th
and 17th
century.
Late in the 19th
century, the first pipelines were build to transport crude oil efficiently.
Then with the discovery of new wells and the conversion of oil application (from oil for oil
lamps to oil for automobiles), refineries and pipelines were being constructed in a haste3.
After World War 2 the oil pipeline systems received another development boost because the
alternative modes of oil transport appeared to be too vulnerable to enemy attacks.
Pipelines underwent some sophisticated technological changes and can nowadays
transport more than just water or oil.
2. Typology
There are many different types of pipelines for transporting a variety of things. There even are
pipelines for transporting beer and pipelines used as a road for automatically guided vehicles.
The many different pipelines can be categorized in various groups.
3
A pipeline is normally used for moving a great number of different liquids, gases and
slurries– e.g. fine particles suspended in liquid. Its diameter varies widely, from a very small
size (2 inches) for gathering pipelines in an oil well to a very big size in sewage networks.
Furthermore, a pipeline is usually laid underground instead of aboveground or offshore and is
usually made of metal, though concrete, clay and plastic pipelines also do exist. Because a
pipeline becomes more cost-effective with increasing length, the distances involved can be
enormous.
Table 1
Different types of pipeline
- Energy pipelines: - oil pipelines: - gathering lines
- trunk lines
- product lines
- gas pipelines
- Water and sewage pipelines
- Slurry pipelines
- Pneumatic pipelines
- Capsule pipelines: - a pneumatic capsule pipeline
- a hydraulic capsule pipeline
- a coal log pipeline
- Other pipelines: - for transporting chemical substances
- for transporting biomass
2.1. Energy pipelines
Energy pipelines can be split up into oil pipelines and gas pipelines. Within the oil pipelines
there can be made a distinction between gathering lines, trunk lines and product lines.
Gathering lines are the lines of the gathering system that gathers the crude oil from deep
within the well, as well as onshore as offshore. These gathering lines are usually small, from 2
to 8 inchesd in diameter, and are connected to the trunk lines
4. The trunk lines are larger and
measure from 8 to 24 inchese in diameter. They bring the crude oil, gathered by the gathering
system in the producing areas, towards the refineries. The most well-known trunk line is the
4
Trans Alaska Pipeline System (TAPS), see appendix 2, figure 1. When the petroleum is
refined it becomes gasoline, jet fuel, home heating oil and diesel fuel. These refined products
are then directly transported through the (refined) product lines towards the end user such as
airports and electrical power generation plants or are then transported and stored up into fuel
tanks. These tanks are then emptied into trucks which make the final delivery to gas stations
and homes. The gas pipeline network is usually more extensive than the oil pipeline network.
Where the natural gas is commonly delivered by pipeline at home for cooking or heating your
place, the gasoline or diesel is only available at the gas station. Apart from gas for cooking and
heating there are also gases such as hydrogenf, oxygen
g, nitrogen
h, carbon oxide
i and argon
j
that are transported via pipelines. These gasses are very important for a variety of industries.
2.2. Water and sewage pipelines
The water pipelines transport the water from the producing area’s or from a natural source
towards the customers. After usage or consumption, the water is transported via the sewage
pipeline network to purifying facilities or in the worst case scenario directly dumped in a
river.
2.3. Slurry pipelines
Slurry pipelines are the next category of pipelines. A slurry pipeline transports slurry –e.g. the
mixture of solid particles and a liquid, usually water. There are two types of slurry: when the
mixture consists of small solid particles it is called fine slurry and when the mixture is made
up of larger particles it is called coarse slurry5. Slurry pipelines have two major applications.
Traditionally, a slurry pipeline is used in the mining industry for transporting the mineral
concentrate. The most common minerals that are transported using slurry pipelines are coal,
copper, iron, lead, zinc and nickel. The concentrate of the ore is mixed with water and then
pumped over a long distance –mostly- to a port where it can be shipped for further
processing6. In order to reduce the transport space and weight, the ore is –obviously- filtered
from the water before being loaded into the ship. Slurry pipelines are economically more
profitable and environmentally friendly than the railroad transport. These slurry pipelines are
most practical when the mine is located far away from the port, road or railroad. Also, a slurry
pipeline can be used for dredgingk sand, gravel or soil from a waterway and for removing silt
l
5
at the bottom of dams. Silt caused by natural disaster such as a tornado or a flood can also be
removed using a slurry pipeline. Whether the slurry pipeline is used in the mining industry or
used for dredging, it has to be stronger than a normal pipeline due to the abrasion13
by the
solids
2.4. Pneumatic pipelines
A more specialized classification is the pneumatic pipelines category. A pneumatic pipeline
system transports solids suspended in air using a pressure blower or a vacuum pump. One
pneumatic conveyor can handle a diversity of products such as bulk, flakes, capsules or
tablets. The speed of a pneumatic transport system varies depending on the characteristics of
the system. The energy needed for transporting the air and thus transporting the solids is
relatively highm
and energy inefficient but this is outweighed by the convenient and hygienic
way of transportation. Moreover, the temperature during the transport is relatively low which
makes pneumatic pipeline transportation appropriate for heat-sensitive materials such as food.
Additionally, pneumatic transport is also suitable for contamination-sensitive materials such
as medicines since the system is totally enclosed and, thanks to the air stream, free from most
dirty particles. But pneumatic pipeline transport has a drawback; it is mostly restricted to the
transportation of solids which are dry and not too large.
2.5. Capsule pipelines
Capsule pipeline transportation is a relatively new variant of pipeline transport. It transports
freight in a capsule which is pushed through the pipeline by water or air. A capsule pipeline is
–like most pipelines- well shielded, environmentally friendly, safe, reliable, weatherproof and
secure. Maybe even more important, capsule pipelines can reduce the congestion problem
caused by trucks and decrease the workload of train transport. Consequently, there will be less
traffic, fewer accidents, less damage to the transport infrastructure and hence reduced
congestion costs, accident costs and infrastructure maintenance costs7. There are two types of
capsule pipelines: a pneumatic capsule pipeline (PCP) and a hydraulic capsule pipeline
(HCP). A capsule pipeline is called a pneumatic capsule pipeline when the capsules are
wheeled and pushed through the pipeline by air –see figure 1. The most well-known
pneumatic capsule pipeline system actually has very small capsules without wheels pushed
6
through the pipe by air. However, this kind of transport is out-dated and new technologies
such as e-banking and fast courier services allow more effective and economical ways of
transport. The pneumatic capsule pipeline that Figure 1: A pneumatic capsule pipeline
uses wheeled capsules to transport the cargo
through the pipe is normally much larger
than the pneumatic capsule pipeline
discussed above. In a pneumatic capsule
pipeline system the capsule travels at a low
speed. However, its average speed a day is
comparable with the average speed of a
truck in a rural area, and much faster than a
truck in a city. Therefore, the pneumatic capsule pipeline system is best suited for
underground freight transport in large cities where it has an advantage over truck transport7.
For instance, there has been a feasibility study on the use of pneumatic capsule pipeline in
New York City. The hydraulic capsule pipeline on the contrary uses capsules without wheels
which are transported through a pipeline filled with water. The moving force of the water
makes the capsule float and pushes it through the pipe. The hydraulic capsule pipeline is
slower than the pneumatic capsule pipeline. However, a hydraulic capsule pipeline uses less
energy and is equipped with a longer capsule than a pneumatic capsule pipeline of the same
diameter. Hence, a hydraulic capsule pipeline is able to transport a larger cargo in a more
economical way than a pneumatic capsule pipeline making it more profitable when speed is
not important. Therefore, a hydraulic capsule pipeline can convey materials of inferior value
than the materials transported by a pneumatic capsule Figure 2: A coal log
pipeline and also over a longer distance. A special type
of hydraulic capsule pipeline is the coal log pipeline
(CLP). The capsule in a coal log pipeline is coal pressed
together in a logn which is water-resistant –see figure 2.
This is a very economical capsule pipeline system since
there is no extra pipeline necessary to return the capsule.
Only, not every mineral or material can be compacted in
such a log.
7
2.6. Other pipelines
Finally, there are also pipelines for transporting chemical substances such as ethylene,
chlorine or propylene which are used in the chemical industry and pipelines for transporting
biomass such as biofuel, biogas or coleseedoil.
Not every type of pipeline is equally important, especially in Flanders (and Belgium). On the
one hand, the slurry, pneumatic and capsule pipelines are not widely represented in Flanders
and will consequently not be focused on. On the other hand, the oil, gas and water pipelines
are paramount in Flanders and will be thoroughly examined.
3. SWOT-analysis
This SWOT-analysis summarizes the most significant strengths, weaknesses, opportunities
and threats of a normal pipeline system such as a gas, oil or water pipeline system.
Since the characteristics of pipeline transport depend very much on the substances
transported, the results of the SWOT-analysis are based on generally accepted facts valid for
most types of pipelines.
Table 2
Strengths Weaknesses
- Environmental friendly - High initial cost price
- Low visual costs - Long term (inflexible)
- Little noise pollution - Limited number of substances that can be
transported (inflexible)
- Reliable
- Different pipeline systems for different
substance groups (inflexible)
- No empty returns
- Origin(s) and destination(s) are fixed
(inflexible)
- Safe - Termination costs for users
- Does not need much space
- Low operating costs: low energy costs, low
- Limited capacity (inflexible)
- Vulnerable to construction works
8
personnel costs, low maintenance costs
- Durable
- Cost-efficient: low operating costs +
durable
- Less susceptible to theft
- Little over ground occupation
- On- and offshore
- Shorter trajectory
- Fairer price
- Enormous transport capacity
- Continuous flow
- Weatherproof
- Limited network
Opportunities Threats
- Ameliorate road transport efficiency - Seismic regions
- Ameliorate rail road transport efficiency - Barbaric working conditions
- Densely populated regions - Densely populated regions
- Clustering effect
- Anchor effect
- Capsule pipeline systems
- Increasing demand
- Globalisation
- Little spatial planning
- Little governmental aid
- Uncertainty: period and throughput
- Bureaucracy
- Sea shipping
- International dissimilar standards: safety
barriers and product composition
3.1. Pipeline as a mode of transport
Generally, pipelines provide transportation, temporary storage and logistic services but they
do not own the product they transport8. The owners -the producers and shippers- pay the
pipeline companies to transport their product to the marketplace. The pipeline companies
transport products from areas that have a lot of resources to areas that are in continuous
demand of these resources. This function is becoming more and more important in our global
market.
