REPORT FROM THE COMMISSION 1998 Report on Energy Investment Projects of Community Interest

Table of Contents

1. PART A. - SUMMARY OF INFORMATION RECEIVED

1.1. General - Relation to the Community's Energy Policy Objectives

1.2. Investments in the Petroleum Sector

1.2.1. Atmospheric Distillation Capacity

1.2.2. Conversion Capacity

1.2.3. Desulphurization Capacity and Improving Octane Rating

1.3. Investments in the Natural Gas Sector

1.3.1. The Length of Pipelines

1.3.2. Storage Capacity and Maximum Regasification Capacity

1.3.3. Storage Facilities

1.4. Investments in the Electricity Sector

1.4.1. Conventional Thermal Power Stations

1.4.2. Nuclear Power Stations

1.4.3. Hydro-electric Power Stations

1.4.4. Transmission Lines and Cables

2. PART B. - LIST OF ANNEXES

1. PART A. - SUMMARY OF INFORMATION RECEIVED

1.1. General - Relation to the Community's Energy Policy Objectives

This report is based on the Council Regulation 736/96 [1] which requires the Member States to communicate to the Commission annually investment projects relating to the production, transport, storage and distribution of petroleum, natural gas and electric power. Relevant projects are those due to start within 3 years (petroleum and natural gas) or within 5 years (electricity). Withdrawals from service of installations or parts of installations also need to be communicated. The aim of the Regulation is to enable the Commission to have an overall view of planned changes in the Community energy capacity and infrastructure.

[1] Council Regulation (EC) No 736/96 of 22 April 1996 on notifying the Commission of investment projects of interest to the Community in the petroleum, natural gas and electricity sectors, OJ L 102, 25.4.1996.

All these results contribute to a better knowledge concerning the achievement of the Community's three priority energy policy objectives - security of supply, competitiveness and protection of the environment - which were established by a Green Paper "For a European Union Energy Policy" [2] and further elaborated by a White Paper "An Energy Policy for the EU [3]". These objectives have been endorsed by the Member States and other actors in the energy field. In order them to be effective, these objectives need to be integrated in the launching of new energy policy initiatives as well as in the carrying out the already existing actions. This will be well illustrated in the forthcoming Commission's Green Paper on the Security of Energy Supply, a priority action for the year 2000. Energy infrastructure is further developing to improve the functioning of the internal energy market. Furthermore, the gas capacity enlargement will contribute to combating CO2 emission increase.

[2] COM(94) 659 final, 11 January 1995.

[3] COM(95) 682 final, 13 December 1995.

The Regulation requires the Commission to present to the Council a synthesis of the information obtained from the Member States. An effort has been made to compare the information given in this report with that of the 1997 report [4]. Albeit some comparisons can indeed be made, it would still be premature to draw any conclusions of the investment trends within the Member States.

[4] 1997 Report on Energy Investment Projects of Community Interest (SEC(1998) 1419 final).

The Commission will submit to the Council a report on the implementation of the Regulation by the end of 2001. This report will aim to present a more complete picture of the forthcoming Community energy investment developments as well as to evaluate how the Regulation has contributed to the objectives pursued.

1.2. Investments in the Petroleum Sector

In the petroleum sector the following types of investment projects relating to refining need to be communicated:

* distillation plants with a capacity of not less than 1,000,000 tonnes a year;

* extension of a distilling capacity beyond 1,000,000 tonnes a year;

* reforming/cracking plants with a minimum capacity of 500 tonnes a day; and

* desulphurization plants for residual fuel oil/gas oil/feedstock/other petroleum products.

During 1996 - 1998 a number of mergers, acquisitions and alliances took place in the petroleum industry. In the energy market characterised at that time by exceptionally low petroleum prices, these operations all aimed at profiting from the synergies, avoidance of duplication and cost minimisation. They also reflected the historic weakness of the European Union's refinery margins arising from the excess conversion capacity and the imbalance of domestic supply and demand for particular products. In addition to these, some refineries were closed down during the period of 1996-1998.

On the other hand, large investments are expected by the year 2005 to satisfy the tightening Community fuel standards and product specifications.

Consequently, a positive investment tendency is to be expected in the field of hydro-cracking distillates and residues as well as in the field of conversion following the evolution of the market in both quantity and quality. This tendency was already observed in 1997.