9
3.1.1. Externalities
When analyzed thoroughly, a pipeline as a mode of transport has a lot of benefits and almost
no negative externalities. However, the construction work for laying a pipeline, both
underground as above ground, can annoy people. Yet, this externality is temporarily and will
be minimized by choosing a balanced trajectory. This makes that the trajectory has to take
into account the triple bottom line –e.g. the economic, environmental and social aspects that
are important to the society. As a result, the trajectory will probably go through remote areas
where the construction work will not vex many people and will not cost too much due to the
dense population.
Table 3
Externalities
- Environmental costs of construction and operating
- Little noise pollution
- Mostly no visual costs
- Interference in the natural habitat of animals
What are the externalities of a pipeline? A pipeline system has virtually no environmental
costs, except for the little environmental costs of construction and operation.
A pipeline is usually laid underground where it is out of sight and doesn’t bother
anyone. So an underground pipeline has no visual costs and almost no noise pollution.
However, an underground pipeline usually brings along a public easementO that prohibits
building houses, laying roads and digging above the pipeline. Nevertheless, the public
easement will only affect few people since the trajectory will try to avoid dense populations.
Sometimes a pipeline is laid aboveground. This is the case when there will be no one
affected by the poor view and the little noise. Only, some animals can be affected by an
aboveground pipeline. For example, deer will have to use a special bridge to go to the other
side of the pipeline.
Further, a pipeline as a mode of transport emits gases such as carbon dioxidep or
nitrogen oxideq because the pressure needed to transport the fluid or cargo is created by
engines that emit these gases. There are only few pipeline systems that do not emit any gas
10
because they use the gravitational force instead of pressure. For example, the sewage pipeline
network uses gravity to transport its sewage to its destination. A water tower also uses the
gravitational force to transport its water, only the water is first pumped into the water tower
using engines that emit gasses.
Summarized, there are some externalities caused by pipeline transport, however these
externalities are relatively small and to some extend avoidable.
3.1.2. Benefits
Pipeline transport, besides the fact that it causes little noise and air pollution and in most cases
no visual cost, has even more benefits. It is also a reliable, durable, safe and weatherproof,
profitable, energy friendly and cost-efficient mode of transport that does not need much room
to operate.
A pipeline as a mode of transport for conveying liquids, gases, slurry, goods or other
substances and materials is very reliable because once the time and date of the order have
been registered, it is guaranteed that the package will arrive at its destination. This can be
explained by the fact that the capacity of a pipeline is known and the free capacity can be
mathematically calculated, so that an order will not be accepted when there is no capacity
available. Therefore, the only challenge will be choosing the right pipeline system for the
actual and future market situation. Glitches in a pipeline system are the exception.
The high delivery speed of a pipeline system is a huge benefit for many companies. In
some cases, the substances can be even obtained immediately, for example, many households
have direct access to pure water and/or natural gas.
It is self-evident that a pipeline system has to be durable in order to be profitable since
the cost price of a pipeline system is enormously high. Investing in a pipeline has to be well
thought-out because most pipelines are amortized over 30 years or more. It is this durability
of a pipeline that is at the origin of the low long-term average cost of a pipeline system which
makes a pipeline as a mode of transport so appealing.
Most pipelines are laid underground and the aboveground pipelines are situated in
remote areas, creating a safety barrier in both situations. This makes pipeline transport a safe
mode of transport with little accidents or deaths. Additionally, a pipeline is designed to
withstand the extreme weather conditions that it may encounter, making it even safer. In a
11
permafrost region a pipeline is able to withstand extreme cold temperatures and nowadays
most pipelines are equipped with a cathode coating to protect against corrosion.
As previously mentioned, it is the average long-term profitability that is important. In
the short-run, a pipeline system is considered to be too expensive due to its high investment
cost. Once the fixed costs are paid for, there are only the variable energy costs and personnel
cost to take into account. Since most pipeline systems are now automated, the personnel cost
is relatively low. The energy costs for operating are also relatively low because energy is only
needed to create pressure and -apart from capsule pipeline transport- there are no empty
returns needed. This makes of pipeline transport an energy friendly mode of transport.
Furthermore, a pipeline system rarely needs maintenance since the pumps and compressors
are the only moving parts of the pipeline system; a well constructed and protected pipeline
only needs a lot of attention when an unforeseen circumstance has occurred such as an
earthquake or unauthorized digging.
Many pipeline systems make it possible for the consumer to use the transported
product whenever he wants. For instance, in Flanders many people at home have direct access
to water and natural gas. The prerequisite is that there has to be enough capacity available to
deliver to everyone and to cope with fluctuations in demand. A heat wave for example could
pose a challenge for the water companies.
3.1.3. Drawbacks
A pipeline system can only convey a limited number of liquids, gasses and slurry. The most
common transported substances are oil, natural gas and water. This means that the
transportation possibilities of a pipeline system are rather limited, particularly in comparison
with other modes of transport.
Furthermore, the product that has to be transported determines the sort of pipeline
system that has to be constructed. The natural gas will not be transported through the same
pipeline system as the pipeline system used to transport oil.
Pipeline transportation, compared to other modes of transportation, is bound to a very
different set of rules. In Flanders and Belgium, almost each different market has its own set of
rules. Most of the oil and jet fuel is controlled by the military, the main pipelines transporting
the natural gas are supervised by the government, the water pipeline network is controlled by
groups of communities, and many other pipelines are controlled by individual players. In
12
addition, the different set of rules is occasionally changing. For instance, the first pipelines of
the Central European Pipeline System network were owned by private players, then the
different countries have nationalized all the oil pipelines and nowadays the Belgium Pipeline
Organisation is privatising again the oil pipelines.
Pipelines are usually laid underground out of the way and out of sight but not fully out
of harm’s way. Since the exact location of pipelines is not made public to just anyone, it
happens that people who are not well informed or not informed at all accidentally damage a
pipeline. Precautions and safety barriers are applied but due to the negligence and human
errors accidents happen anyway.
For some substances such as oil, gas and water Flanders has an extended pipeline
network and for others not. This means that the usage of pipeline transportation for some
substances is often not possible or very limited.
3.1.4.Opportunities
A more extended pipeline system can reduce the number of trucks on the road. This will result
in less traffic congestion and will make driving more pleasant for everyone else. If, for
example, the transport of cargo by 1 pipeline between Rotterdam and Antwerp were to be
discontinued, there would be a need of 1.056 trucks, creating a congestion of 30 kilometres,
driving back and forward continuously9. This example shows that the current pipeline systems
are indispensable for society and can reduce trucking transport. If the volume transported by
pipeline were to be transported by trucks, the roads would be completely jammed.
Similarly, pipeline transport can take over some of the services from rail road
transport. Though, the focus should lay on the improvement of rail road transport and not
simply on stealing customers.
Transporting goods or persons in or through densely populated areas can be difficult,
slow, expensive or even impossible. To cope with the problem of transporting persons, many
big cities have constructed subways to efficiently transport people from one place to another.
For transporting goods in the big cities however, there is no specially designed mode of
transport. Capsule pipeline transportation can be a valuable alternative for the inefficient
transport of goods in densely populated cities facing traffic problems nowadays.
Pipelines enable suppliers to profitably connect to companies or customers in remote
areas. More important, pipelines can make companies who are in looking for the same
13
product cluster together around the same pipeline. Thanks to the clustering effect the demand
for pipeline transportation could soar as a result of which the transportation costs could
decline. Lower transportation costs equals a higher profit or gives you the opportunity to sell
products at a cheaper price. In either way the companies involved will be in a stronger
position than without pipeline transport possibilities. Furthermore, once the companies are
hooked to the lower transport costs they will not wish to move to a place where transport costs
are higher. This anchor effect makes sure that companies will think twice before relocating.
With more traffic year after year congestion is becoming a significant problem. Every
day many people spend hours in traffic just to get to work. One way to cope with this problem
is to invest in capsule pipeline systems. These systems have a lot of benefits compared to road
transport, but many of these capsule pipeline systems are not yet fully optimally realized to
substitute for rail road and road transport. There are however capsule pipeline projects
running in London and the Netherlands to test for their potential.
Globalisation has changed the way pipeline transport works. Open markets and good
international relations bring forth a more intense interplay of supply and demand which means
more competition and arbitrage. This entails less supplier power and also -to some degree-
less buyer power and thus more equal international prices. Since some substances such as oil
and gas are wanted in every part of the world, most countries have build a global pipeline
network and/or have integrated a part of their pipeline systems into a global pipeline network.
As a result, globally demanded products can be conveyed more efficiently and cheaply from
all over the world. This is an ongoing process that hasn’t reached its end yet. Globalisation
together with the fact that energy demand is rising in Belgium10
make sure that there will be
big opportunities for further pipeline development.
3.1.5. Hostile environments
In general, a pipeline system is insensitive to weather conditions; rain, frost, snow, flood or
extreme heat does not have an effect on the operations of a pipeline system. Even difficult
topographic regions are not a problem for the construction of a pipeline system.
However, the journey a pipeline makes can hold many challenges. There are many
seismic regions in the world which can be dangerous for a pipeline –see appendix 2, figure 5.
Earth movements are not the major cause of accidents, but the damage to the pipeline system
can be severe –see appendix 2, figure 6. Sometimes the product that needs to be transported is
14
located in arctic regions with permafrostr and ice-gouges
s. In these circumstances pipeline
transport is often the only possible mode of transport. There, construction workers are
exposed to barbaric work conditions –see appendix 2, figure 7. A densely populated region
also reduces the feasibility and limits the available trajectory options. A steep slope, a strong
current and bottom irregularity are environmental conditions that can cause instability. A
strong current not only can destabilize a pipeline but also can cause vibrations that weaken the
pipeline.
Just as the quality of an IKEA chair is tested by a machine that imitates the
movements of a person sitting up and down on the chair a thousand times, the quality of a
pipeline is tested by a machine that imitates the hostile environments. For instance, the
strength of a pipeline and its welds can be tested at the University of Ghent where they now
have an impressive machine that imitates the effect of a strong current on a pipeline. These
tests are necessary to assure the safety and reliability of a pipeline, and enable researchers and
buyers to compare the quality of pipelines provided by different producers.
3.1.6. Bottlenecks
Although it can be concluded that in some cases pipeline transport is a superior mode of
transport, especially when it comes to conveying highly demanded liquids over long
distances, it is sure that pipeline transport receives lesser attention than other modes of
transport in Flanders. There are some bottlenecks to be clarified.
At first sight, space should not be an issue since a pipeline does not need much of it.
Moreover, for keeping down construction costs, a pipeline is usually laid in remote areas. But
finding the right trajectory is not always easy. Sometimes it is even physically impossible to
go through a place. Nevertheless, the main problem is that the government has not foreseen
enough space for possible pipeline trajectories in the regional planning9.
Pipelines as a mode of transport are put at a financial disadvantage by the government.
Where the road, railroad and port infrastructure are almost completely financed by the
government, the infrastructure of a pipeline system is not widely available and the connection
has to be paid for privately. For example, if a firm wants to transport its goods via a pipeline
because it thinks that this mode of transport is the most economical but there is no pipeline
available, the company can wait for a long time, look for another mode of transport or make
the investment itself. Looking for another mode of transport is mostly the most rational
15
decision. Since the firm will simply use another mode of transport, the need and possibility
for pipeline transportation can be ignored by the government and industry.
Even if the government contemplates the construction of a pipeline system, it will be
frightened off by the high initial cost price tag and the high pay-back period of 15 years on
average9. Besides, it takes some time before a pipeline system attracts the necessary
businesses and uses its full capacity. All these facts make it more difficult for the government
to decide whether or not to build a pipeline.
Another drawback of pipelines as a mode of transport is that the firm has to carry the
cost associated with the termination of the pipeline system. When a pipeline has to be
relocated or is been shut down for economical or practical reasons, the firms that were using
that pipeline will have to endure the costs related to using another mode of transport or the
costs related to relocating their factory to another pipeline.
The most important bottleneck is the lack of transparency and efficiency in obtaining
licences as well as the lack of coherency between the responsible authorities9. There are too
many different rules and permits required before a pipeline can be legally constructed. Hence,
often too much time is lost waiting for permits before the construction works can begin.
An important drawback of a pipeline system is its inflexibility; all the input and exit
points are fixed11
. Therefore, trucks can come in handy for making a pipeline system more
flexible.
The system is also inflexible because a pipeline has a limited capacity. Transporting
extra volume through the pipeline when the capacity is saturated is impossible. When on the
contrary the capacity of a ship, a train or a truck is saturated, extra volume or cargo can be
transported in a different ship, train or truck. Providers of pipeline transport will have to take
into account the peaks and seasonal fluctuations in demand when deciding which capacity -
e.g. the diameter of the pipeline- would be optimal and how to sell the capacity. To cope with
this problem, some providers have installed storage tanks in their system to satisfy the high
demand when necessary.
There are several different international standards which make cooperation between
the different countries less efficient. Neighbouring countries use the same pipeline materials
but the safety barriers used are different12
. Even more, different countries sometimes demand
a different gas composition.
16
4. Pipeline versus other modes of transport
Figure 3: Emission
Figure 4: Emission (environmental impact calculation of transport)
There are several reasons why pipeline transport is often the preferred mode of transport,
especially when a liquid or gas has to be transported over a long distance.
Next to the fact that a pipeline has almost no noise pollution and is usually put out of
sight –laid underground or in remote areas-, a pipeline is also the least polluting mode of
transport. The carbon dioxide emission of pipeline transport is comparable with the carbon
dioxide emission of train transport and sea-shipping and which is much lower than the carbon
dioxide emission of other modes of transport. Moreover, the nitrogen oxide and volatile
organic compoundst emission are also lower compared to other modes of transport –see
figures 3 and 4. In conclusion, pipeline transport is the most environmental friendly mode of
17
transport, which is a huge benefit in a world that is becoming more and more concerned with
the impact of transportation on the environment and the consequences of climate change.
Figure 5: Safety ranking
Figure 6: Distribution of incidents per cause of the European Gas Incident Data Group
Pipelines are a very safe mode of transportation and ranks, according to Sechaud and Metz,
far above railroad transportation, sea shipping and road transportation –see figure 5. Essenscia
even states that pipeline transport is the safest mode of transport in the whole world. This is
rather surprising as most pipelines transport hazardous or flammable liquids or gasses. Even
though more European companies are becoming member of the European Gas Pipeline
18
Incident data Groupu, meaning that the magnitude of the pipeline system of the European Gas
Pipeline Incident data Group increases, the number of incidents is generally decreasing –see
appendix 2, figure 2. Most accidents happen by unauthorized digging and negligence –see
figure 6. For example, the deadly accident in Gellingen in 2004 was due to the inexperience
and inattentiveness of a young site manager. But keep in mind that this was the only deadly
accident since 1970 with the transport of natural gas in Western Europe9. Furthermore, the
data from CONCAWEv show that the safety in oil pipelines in Europe has increased a lot –see
appendix 2, figure 4.
Obviously, a pipeline is less susceptible to theft. It is a large, heavy and anchored
piece of metal that is only useful in a pipeline system –or as scrap metal after fulfilling its
purpose.
Rural and steep areas do not pose an insurmountable problem for the construction of a
pipeline system as a result of which the pipeline route is on average 10 to 30 % shorter than
any other onshore mode of transport13
.
Once the pipeline constructed, the space occupied is minimal. Inland shipping needs
100 times, road transport needs 50 times and railroad transport needs 12 times as much space
as pipeline transport9. A pipeline system nearly does not occupy any surface area which
makes pipeline transportation a very convenient mode of transport, especially in densely
populated areas. Furthermore, a pipeline can go almost anywhere, it can be laid as well as
offshore as onshore. Shipping is bound to the sea, rivers and ports, railroad and trucking
transport are limited to land and plains will always be bound to an airport.
Compared to other modes of transport, pipeline transport is the most convenient and
reliable. As with other modes of transport the capacity of a pipeline is limited, but once the
capacity is booked it is certain that the product will rapidly reach its destination in time. Other
modes of transport are less reliable.
Pipeline systems governed by private institutions as well as pipeline systems governed
by governmental institutions both have a “fairer” price than other modes of transport. The
expenses done for constructing, operating and maintaining a pipeline are all reflected in the
price for conveying a product. So, the costs for using a pipeline to transport a product are
directly charged to the consumer. In contrast, trucks cause more congestion, wear out the road
and cause more accidents, all externalities for which the government has to pay. These
externalities are not charged to the consumer but charged to the society (or part of the
society). The same goes for the noise pollution caused by aviation or the water pollution
caused by shipping. Hence, the price of pipeline transport is a fairer price in the sense that the
19
costs of transportation are all paid by the consumer and not by society. Note that in this sense
the fairness of a price has nothing to do with the profits earned.
The enormous transport capacity of a pipeline system is one of the biggest advantages
a pipeline system has over other modes of transport. For example, a 48’ pipeline can transport
80 to 90 million ton oil a year. If other modes of transport would transport this volume they
would require a day: 1 mammoth tanker of 250.000 ton or 250 inland tanker ships of 1.000
ton, or 100 trains transporting 60 times 40 ton, or 10.000 trucks of 10 ton each13
.
4.1. Pipeline transportation VS air transportation
Although pipeline transportation and air transportation are both a means of transport, they are
not really competitors of one another. Where aviation mainly focuses on the transportation of
bulk goods or passengers over a long distance, pipeline transport focuses principally on the
conveyance of large quantities of liquids, gasses or slurry and the transportation of bulk goods
over a relatively equal long distance. Only if the transportation of bulk goods by capsule
pipelines will be used more widely, competition could occur. Since this is not –yet- the case, a
comparison between these two modes of transport is redundant.
4.2. Pipeline transportation VS rail road transportation
Rail road transportation can be considered as a competitor of pipeline transportation since
they both can transport liquids, gasses or slurry over a long distance. The solution to the
question “which mode of transport is the most appropriate?” depends on the situation. There
are several factors to take into account. First, rail road transport is a more expensive mode of
transport in the long-term. In comparison with railroad transport, Trench states that replacing
a 150.000 barrel per day 1.000-mile pipeline with a unit train of 2.000-barrel tank cars would
require a 75-car train to arrive and be unloaded daily, after returning to the source empty,
along separate tracks to be refilled11
. Furthermore, as said before, pipeline transportation is a
safer and greener mode of transport than rail road transportation.
However, rail road transport can be a superior solution than pipeline transport in some
situations. When a region only needs a limited amount of liquids, gasses or slurry or the long-
term future demand is uncertain, building a pipeline system can include a huge
underutilization risk. In addition, a pipeline system can normally only convey liquids, or gas
20
or slurry. In contrast, rail road transport can transport liquids, gasses or slurry at the same time
or alternately. Moreover, next to liquids, gasses or slurry, a train can also convey goods or
passengers. These factors imply that rail road transport is a much more flexible mode of
transport than pipeline transport. Thus, if there is a situation where demand for a certain
liquid, gas or slurry is too uncertain or too little and this underutilization risk cannot be
overcome by supplying other needs so that the capacity can be fully utilized, rail road
transport will be a better solution than pipeline transport.
Besides, when the required rail road network already exists and there only has to be
made a connection to the rails or the connection can be easily made by trucks, the initial
investment cost will be very low. The same goes for when the required pipeline network
already exists. So even when the future demand of a product is considerably uncertain, rail
road and pipeline transport can be a good solution because the high initial investment cost will
be avoided and only the variable transport costs will have to be paid. Hence, in a situation
where demand is uncertain or little, the appropriate solution depends on whether a network
already exists. However, such a situation will not emerge often since the appropriate networks
are not universally available.
4.3. Pipeline transportation VS sea shipping
Only sea shipping has a comparable long-term cost curve but is limited to offshore
transportation. This makes sea shipping a fierce competitor for offshore pipeline transport.
Again, the big disadvantage of a pipeline system is its inflexibility. Sea shipping has a
comparable long-term cost curve but can in addition ship its cargo to many different ports. So
the choice of mode of transport will depend on the degree of flexibility needed.
4.4. Pipeline transportation VS road transportation
One of the benefits of a pipeline system is its energy friendliness. The energy a pipeline
system uses equals 20 to 25% of that of road transport per tonnage/kilometre9. More
importantly, the cost for trucking escalates sharply with distance, making a pipeline system
much more profitable than trucks for transporting liquids or gases over a long distance11
. In
other words, if the liquids or gasses have to be conveyed over a long distance, trucking will be
the last mode of transport the supplier will chose. In the situation where a long distance has to
21
be covered, road transportation will only be chosen as a last resort or in case of an emergency.
More, Trench assumes that if each truck holds 200 barrelsw and can travel 500 miles
x a day, it
would take a fleet of 3000 trucks, with a truck arriving and unloading every 2 min, to replace
a 150.000 barrel per day, 1.000-mile pipeline11
. The NATO calculated that the transport
carried out by the CEPS is equivalent to approximately 450 trucks 24 hours a day all year
long on the roads. Especially, this pipeline transport is carried out in densely populated areas,
without traffic jams, without polluting the environment and without road accidents14
. When
trucks would take over the transport service the Rotterdam Antwerp PipeLine (RAPL)
provides, there would be a need, according to the RAPL, of over 1100 trucks which drive the
crude oil from Rotterdam to Antwerp continuously15
.