Furthermore, investment at several refineries is expected on units to improve octane rating and desulphurisation.

1.2.1. Atmospheric Distillation Capacity

Between 1 January 1997 and 1 January 1998 the total atmospheric distillation capacity of the European Union (capacity in service) decreased slightly from 642 to 639 millions tonnes/year.

In 1997, three refineries in the European Union ceased activity :

(1) KPR at Gulfhavn in Denmark (capacity of 2.9 Mt/year);

(2) The Leuna refinery in Germany (capacity of 5 Mt/year); and

(3) Gulf at Milford Haven in the United Kingdom (capacity of 5.6 Mt/year).

These capacity reductions were partly compensated for by the bringing into operation on 1 November 1997 of a new refinery in Leuna in Germany with an initial capacity of 8.7 Mt/year.

There were also both capacity decreases and increases in a number of existing refineries.

The utilisation rate of atmospheric distillation capacity has increased constantly. For crude oil, the utilisation rate rose from 91 % in 1996 to 92 % in 1997 (71 % in 1986/87). This resulted from a favourable economic situation that led to a small progress in refining margins, low crude oil prices, intensification of the refinery activities as well as the export of excess production, in particular petrol to the USA.

According to the information received, a slight reduction of about 3 million tonnes in the distillation capacity was expected in the European Union between 1 January 1998 and 1 January 1999. The 2.3 Mt/year decrease of capacity announced by Shell of its refinery in Berre in Southern France is included in these figures. Furthermore, a slight downward tendency regarding the European Union's distillation capacity is foreseen for the period of 1999 - 2000. This takes account of the announcement of Shell of its intention to close Shell Haven refinery in the United Kingdom with a capacity of 4.6 Mt/year.

1.2.2. Conversion Capacity

The conversion capacity decreased by 5.6 Mt or by 2.4 % between 1 January 1997 and 1 January 1998 resulting mainly from the refinery closures mentioned under the previous chapter.

At 1 January 1998, the total conversion capacity amounted to 232 Mt and represented about 32 % of the distillation capacity, the same percentage as in the previous year.

A downward tendency in visbreaking and thermal cracking in the European Union level has occurred since 1995. Conversely, the capacity of hydro-cracking increased and according to the information received this tendency should continue during 1999 - 2000.

Overproduction of petrol continued. However, the total capacity of catalytic cracking conversion remained almost unchanged between 1 January 1997 and 1 January 1998.

1.2.3. Desulphurization Capacity and Improving Octane Rating

During the last few years the European refinery industry has made considerable investments in the desulphurisation capacities in order to satisfy the Community obligation of diesel fuel at 0.05 % sulphur. The middle distillate desulphurization capacity hence increased by about 15 % in the European Union between 1 January 1995 and 1 January 1998.

In the coming years, new investments should occur:

* to satisfy the Community obligations of the sulphur content of petrol and diesel fuel within the period of 2000 - 2005; and

* to reduce the content of sulphur in liquefied fuels (heavy fuel oil and heating gasoil) during the coming decade.

In this context, a further increase in the European Union's desulphurization capacity is foreseen. This capacity increase could, within the period of 1999 - 2000 reach a higher level than the announced 7.6 Mt.

The capacity relating to improving octane rating covers catalytic reforming, isomerisation, alkylation and combined oxygen (MTBE, ETBE) units.

Catalytic reforming decreased by 5.4 Mt or 6 % in the European Union in 1997, partly because of the refinery closures mentioned earlier.

The capacity of alkylation and composed oxygen units, important in improving the quality of petrol, increased more than 7 % during 1997. This tendency should strengthen in the course of the coming years corresponding to the obligation to satisfy the new Community fuel specifications, in particular the reduction of benzene and other aromatics in the fuels within the period of 2000 - 2005.

1.3. Investments in the Natural Gas Sector

As far as gas transport and/or distribution is concerned, the Member States are required to communicate the following types of investment projects:

* transfrontier gas pipelines and projects of common interest identified in the guidelines established under Article 155 of the EC Treaty;

* terminals for the importation of liquefied natural gas; and

* investment projects concerning underground storage installations with a capacity of not less than 150,000,000 m³ .

1.3.1. The Length of Pipelines

The length of existing pipelines in kilometres with diameter above 300mm communicated to the Commission was 20,420 kilometres which showed an increase of 8.4 % when compared to the figures of the 1997 report.