As cited above, trucking cost rises sharply with distance and thus is limited to short
haul movements. Moreover, the volume a truck can transport is relatively small in comparison
with the volume that can be transported by pipeline (or ship). Despite these drawbacks,
trucking remains essential to both the completeness and competitiveness of the pipeline
transportation system as a whole11
. Trucking is often used to transport the product between
the terminals and the consumers, the stocking depots or the ships.
On the one hand there are pipeline systems –such as the gas pipelines in Belgium- that
deliver their product directly to the consumers, and on the other hand there are pipeline
systems –such as the Central European Pipeline System- that deliver their product to a
distribution centre, airports and industries. For the pipelines that do not deliver their product
directly to the consumer, trucking still plays an important role in the transport network –
evidently, the product has to be delivered to the consumer. Even when a pipeline system
normally delivers solely directly to a customer, the probability that a pipeline network can
deliver to every single demander is very small, thus a pipeline network will still need trucks to
complete their transport service. Some locations of customers are too remote or some
customers need the product only for a short time so that a pipeline connection in both
situations cannot be profitable. In conclusion, road transport is indispensable for coping with
the inflexibility of a pipeline system.
22
5. Pipeline transportation
Table 4
3 conditions
- Long distance
- High throughput
- Long period
As written before, a pipeline system has a declining long-term average cost curve which
makes a pipeline system the ideal mode of transport for conveying highly demanding liquids
and gases over a long distance. The high initial costs of a pipeline system is justifiable when
the distance covered is long enough, the throughput is high enough and the period the system
will be used is long enough. When these conditions are fulfilled, the average long-term
transportation cost of a pipeline system will be lower than any other mode of transport.
According to Wilson, oil pipeline shipments account for more than 17% of the total freight
moved nationally in the U.S. but less than 2% of the national freight cost16
.
The first condition states that the distance covered has to be long enough. This is
evident since most pipeline systems require costly pumps, compressors and/or storage tanks.
The longer the distance covered, the more these high costs can be spread over this long
distance which will decline the cost of transport per unit distance. This condition is for most
pipeline systems absolute (not for gravitational pipeline networks). The second or third
condition, or preferably both conditions, has to be fulfilled too for the pipeline system to have
an economically attractive declining long-term average cost curve. When the throughput is
high enough the pipeline system can become lucrative over a shorter period, which is valuable
when there is much uncertainty about the future or with other words when the third condition
is not guaranteed. When the period for which the pipeline system will be used is long enough
it not necessary to have a super high throughput for a pipeline system to be a good
investment. The value of a pipeline system will be the highest when both the second and third
condition are fulfilled. Then pipeline transportation will be the superior mode of transport.
Similar to continuously working industrial processes, the costs per unit rises sharply
when the pipeline system is underutilized13
. This means that the fixed costs and the variable
operating costs will have to be spread over a smaller volume when the system is
underutilized. More, the transportation of small batches will be avoided because the variable
23
costs per unit would be very high in comparison with the variable costs per unit for large
batches or continuously running transport of substances.
6. Pipeline systems
The different products transported by pipelines can be categorized in several groups: natural
gas, oil chemicals, technical gasses, water, slurry and biomass12
. Hereafter, the categories
natural gas, oil, water and technical gasses will be examined and an example of a category
pioneer will be thoroughly analyzed.
6.1. Natural gas
Natural gas is an energy product. It is transported from the natural gas fields –located onshore
as well as offshore- to firms, to storage depots or straight to homes. Gas pipelines transport
the gas with the aid of pressure. When natural gas has to be delivered overseas, it can also be
transported by ship. Shipping natural gas can only be economical when the gas is cooled to -
160° -then it is called liquefied natural gas or LNG- so it will occupy only 1/600th
of its
normal space.
Fluxys manages a 3.800 kilometres long gas pipeline system and is the independent provider
of all the international transit-capacity in Belgium10
. Since Fluxys does not make a distinction
between Flanders and Wallonia in their operations and administrative work, the analysis of
Fluxys will not be separated as well.
Fluxys, however, does not convey the gas directly to the customers in Flanders. This
task, conveying natural gas over middle and low pressure pipelines, is managed by one of 7
distribution network administrators and mainly executed by Eandisy. The low and middle
pressure gas pipeline network is much more extended than the high pressure gas pipeline
network, 3.800 versus 51.00012
kilometres.
6.1.1. Fluxys
Fluxys is active in the field of gas transportation for many years. They have a clear strategy
which they try to follow aggressively.
24
In attracting many suppliers, Fluxys ensures competition that will lead to better prices.
Furthermore, this will increase the independence of the consuming countries since if a supply
runs out or becomes too expensive, they can simply switch to another supplier. Fluxys finds
this diversification of multiple sources paramount and tries to increase the number of sources
even more by connecting the Fluxys pipeline network to other sources, but of course only if
the connection is an economical good investment.
Figure 7: Fluxys at the centre of Western Europe’s gas pipeline network
The Fluxys pipeline network is at the centre of the Western Europe’s gas pipeline network –
see figure 7- and plays an important part as distributor of gas in all of Europe. By investing
more, Belgium can strengthen its important role as distributor of gas in Europe. The European
Commission has recognized this important role and has agreed to co-invest in the Fluxys
network17
.
25
Figure 8: Infrastructure
Fluxys tries to improve the flexibility of its pipeline network by increasing the number of
interconnection hubsz. Additionally, more interconnection hubs will make sure that the
increasing number of suppliers will have the opportunity to use the Fluxys network when they
want to10
. Other aspects of the Fluxys network that improve the flexibility are the spot market
in Zeebrugge, interruptible transit capacity, the possibility of the East/West pipeline to
transport the natural gas in both ways and many more aspects.
26
Fluxys provides different services: transport, transit, storage, terminalling of the LNG, hub
services and services that support the operations. Fluxys uses an extensive pipeline system –
see figure 8 - to enable these services. Each service will be elaborated on.
6.1.1.1. Services that support the operations
These services enable and optimize the operations but are of lesser importance than the other
services. For example, Fluxys’ subsidiary Gas Management Services Limitedaa
enables
customers to track down their product in the transport chain.
6.1.1.2. Transport and transit
Fluxys has a pipeline network from over 3.800 kilometres which it can use to transport or
transit gas10
. When gas is transported that means that the gas will be delivered somewhere in
Belgium, when on the contrary gas is transited then gas is conveyed to another country. Since
the transport and transit service use the same infrastructure, these two services are examined
together.
Figure 9: New pipelines 2008 & 2009
(2008)
27
(2009)
There have been some investments in the transport service in 2008. There is a compression
station developed in Zelzate (about € 83 million). Demand for gas has risen in Aalst, Aarlen
and Lier for which new pipelines have been developed between respectively Brakel en
Haaltert, Messancy and Aarlen and Zandhoven and Ranst (about € 53 million) 10
–see figure
9. The demand has also risen with the industrial firms which resulted in 8 new connections
making 263 connection in total instead of 255 10
. 7 new pressure reducing stations have been
developed too.
Summarizing, there has been invested for € 198 million in infrastructure –this includes
investments in the LNG-terminal- in 2008
The conflict between Russia and Ukraine showed the value of the two-way flow direction of
the East/West pipeline. Because of their dispute, Russia discontinued the gas flow to Ukraine
which consequently stopped the gas flow to Germany and France. Thanks to the two-way gas
28
flow direction of the East/West pipeline, Fluxys was able to stand in for most of Germany’s
and France’s gas needs.
Figure 10: New capacity
New East/West capacity
29
New North/South capacity
The market has shown an interest in the expansion of the capacity of the East/West pipeline.
Therefore, two new pipelines are being developed to meet the needs of the market, one
between Zomergem and Desteldonk and the other between Opwijk and Eynatten10
. These
pipelines should be finished and ready to use this year. This project has a price tag of € 300
million –see figure 10.
In 2008, a survey revealed that there was also a demand for extra North/South
capacity. A pipeline could be laid from Zeebrugge, ‘s-Gravenoever or Eynatten –North- to
Blaregnies –South.
30
6.1.1.3. Storage
Figure 11: Fluctuation in demand
Storage is a buffer used to cope with the fluctuations in demand. In Belgium fluctuations are
caused by difference in temperature during winter and summer season –see figure 11.
According to Fluxys, they are even able to cope with an extreme winter season which only
happens once every fifty years10
. One way to cope with these fluctuations is to store LNG in
storage depots and gasify it when needed during peaks. Because the gas market is expanding
and fluctuations are expected to become more intense, it is a wise move by Fluxys to expand
their storage capacity.
Fluxys has a storage depot in Loenhout which it is trying to expand from 600 to 700
million cubic metres
The expansion of Loenhout won’t be sufficient for the future, Fluxys wants to expand
their storage capacity even more. It searched for another possible underground storage depot
in the area of Poederlee but came to the conclusion that the Poederlee area was not good
enough. But Fluxys has already put its mind to another possible underground storage depot in
Limburg.
6.1.1.4. Terminalling of LNG
Ships transporting LNG can load and unload their LNG at a terminal. The LNG is then
stocked in a storage depot and later transferred to another ship –this is only possible since
31
2008- or gasified before pumped in the Fluxys network. It is Fluxys’ subsidiary Fluxys LNG
NV that utilizes the LNG-terminal in Zeebrugge for commercial activities.
Since 2008, there is an extra fourth storage tanker and extra gasifying stations that
have increased the storage capacity from 4,5 to 9 billion cubic metre. This means that the
LNG-terminal at Zeebrugge can welcome 110 ships a year instead of 6610
. In addition, the sea
port of Zeebrugge has been modified so that the LNG-terminal can receive larger ships
coming from Qatar, Norway and Trinidad & Tobago.
It seems that the future will bring along more transport, transit and storage capacity
expansion. Many players have shown interest but it is not yet certain when this second
expansion will be realized.
6.1.1.5. Hub services
Another subsidiary of Fluxys is Huberator which provides a LNG spot market in Zeebrugge.
According to Fluxys, Huberator is one of the most important short term markets in gas in
Europe. The gas traded in Zeebrugge can be further traded or transported to the selected
location.
6.1.1.6. The Balgzand Bacton Line
Figure 12: The BBL
The Balgzand Bacton Line company is a joint venture of Gasunie, Fluxys and E.ON Ruhrgas.
It operates the BBL offshore pipeline between Balgzand (Netherlands) and Bacton (U.K.) –
32
see figure 12- and is the only activity of Fluxys that is located abroad10
. The BBL pipeline is
just operational since 2006 and is the second pipeline that connects the U.K. and Europe. The
other one is the Interconnector pipeline between Zeebrugge and also Bacton.
6.1.1.7. Safety
Safety is of the highest priority for Fluxys. As with pipelines in general, most accidents with
gas pipelines happen by unauthorized digging and negligence. In preventing these accidents,
the law prescribes that every one has to report their construction works to Fluxys when these
are situated in the proximity of a Fluxys pipeline. If these construction works appear to be too
close to a Fluxys pipeline, than a standard safety procedure is set in motion to help the
construction workers to safely do their job.
Additionally, Fluxys has a team which sole responsibility is to check if there is no
unauthorized work going on too close to a Fluxys pipeline. This team is continuously on the
road inspecting every pipeline of Fluxys. They even have a helicopter to their disposal for
inspecting the rural areas18
.
Other companies that lay pipelines underground such as Belgacom, Telenet, and
Eandis are being given advice about working near a Fluxys pipeline. There are also two
websites, the KLIMab
and KLIPac
, where people can post there construction plans as a
warning to the owners of cables and pipelines.
6.1.1.8. Pigging
The pipelines have a cathode coating that protects them against corrosion, but that does not
mean that pipelines are indestructible or cannot wear out. Pigging is an in line inspection
technique that blows a pig –e.g. a pig shaped device- through the pipeline to clean and inspect
the pipelines from the inside.
Fluxys cleans and inspects their pipelines in three stages. Firstly, the pipelines are
cleaned with a pig which is slightly larger in diameter than the pipeline so it can put pressure
against the interior wall and thus cleans the pipeline. The cleaning also enhances the quality
of the inspection in the third stage. Secondly, to verify that the pipeline does not have any
obstacles in the pipeline, the pipeline is inspected by a gauge pig before moving on to the
third stage19
. A gauge pig has many metal spikes on the exterior –see figure 13- which will
33
bend when passing over an obstacle. The angle of the Figure 13: A gauge pig
metal spikes that are bending over determines the
height of the obstacle. When the obstacle is
considered too high, the obstacle will be removed
before pushing through the intelligent pig. In the
third stage, the intelligent pig will examine the
pipeline with ultrasonic waves. The time the
waves need to travel to the pipeline wall and back
again determines the distance and thus determines
the thickness and quality of the pipeline –see
appendix 2, figure 8.18
Nowadays, a pipeline design takes into account the need for pigging so that every part
of the system can be pigged. Some parts of old pipeline systems are even adapted so that they
can be pigged. For the parts that are not adapted, Fluxys is searching with the Groupe
Européen de Recherche Gazière for alternative measuring techniques10
.
6.1.1.9. Trajectory
In Belgium, a company has to obey many different rules and acquire many permits before it
can construct a pipeline. In addition, Belgium is a relatively densely populated country that
does not have any lanes reserved for future pipelines, making it not easy to draw a trajectory.
According to Fluxys, developing a relatively large pipeline project will take approximate 5 to
6 years.10
. Waiting, however, 5 or 6 years on an expansion is a very big drawback for many
firms. This timeframe is much too long and must shorten to make pipeline transport more
appealing.
A good relation with the agricultural industry is paramount for Fluxys because many
pipelines for the most part are laid under agricultural territory. When Fluxys is constructing a
pipeline on a farmer’s land, the farmer cannot use (part of) his land to make money, hence this
opportunity cost is reimbursed by Fluxys. Furthermore, it is made sure that the farmer can still
use the essential pathways and that there is water available for his animals. The damage done
to the environment will be reimbursed and/or the area will be restored.
34
6.1.1.10. Environment
Fluxys has taken many different steps to mitigate their impact on the environment: it uses
green energy for most of its operations; it is reducing its paper spill; it tries to be a benchmark
company for energy efficiency; company buildings operate on renewable energy and are well
isolated. Every project Fluxys makes is accompanied by an energy study and the most far-
reaching measure is that it tries to operate the gasifying stations of the LNG-terminal at
Zeebrugge by using the warmth of the ocean.10
6.1.1.11 Investments
Fluxys scouts for future investments opportunities. It is not only concerned about the actual
maintenance, operating and other service costs but also about the future position of the
company. Since Fluxys is at the centre of the Western Europe’s gas pipeline network, it
cannot afford to stay behind and ignore the market needs. Fluxys is a company that has to
grow in order to survive and remain important.
Fluxys has an investment program which looks 10 years into the future. Every year,
the program is adapted to the new market signals. Both demand and supply can be expected to
increase, decrease, or to become more uncertain. Market signals in the near future will weigh
more than signals in the more distant future since they can be more accurately measured with
a simple questionnaire. For every project Fluxys will conduct a simulation and look what the
impact of that project will be on the Fluxys network. Since Fluxys is connected to many other
foreign gas pipeline networks, it will sometimes have to review their project with other
countries to make sure that the other countr(y)(ies) will make the necessary adjustments to
their network.
The budget of the investment program has risen dramatically in 2008, from € 1,7
billion to € 2,8 billion. This rise is mainly caused by the North/South project, theEast/West
expansion to Zomergem, the compression installations and the price inflation of the necessary
materials.
The important investments Fluxys is making or is going to make are shown in figure
14.
35
Figure 14: Investments
6.1.2. CREG (Commissie voor de Regulering van de Elektriciteit en het
Gas)
Europe is trying to become a more liberal union by, for instance, liberalizing the energy
market. Making the European gas market more liberal, states could chose from 3 systems.
Belgium has chosen for the ownership unbundling system10
which means that the transport,
transit, terminal and storage services have to be provided by someone who does not own gas.
In order to do so, Fluxys has taken over Distrigas & C°az
. This will not only make the
Belgium gas market more liberal, it will also make the Belgium gas network more easy to
operate since all the infrastructure will be in the hands of one firm, namely Fluxys.
36
Since the liberalization of the gas market any supplier can choose to make use of the pipeline
network of Fluxys. The tariffs Fluxys sets are equal for every supplier so that discrimination
and power play are avoided.
The CREGad
is the Belgium federal regulator that determines the tariffs Fluxys can ask
for its services of transport, transit and storage of gas. Only the transport, transit and storage
tariffs are regulated by the CREG because these services fall under the gas legislation. Tariffs
are set to reimburse the operating costs and the depreciation and amortization of the assets and
to give a reasonable compensation for the invested capital of Fluxys. Because in the end the
CREG decides what the tariffs will be, it has much influence on the result of Fluxys. This
power is clearly demonstrated in the year 2008.
As from 2008 the tariffs enforced by the CREG have to be applied for four years
instead of two10
. However, it was Fluxys that made the CREG a proposition for the tariffs in
2008 until and including 2011. But the proposition was rejected and the CREG enforced its
own tariff for transit, transport and storage. Only, Fluxys was convinced that the transit tariffs
were unreasonably low and took legal action against the CREG. In 2008, awaiting a final
decision, the court ordered that the transit tariffs of 2007 have to be used – temporarily-
instead of the new tariffs of 2008. Since Fluxys and the CREG are also in a disagreement with
regards to the transport and storage tariffs, they both agreed to –temporarily- use the tariffs of
2007 until the court decides what to do. Where the court can decide that the tariffs should be
higher, Fluxys booked provisions for this risk. Because the price of the service provided by
Fluxys was ambiguous in 2008, the results of 2008 are ambiguous too10
.
The CREG has approved the new tariff proposition of Fluxys so that the tariffs for the
remaining 2 years of the 4 years period will be 35% lower than the temporarily tariffs20
. But
not every quarrel has been resolved yet so that certain provisions still have to be set aside10
.
6.2. Petroleum
In ancient times, petroleum or crude oil was of minor importance. In Egypt it was used for
preserving mummies and in China they used oil for boiling salt21
. At present, petroleum is one
of the most or even the most important commodity there is, it makes the world go around. It is
distilled in different components and used for various purposes.
37
6.2.1. The Belgian Pipeline Organisation
BPO stands for Belgian Pipeline Organisation and is a military organisation created by the
North Atlantic Treaty Organisationae
. It is responsible for the exploitation of that part of the
Central European Pipeline System –or the CEPS- that runs under Belgium and Luxemburg
territory. Luxemburg has given Belgium the right to take control over their part of the
CEPS22
. Both, the pipelines of the CEPS spread over Belgium and the pipelines of the CEPS
spread over Luxemburg are managed by the Belgian Pipeline Organisation and measure
approximately 800 kilometres22
. The BPO manages the commercial, administrative and legal
aspects of their part of the CEPS22
while meshing their operations with the other operations of
the CEPS.
The Belgian Pipeline Organisation is part of the Central Europe Pipeline Management
Organisation, or the CEPMO, which is in charge of the Central European Pipeline System.
The CEPMO, further, coordinates its actions with the other pipeline systems of the North
Atlantic Treaty Organisation Pipeline System, or the NPS
22,23. The BPO counterparts are DPO
in the Netherlands, SNOI in France and FGB in Germany22
.
6.2.1.1. The NATO Pipeline System
One of the biggest challenges of (modern) war fare is the assurance of petrol supply24
. The
distribution of petroleum was of paramount importance during World War 2, but at that time
the distribution network was far from optimal. Many pipelines had to be laid in a hurry to
supply advancing troops and offshore pipelines had to be laid to replace the easy targeted
tanker ships.
The benefits –especially the military ones- of pipeline transportation were above all
clearly demonstrated with the Pipeline Under The Ocean – also called PLUTO- project which
saw to the supply of the troops. The PLUTO pipelines were hasty laid by customized ships
and transported oil from England to Normandy, Belgium and the Netherlands.
After being confronted with their dependence on petroleum, the NATO members
brought to life the NATO Pipeline System to ensure that all the essential and strategic
(military) positions could be fed with petroleum, and thus reducing their vulnerability in times
of war.
38
However, there are dissimilarities between the pipelines back then and the pipelines of
the NPS now. Back then the pipelines were laid above ground, were smaller, operated under
low-pressure, had less exit points and had no storage depots24
.
6.2.1.2. The Central European Pipeline System
The Central European Pipeline System is a high-pressure pipeline network that transports
different products including jet fuel, gasoline, diesel fuel and naphtha23
. The CEPS is spread
over 5 countries: Belgium, the Netherlands, Luxemburg, France and Germany but is governed
by 6 nations: the 5 host countries and one user country the United States.
The CEPS is made up of 5.100 kilometres of pipeline ranging 6 to 12 inchesaf
and
links 34 NATO depots, military and civil airfields, refineries, civil depots and sea ports
situated in the host nations23
-see figure 15. The major civil airports that are supplied with jet-
fuel are Frankfurt, Schiphol, Zaventem, Luxemburg and Zurich23
.
39
Figure 15: The CEPS map
The CEPS provides a storage, transport and distribution service for both the public and
the military. Since the BPO is a military organisation of the NATO, -theoretically- the
military needs get priority over the public needs. However, since the military significance of
40
Belgium is rather small and the military importance of the CEPS has diminished substantially
with the end of the Cold War, the application of the CEPS has shifted from military use to
civil use. When the military requirements in peacetime have been satisfied, the remaining
capacity may be used for commercial purposes under strict safeguards23
. This alteration to
commercial purpose enables the NATO to keep the costs down because, as pointed out
before, a pipeline system is only economical when the distance involved is significant –as is
the case with the CEPS- and when there is enough throughput for a long period –this is not
the case when the CEPS is only used for military purposes. This cost reduction by
commercializing the CEPS was necessary in order to get by with a reduced post war national
defence budget. However, under all circumstances, the military priority clause included in the
commercial contracts guarantees the primacy of supply to military forces23
. This military
priority clause, however, should be toned down. Major civil orders will not be interrupted by
the military because fuel is needed for a simple training exercise and in time of conflict the
military will get priority with or without a military priority clause. This does not mean that the
military purpose of the CEPS has vanished. The CEPS was, according to the NATO, an
absolute necessity for the NATO operations in Kosovo23
.
6.2.1.3. The Central Europe Pipeline Management Organisation (CEPMO)
The Central Europe Pipeline Management Organisation, or CEPMO, is responsible for the
exploitation of the Central European Pipeline System which involves providing a transport,
storage and distribution service. Next to the usual service requirements of a pipeline system,
the CEPMO is also responsible for the negotiation of the commercial tariffs. The CEPMO is a
division of the NATO’s Production, Logistics or Service Organisationsag,23
and consists of the
CEPMO Board of Directorsah
and the Central European Pipeline Management Agency, or
CEPMA.
The CEPMA deals with the everyday operations and problems of the CEPS. This
includes managing operations, marketing of the CEPS, technical developments and finance
and administrative work23
. Furthermore, they follow the orders given by the CEPMO BoD.
On the one hand, the CEPMA is a centralized organisation based in Versailles but on the other
hand, the day-to-day operations and maintenance are done by national dispatching centres and
are thus decentralized. These national organisations are coordinated by their own government
41
but are still funded from a centralized budget coordinated and managed by CEPMA and
authorized by the BoD23
.
The CEPMO BoD decides in which direction the CEPS has to evolve and determines
the appropriate tactic and budget. Each country, including the United States, has a
representative on the board who takes into account their national interests when using their 1
vote. As cited above, the decisions made by the board are subsequently implemented by the
CEPMA.
6.2.1.4. NATO Petroleum Committee
The NATO Petroleum Committee is concerned with petroleum and all the products petroleum
can be refined into such as jet fuel, gasoline, diesel fuel and naphtha which are transported by
the CEPS. Thus, where the NATO Petroleum Committeeai advices the NATO over all the
matters concerning petroleum, the NATO Petroleum Committee has influence over the
NATO Petroleum System.
The tasks of the NATO Petroleum Committee includes the review, assessment and
evaluation of the military petroleum logistics organisation, the development of standardized
petroleum products and handling equipment, the monitoring of the operations and
maintenance of the NPS and storage depots, the development of environmental guidelines,..
6.2.1.5. The future
With the end of the Cold War, the military importance of the Central Europe Pipeline System
has been reduced and the need to optimise the CEPS for commercial objectives has increased.
This evolution is clearly supported by the fact that the volume transported through the
pipelines of the BPO has increased enormously over the years due to the increase of civil
needs22
. Because the goal of the CEPS has changed to more economical purposes, the CEPS
has been modified in terms of operational capacity, flexibility, automation, safety and
protection of the environment14
. For example, the storage depot of Florennes, the loading
dock for ships in Schoten or the pipeline to the airport of Brustem have all been
discontinued24
. In time of peace, elements of the CEPS that have become useless or too
expensive have been deactivated. For instance, the replacement of a 6 inchaj pipeline by a 12
42
inchak
pipeline or the introduction of a leakage detection system are examples of the
adaptations done for commercial purposes24
.
Because the relevance of military control is rapidly fading away, the North Atlantic Treaty
Organisation is looking for a buyer for the NATO Pipeline System25
. This will lead to a
completely different organisation than described above.
6.2.2. RAPL
The refineries of Antwerp used to be supplied by tanker ships coming over the Westerschelde.
The ships back then were small and not too deep. Now, however, the tanker ships which
transport crude oil are much bigger for economical purposes and, consequently, cannot come
over the Westerschelde anymore to supply the refineries in Antwerp26
. For this reason, the
Rotterdam Antwerp Pipeline -or the RAPL- came into existence.
The big difference between the Central European Pipeline System and Rotterdam
Antwerp PipeLine is that the RAPL transports crude oil through its pipeline and not refined
petroleum products. The RAPL transports the petroleum from the storage depots in Rotterdam
but has no petroleum storage depots of its own26
. The RAPL transports the petroleum through
a 100 kilometres long pipeline network from Rotterdam to Antwerp where it is transformed
into many refined petroleum products. Thanks to the growth of the refineries in Antwerp over
the years, now, almost the whole capacity of the RAPL is used to deliver crude oil to these
refineries in Antwerp15
. Furthermore, as most pipeline systems, the RAPL operates 24/7.
Just as for other pipeline systems, safety is a priority for RAPL n.v.27
. Since the RAPL
transports petroleum which is flammable, caution and prevention are important. The RAPL is
inspected daily by car and helicopter, and the wall of the pipeline is inspected by an intelligent
pig –as was also the case in the Fluxys company28
.
6.2.3. Example: Kerosene pipeline
Appraisal kerosene pipeline Antwerp-Zaventem29
Start: Antwerp Scheldelaan
End: Airport Zavetem
43
Approximate length: 70 kilometres
Pipeline diameter: 10”
Wall thickness: 7,1 millimetres
1 exit pointal with 4 pumps
Expected that the current size of the fleet of trucksam
in Zaventem will be sufficient.
Costs of study: € 750.000
(Permits, measurements, soil investigation, designs,…)
Costs of the pipelines: € 5.250.000
(Will fluctuate enormously in function of the unstable price of steel)
Development of the pipeline system according to the Fluxys method: € 21.000.000
(Fluxys method: certain standards of performance and safety that have to be applied)
Study, delivery and development of the exit point: € 10.000.000
(Includes the whole structure with all the mechanics)
Total: € 37.000.000 = € 750.000 + € 5.250.000 + € 21.000.000 + € 10.000.000
This example clearly illustrates the high initial price tag of a pipeline. Although this
hypothetical pipeline is relatively small, its costs are enormous.
6.3. Water
Water is indispensable. Because people need water to cook, to clean and to shower or to bade,
people should have a right to clean water against a fair price or even for free. Since without
water many human rights cannot be fulfilled, an expert commission of the United Nations
regards the right for water as a basic human right. In addition, the commission states that
water should not be considered as an economic commodity and should, thus, be
44
commercialized in a durable way in order to fulfil the needs of the present and future
generation30
.
In Belgium, the first legislation concerning the supply of water goes back to the 18th
century. The industrialisation of the 18th
century contaminated the water and, together with
the poor hygienic standards at that time, increased the spread of epidemics31
. Hence, trying to
improve the hygiene, the government at that time made the many districts responsible for the
water supply. Only, the districts did not have the knowledge or the funds to develop the
desired water network. Because the districts failed in their task, the NMDWan
was founded in
1913 to take over their responsibility. Finally, in 1987, the VMWao
took over the
responsibility of the NMDW for Flanders31
. The VMW, together with all the other Flemish
water supply companies, are associated in the SVWap,32
.
There are two types of water production processes when water is not collected from a natural
source. Firstly, drinking water can be produced from groundwater 30 to 200 metres
underground33
. Groundwater has the benefit of being already naturally filtered by the earth
but the problem is that by producing water from groundwater, the layers of earth which
convey the groundwater can be drained completely in the process. Additionally, the VMW
analysis concluded that 57% of the ground water was vulnerable to pesticide contamination34
.
Secondly, drinking water can be produced from surface water obtained from rivers.
Consequently, this production process is dependent on the capacity of the rivers. In Flanders,
however, there are many rivers so this dependence is not a huge drawback.
6.3.1. SVW (Samenwerking Vlaams Water)
The Samenwerking Vlaams Water (SVW) is an organisation that consists not only of the
Flemish water supply companies but also of the Flemish sewage companies –many water
supply companies are also sewage companies though29
. The 3 biggest water supply companies
of Flanders, and thus the biggest water supply companies of SVW, are Pidpa, TMVW and
VMW. Figure 16 illustrates the distribution of the different water companies in Flanders.
45
Figure 16: Distribution of the water companies in Flanders
AWW TMVW
Vivaqua Pidpa
ISWa VMW
IMWV IWVB
IWM IWVA
United in the SVW, the Flemish water supply companies stand stronger. The SVW enables all
the Flemish water companies to present them self as one strong entity and fund research
together. By being a member of the Belgaquaaq
, the Eureauar
and the IWAas
, the SVW tries to
be involved in the development of the water policies on a national, European and international
level35
. The SVW is represented by professionals who send a common message to the
government and other organisations.
6.3.2. VMW (Vlaamse Maatschappij voor Watervoorziening)
Besides providing clean water for families, the VMW customizes water connections for
companies and offers a sewage management service to districts. Moreover, the VMW
transports and purifies the water after consumption. Of the 3 biggest Flemish water supply
companies, VMW is number one. VMW produces approximate130.000.000 cubic metre
water a year and transports it through a pipeline network of 30.000 kilometres to over
46
2.600.000 people in 170 districts in the 4 provinces West-Vlaanderen, Oost-Vlaanderen,
Brabant and Limburg36
.
The majority of the VMW’s water production centres uses ground water instead of
surface water37
. The VMW has 3 major water production centres that use surface water which
produce over more than 30 of the 130 million cubic metre water a year. After the water is
produced, it is stored, pumped into the pipeline network or transported to a water tower. The
water which is transported through the pipeline network is subsequently kept under pressure.
6.4. Technical gasses
There are many different types of gas for many different types of industries and applications.
For example, oxygen, nitrogen, hydrogen, argon, carbon dioxide, helium are gasses used in
the metal industry and helium, laughing gas and liquid nitrogen are gasses used in the
healthcare industry. Most of these gasses are produced by splitting the air into different
components creating different types of gas.
Linde AG, Air liquide, Praxair and Air Products are the 4 prominent gas companies
with respectively approximate 21%, 19% 13% and 10% market share38
. In Flanders, many
customers are not clustered together so that the possible throughput cannot be high enough to
profitably manage a pipeline system. Therefore, most companies deliver their technical gas to
their customers by truck. However, some industries or companies are clustered together so
that pipeline transport becomes profitable for some substances.
These 4 prominent companies, in addition, have pipeline networks to supply
customers who are not located in the proximity of a gas producing facility. Only, a pipeline
connection to the appropriate pipeline network is not widely available because a pipeline
system is only profitable over a long distance when the demand is high over a long period.
Since, there are not many types of gas which are in high demand over a long period, there are
not that many pipeline networks to connect to. A gas pipeline system will only be developed
when there are clusters of companies to supply. The demand of these clusters can be high
enough over a long period to make the investment worthwhile to develop a long distance
pipeline system. Taking into account the limited market opportunities to develop a technical
gas pipeline, one can imagine the first-mover advantage.
The gas pipeline networks in Flanders – as well as in Wallonia- elevate the chemical
industry to a higher level. The pipeline networks attract more businesses that are active in the
47
field of chemistry and make sure that these businesses then stay in place. The pipelines
connect the chemical industry clusters of the ARA-areaat, the German Ruhr area and other
areas in Belgium and Europe9. The possibility to transport more products and in a cheaper
way for the chemical industry allows the firms of this industry to manage their operation in a
better way. Hence, firms of the chemical industry in Flanders will be more competitive and/or
profitable.
There is, however, little public information available – according to the VIL for reasons of
competition- about the pipeline networks of the different companies, especially about the ones
in Belgium. It is known that Linde AG is the world market leader and that Praxair has a 31
kilometres long nitrogen pipeline in the port of Antwerp39
. Even so, it seems that Air Liquide
is the dominant technical gas producer in Belgium.
6.4.1. Air Liquide
Air Liquide is an international company which is located in over more than 70 countries and
employs over more than 40.000 people40
. Air Liquide Benelux has 4 production facilities
splitting the air in different types of gas, 5 facilities that produce hydrogen, 1 facility which
produces carbon hydrogen and 1 facility which produces gasses for the healthcare sector41
.
Their gasses are used in a wide variety of industries such as the chemical industry, the space
travel industry, metal industry, electronics industry and the healthcare industry42
.
Figure 17: Air Liquide its gas pipeline network
48
Air Liquide’s hydrogen pipeline system is approximately 900 kilometres long, is spread
mainly over Flanders and connects the North of France to the South of the Netherlands43
.
Furthermore, it is part of the hydrogen pipeline network of Europe which is the largest in the
world, even larger than the one in the United States43
. In the Benelux, Air Liquide has some
2700 kilometres long pipeline network44
which consists out of a hydrogen, an oxygen, a
nitrogen and carbon monoxide and/or syngas pipeline system to supply its customers. As
shown in figure 17, these pipeline systems are part of the gas pipeline network of Air Liquide
in the North of Europe.
The strategy of Air Liquide is to create value in the long-term by using the air and
natural resources45
. This strategy led to the start of the development of the gas pipeline
network of Air Liquide in the fifties41
. Because Air Liquide was the first to build a substantial
network in Belgium that supplied the metal and chemical industry in Flanders, it created a
solid position in the European market. Thanks to this solid position and its European roots it
is not surprisingly that over more than 50%46
of Air Liquide’s turnover comes from its
activities in Europe. Recognizing the benefits of pipeline transportation, nowadays, Air
Liquide transports 84%44
of its air gasses and hydrogen via pipeline.
6.5. Chemicals
There are only a limited amount of chemicals which are in high demand so that they can be
profitably transported through pipelines. Therefore, there are only a few pipelines in Flanders
that convey chemicals. In addition, most of the pipelines that transport chemicals are managed
by different companies such as: Nationale Maatschappij der Pijpleidingen, Limburgse Vinyl
Maatschappij, Ethyleen Pijpleiding Maatschappij, SABIC Pipelines, BASF Antwerpen,
Solvay, Dow Benelux,...12
and this makes it hard to map out and analyze the chemical
pipeline network of Flanders. In Flanders there are pipelines transporting liquid hydrocarbon,
monovinylchloride, propylene, ethane,...
49
7. The pipeline network in Flanders
Table 5
General characteristics of the pipeline network in Flanders
- Transport of water, gasses and oil
- Underground
- High investment cost (see Appraisal kerosene pipeline Antwerp-Zaventem)
- Social benefits: - gas and oil supply for the citizens
- little external costs
- Economic benefits: - low transportation costs for the enterprises
- reliable supply
- anchor effect
- Strategic benefits: - increase independence
- increase dependence of other countries
- Although high governmental interference, little proactive managing by the government
8. Price mechanism and governmental control
The gas, oil, water and sewage and technical gas pipeline network are the major pipeline
networks in Flanders. These different pipeline networks consist of different types of pipeline
and have to fulfil different operational requirements. But above all, they have to obey
different sets of rules due to their difference in past and present economic and social
importance. This brings along that there are different price mechanisms and differences in
governmental interference for the different pipeline networks.
The natural gas pipeline network operations of Belgium are paramount for the economic and
social wealth of Flanders and the rest world. By obligating the European countries to make
their natural gas pipeline network more liberal, Europe has improved the performance and
transit certaintyau
of the European pipeline network. In Belgium, the natural gas pipeline
network which is managed by Fluxys is since recently controlled by only one company,
namely Publigasav
. The shareholders of Publigas are the Flemish, Walloon and Brussels
district47
, meaning that Fluxys is actually controlled by governmental institutions. Even
50
though Fluxys is controlled by the government it has a lot of autonomy. Fluxys has been
recently reappointed for 20 years as the manager of the big gas pipelines in Belgium.
Instituting Fluxys for 20 years as the single enterprise to manage the big natural gas pipeline
network creates stability and project management efficiency. However, this also brings along
shareholder-manager conflicts; since Fluxys does not has to fear competition in 20 years it
does not feel any pressure to achieve the maximum possible wealth for its shareholders.
What’s more, is that the costs made by Fluxys will be definitely reimbursed. The CREG
determines the price of the transport, transit and storage services of Fluxys but does not
meddle in their project investment decisions, they only give advice to the government
institutions . This gives Fluxys much freedom to build an empire without too much
repercussions. Due to the limited decision power of the CREG an overinvestment problem
could exist.
The price and control mechanisms of the Central European Pipeline System are more
covert since this pipeline network is controlled by the military. Data on the clientele and their
capacity reservations are not known to the public and hard to come by. One can expect that
the Central European Pipeline system (and the NATO Pipeline System) will be swiftly
adapted to the economic needs of the present which will bring more clarity to the various
mechanisms in play.
The water supply companies of the different districts in Flanders have all joined
together in multiple bigger water supply companies. The districts do, however, remain
shareholder of the bigger company they have joined which means that the profits made by the
water supply companies go back to the government institutions. When water can be supply at
low cost then this will create value for the citizens with no or low opportunity costsaw
. Hence,
there will be an incentive –keeping their citizens satisfied- for the districts to keep the price
down for water. Unlike the Fluxys company, the water supply companies suffer less from an
overinvestment problem because the water supply market is already saturated. New expensive
investment opportunities are unlikely to arise, the sole costs are attributed to the maintenance
and renewal of the pipeline network. In general, there is a good balance of power and little
shareholder-manager conflicts.
Because the technical gas pipeline network is relatively new and not as extended as the
gas, oil or water pipeline network, and more importantly, because technical gas is not –yet- as
important to society as gas, oil or water, the technical gas companies are not controlled by the
government. In Flanders, the sole company with a respectable technical gas pipeline network
is Air Liquide. This company is a private company without any governmental interference.
51
Their pipelines trajectory is constructed without the aid of the governmentax
whereby the
government does not has any say in the policy of the company in times of crisis.
9. Recommendations
Many of the weaknesses and threats shown in the SWOT-analysis can be mitigated or avoided
and many of the opportunities can be exploited.
But first of all, the different modes of transport should not be separately examined when
contemplating the best possible transport investments. That is why the splitting of pipeline
transport and the other modes of transport will probably have a negative influence on the
effectiveness of the transport projects. Bringing together all the modes of transport in one
department should be the first step to a better transport policy. Albeit, this can only work
when the government views pipeline transport as a full-fledged mode of transport that can
create wealth for the society. This means that the government must not solely regard pipeline
transport as a private matter but must:
- Inform firms about the existence and potential of pipeline transport
- Work together with firms and neighbouring countries to discover pipeline transport
opportunities
- Provide pipeline transport services for the common public interest since some
substances such as gas, oil and water are far too important for the society or the
economy to leave in private hands
A choice will have to be made between private, public-private and public ownership of
pipeline systems. Some systems that are too important should best be publically controlled
while others can be privately or semi-privately controlled. For example, the gas pipeline
network in Belgium is managed by Fluxys that has a monopoly authorized and supervised by
the government because the gas is key to the wealth of Belgium and other countries.
Secondly, the slow bureaucracy can delay the start of a project for a long period. There
are too many different procedures to follow and permits to gather. All these different rules
should mesh together so that a coherent procedure can emerge that will reduce the elapsed
time.
Another urgent matter to attend is that even when the government decides that it is
better to leave the development of the pipeline network in private hands, it still is in the best
52
interest for the economy and society to take into account the possible territorial extension of
the current pipeline network. The Netherlands, for example, already considers pipeline
transport as a very important mean of transport and consequently reserves some space for
future pipeline projects11
. Obviously, Flanders should do the same.
Further, Belgium has the strategic advantage of being situated in the middle of Europe
which entails that Belgium can function as a facilitator of energy and substances for other
countries. Belgium already is an important facilitator or transistor of natural gas for most
European countries and should encourage this function not only for natural gas but for all
other possible pipeline opportunities too, as for chemicals such as ethylene and propylene gas
the demand in the different European countries is high enough to economically transport it via
pipelines. Brief, in a global world pipeline transport should not be thought of as a closed local
network.
The Belgium government should use pipeline systems to preserve the economic
security by anchoring companies to the Belgium territory. Giving companies the possibility to
efficiently and cheaply transport raw materials and products will give them an incentive to
stay in or come to Belgium.
Not only the Belgium government can make use of the anchor effect, also private
companies can use pipeline systems to commit customers to their company. Linde AG, Air
liquide, Praxair and Air Products are the 4 prominent gas companies. They all provide gas for
different types of industries. However, in this heterogeneous oligopoly it seems that Air
Liquide has the most market power since it has the largest pipeline network in Belgium. Since
the transportation service and the product transported belong to the same owner, Air Liquide
is the only one who can profit from the pipelines it has build. Hence, Air Liquide is able to
offer their customers connected to the pipeline system their products at a much cheaper price
than their competitors and thus are able to retain their customers:
- Air Liquide’s customers will not be inclined to buy products from the competitors
since they will charge much more than Air Liquide for the same products because
their transport costs will be higher.
- The customers of Air Liquide will not be inclined to relocate to a pipeline system
from a competitor because this entails high relocating costs.
The Belgium government should watch out that Air Liquide does not gather too much power
in Belgium and Northern Europe. If the gasses delivered by Air Liquide are too important for
the economy, it may be a wise idea to separate the ownership of transport and the gasses
transported in order to increase competition and reduce the price for gasses offered. This
53
reduces the cost of technical gas used by companies and makes them more competitive
against foreign companies. Anyhow, this could be a problem, but for the far future.
If for governmental reasons a pipeline system has to be terminated or adapted, the
costs accompanied with this action will have to be paid for by the owner. This brings forth an
additional risk that can frighten off potential pipeline investors. Therefore, the government
should legally reassure financial aid for pipeline owners who are treated unfairly due to
governmental actions.
The congestion problems which occur more frequently nowadays could be mitigated
by expanding the pipeline network. Pipelines could significantly reduce the work load of road
and rail road transport. Having transportation that is reliable (no congestion costs) and durable
(low maintenance costs) is a huge benefit for the companies and hence the economy.
Especially in big cities where the congestion problems are enormous, capsule pipeline could
be a valuable solution.
The natural gas pipeline network of Belgium is managed by Fluxys who has a legal
mandatory monopoly. The prices Fluxys can ask for its transport services are supervised by
the CREG on behalf of the government so that Fluxys cannot demand excessive prices for its
services. The costs Fluxys has made are examined and an appropriate mark-up is determined.
However, the costs made by Fluxys are not limited by the government and hence an
overinvestment problem arises. The government should limit this decision autonomy of
Fluxys.
Furthermore, the RioP initiative of the Vlaamse Maatschappij voor Watervoorziening
should be promoted by the Flemish government. The RioP initiative is the collaboration
between the communities and Aquafin, where Aquafin takes over the management of the
sewage network. This has a number of benefits:
- Since Aquafin works together with the VLaamse Maatschappij voor
Watervoorziening –e.g. the RioAct- both the supply of water and the purification
of water are done by the same organization which brings along possible
synergies47
.
- Leaving the management of the sewage network to professionals increases the
efficiency and the development of the sewage pipelines. And a better sewage
system will increase the possibility to achieve the European water sewage
targets47
.
- Because the RioP initiative is not a privatization of the sewage pipeline network,
the communities will still have a say in what goes on. Hence, the common public
54
interest will not be neglected and the public utility will not be exploited for
monetary reasons.
Many communities have already signed up for this initiative that starts in 2010.
The purpose of the Central European Pipeline System has shifted a lot during the last
years. Maybe it would be a wise idea to legally redefine the priorities of the CEPS so that
CEPS can be efficiently managed.
Essenscia further recommends that Europe should connect every single cluster of chemical
firms in order to create a big European cluster that elevates the efficiency and profitability of
the chemical industry. As a result, the European chemical firms should be able to compete
more aggressively against foreign producers.
10. Conclusion
Flanders should use pipelines in combination with other modes of transport as a strategic
mean to increase the wealth of the society and to stimulate the strength and growth of the
economy.
VII
Sources
1. <http://www.mobielvlaanderen.be>
2. Piping and pipeline engineering,
URL:<http://books.google.be/books?id=5hWR4QXOpakC&printsec=frontcover#v=on
epage&q&f=false>
3. <http://www.pipeline101.com/History/timeline.html>
4. <http://www.pipeline101.com/Overview/energy-pl.html>
5. <http://www.britannica.com/EBchecked/topic/461356/pipeline/64244/Slurry-
pipelines>
6. <http://en.wikipedia.org/wiki/Slurry_pipeline>
7. <http://www.freightpipelinecompany.com/Capsule_Pipelines.htm>
8. <http://www.pipeline101.com/Business/index.html>
9. Essenscia, Pijpleidingstransport: de meest duurzame transportmodus
10. Fluxys: jaarrekeningen
11. Kenneth U. Nnadi, 2006, An economic rating of pipelines as a mode of transport
12. VIL, Pijpleidingentransport in Vlaanderen
13. Documents, Professor Rudi Denys
14. CEPS documents
15. <http://www.rapl.nl/>
16. Kenneth U. Nnadi and D Cmilt, Econometric analyses of domestic transportation of
refined petroleum products in Nigeria
17. <http://www.fluxys.com>
18. Mr. Goethals, employee at Fluxys
19. Dacon-pigging-brochures
20. CREG, persbericht 22 december 2009, Nr.83
21. <http://mygeologypage.ucdavis.edu/cowen/~gel115/115ch13oil.html>
VIII
22. <http://www.mil.be>
23. <http://www.nato.int>
24. <http://telenet.be>
25. Bruno Geltmeyer, Denys
26. <http://www.rapl.nl/geschiedenis/>
27. Nieuwsbrief cogen vlaanderen, 2006
28. <http://www.rapl.nl/preventieve_maatregelen/>
29. In cooperation with Bruno Geltmeyer and Johan Cooreirts of the Denys company
30. <http://www.protos.be/protosh2o/water-in-de-wereld/water-
mensenrecht/view?set_language=nl>
31. <http://www.vmw.be/nl/content/157/historiek.html>
32. <http://www.pidpa.be/nl/water/geschiedenis.htm>
33. <http://www.pidpa.be>
34. <http://www.vmw.be/nl/content/1319/investeren-in-nieuwe-technologie.html>
35. <http://www.svw.be>, doelstellingen
36. <http://www.vmw.be/nl/content/338/wat-doen-we.html>
37. <http://www.vmw.be/nl/content/161/infrastructuur.html>
38. <http://nl.wikipedia.org/wiki/Linde_AG>
39. <http://www.praxair.com>
40. <http://www.airliquide.be/nl/wie-zijn-wij/le-groupe-air-liquide-1/qui-sommes-
nous.html>
41. <http://www.airliquide.be/nl/wie-zijn-wij/air-liquide-benelux.html>
42. <http://www.airliquide.be/nl/wie-zijn-wij/le-groupe-air-liquide-1/nos-metiers.html>
43. viWTA dossier, WATERSTOF motor van de toekomst?
44. Air Liquide, Annual report 2008
45. <http://www.airliquide.be/nl/wie-zijn-wij/le-groupe-air-liquide-1/notre-strategie.html>
IX
46. <http://www.airliquide.be/nl/wie-zijn-wij/le-groupe-air-liquide-1/chiffres-cles-
2008.html>
47. <http://www.vmw.be/nl/content/1273/riop-totaaloplossing-voor-gemeentelijk-
afvalwaterbeheer.html>
X
Appendix 1
Explanation or translation of key words
a. The Flemish Institute of Logistics = het Vlaams Instituut voor Logistiek = het VIL
b. BC = Before Christ
c. The Romans: 400 BC
d.
2 to 8 inches = approximate 2*2,5 to 8*2,5 centimetres = approximate 5 to 20
centimetres
e. 8 to 24 inches = approximate 8*2,5 to 24*2,5 centimetres = approximate 20 to 60
centimetres
f. hydrogen = waterstof = H2
g. oxygen = zuurstof = 02
h. nitrogen = stikstof N2
i. carbon oxide = koolstofoxide = CO
j. argon = argon = Ar
k. dredging = baggeren
l. silt = slib
m. abrasion = technische afslijting
n. log = blok, in this context buisblok
o. a public easement = een erfdienstbaarheid van openbaar nut
p. carbon dioxide = CO2
q. nitrogen oxide = NO
r. permafrost = region waar het voortdurend vriest
s. ice-gouges = ijs obstakel, ijs uitsteeksel
t. volatile organic compounds = VOCs = vluchtige organische stiffen = VOS= stoffen
die snel verdampen en zorgen voor smog en verzuring
u. European Gas Pipeline Incident data Group = EGIG
v. CONCAWE = CONservation of Clean Air and Water in Europe
w. one barrel = almost 160 litres
x. 500 miles = approximate 500*1,6 kilometres = approximate 800 kilometres
y. Eandis does not has much competition. Infrax, for example, is a competitor but is less
significant than Eandis.
z. interconnection hubs = input connections
XI
aa. Gas Management Services Limited = GMSL
ab. KLIM = Kabels en Leidingen Informatie Meldpunt
ac. KLIP = Kabel en Leiding Informatie Portaal
ad. CREG = Commissie voor de Regulering van de Elektriciteit en het Gas
ae. the North Atlantic Treaty Organisation = the NATO = de NAVO
af. 6 to 12 inches = approximate 6*2,5 to 12*2,5 centimetres = approximate 15 to 30
centimetres
ag. the NATO Production, Logistics or Service Organisations = the NPLSO
ah. the CEPMO Board of Directors = the BoD
ai. the NATO Petroleum Committee = NPC
aj. 6 inch = approximate 6*2,5 centimetres = approximate 15 centimetres
ak. 12 inch = approximate 12*2,5 centimetres = approximate 30 centimetres
al. 1 exit point: because we assume there will be only need for 1 pumping facility
am. fleet of trucks = tankenpark
an. the NMDW = de Nationale Maatschappij der Waterleidingen
ao. the VMW = de Vlaamse Maatschappij voor Watervoorziening
ap. the SVW = de Samenwerking Vlaams Water
aq. Belgaqua = Belgium federation for the water sector
ar. Eureau = association of the water supply companies of the European Union
as. IWA = International Water Association
at. ARA-area = Amsterdam-Rotterdam-Antwerp area
au. Liberalizing the European natural gas pipeline network entails the equal treatment of
transport and transit.
av. Holds 89,97% of the shares
aw. Alternative projects that will create more value than delivering cheap water will be
rare.
ax. When pipelines are constructed with the aid of the government, the company can more
easily design the right trajectory and simply expropriate the needed trajectory. In times
of crisis the company must let the government use their pipelines as compensation.
az. Fluxys has, by taking over the Belgium infrastructure of Distrigas & C° and by taking
over the participation of Gaz de France in SEGEO, improved the transit service. Now,
Fluxys’ subsidiary Fluxys & Co NV –e.g. the new name of Distrigas & C°-
commercializes the pipelines Troll (Zeebrugge-Blaregnies) and VTN1 (Zeebrugge-
XII
Zelzate/Eynatten). And Fluxys’ other subsidiary SEGEO NV commercializes the
pipeline between Gravenvoeren and Blaregnies10.
XIII
Appendix 2
Figure 1: The Trans Alaska Pipeline System
XIV
Figure 2: Number of incidents in the European Gas Incident Data Group
Figure 3: Distribution of incidents per cause of the European Gas Incident Data Group
XV
Figure 4: Safety in oil pipelines
Figure 5: Seismic regions (map)
XVI
Figure 6: Pipeline damage
XVII
Figure 7: Permafrost TAPS
XVIII
Figure 8: Wall thickness