There were 6,285 kilometres of pipelines under construction or planned. This corresponded to 30 % of the existing pipelines and showed an increase of 47 % when compared to the figures of the 1997 report. This could have resulted from the increase in gas consumption in the European Union.

1.3.2. Storage Capacity and Maximum Regasification Capacity

The communicated existing infrastructure of Community interest was 495,000m³ of LNG storage capacity and 1,930,000m³/hour of maximum regasification capacity.

A substantial increase of LNG storage plants is expected with 1,025,000m³ and 2,975,800m³/hour of capacity under construction or planned.

No withdrawals from service of infrastructure were notified.

1.3.3. Storage Facilities

The notified existing storage capacity for the EU was 53.6bcm. This represented an increase of 12.4 % to the last years report.

According to the notifications, the storage capacity under construction was 15.8bcm and the planned storage capacity was 11.9bcm. This showed an increase of 55 % in relation to the existing capacity.

No withdrawals from service of storage were notified.

1.4. Investments in the Electricity Sector

The Member States need to inform the Commission of the following types of investment projects concerning electricity production:

* thermal power stations (generations with a unit capacity of 200 MW or more); and

* hydro-electric power stations (power stations having a capacity of 50 MW or more).

Furthermore, investment projects regarding electricity transport need to be informed as follows:

* overhead transmission lines, if they have been designed for a voltage of 345 kV or more;

* underground and submarine transmission cables, if they have been designed for a voltage of 100 kV or more and constitute essential links in national or international interconnecting networks; and

* projects of common interest identified in the guidelines established under Article 155 of the EC Treaty.

1.4.1. Conventional Thermal Power Stations

The investments in the conventional thermal power stations under construction or planned to be commenced by 2002 were widely spread within the European Union. The main part of the investments would be carried out in Germany (27% of the total), in Italy (17%) and in the United Kingdom (17%). Except for France and Spain, all the Member States of the European Union announced investment projects in this sector. When compared to 1997, one could observe that the number of projects had increased in Germany (+1,9 GW) and in Italy (+1,5 GW) whereas the United Kingdom communicated a cancellation of total 2,0 GW of projects.

Of the 16,7 GW conventional thermal power stations to be commenced by 2002, 80,9% (13,5 GW) are thermal monovalent centres representing the same share as in 1997 (82,3%).

Gas seemed to be the dominant fuel as 72,6% (121,1 GW) of the capacity under construction or planned to be in service by 2001 could burn natural gas. The number of projects based on thermal monovalent centres burning lignite increased as well (3,9 GW on 1.1.1998 compared to 1,4 GW in 1997).

1.4.2. Nuclear Power Stations

The total nuclear capacity in service in the European Union on 1 January 1998 remained at about 130,3 GW. Except for some adjustments to the existing capacity in service, no modifications regarding this capacity were foreseen to be carried out.

One nuclear station was under construction in France. No other new stations were planned.

1.4.3. Hydro-electric Power Stations

The total hydro-electric capacity under construction or planned by 2002 has increased to 2496 MW of which 635 MW were planned to be put in service in 1998. This capacity increased by almost 70 % when compared to the previous year's information. A great part of this increase was due to the investment projects to be carried out in Germany (+1060Mwe).

Of the 2496 MW under construction or planned, 1460 MW (58,5 %) were mixed pumped storage and 1036 (41,5%) were primary conversion.

These projects were centred in five Member States i.e. Germany (42,5 %), Italy (22,9 %), Greece (22,4 %), Portugal (9,6 %) and Austria (2,6 %).

1.4.4. Transmission Lines and Cables

The total capacity of high voltage lines under construction or planned by 2002 amounted for 7726 km representing an equivalent level to the one notified in 1997. The investment projects were spread largely across the European Union although 33 % of the projects were situated in Spain and Italy.

Overhead lines represented 81 % of the projects (6237 km). Most part of the projects were 380 kV (57 % of the overhead lines) and 400 kV (43 %) lines.

Underground cables represented 7 % of the projects (539 km). The share of this kind of investments concerning essentially short distance liaisons increased by 35 % when compared to the previous year.

The total share of submarine cables represented 12 % of the projects (950 km).

2. PART B. - LIST OF ANNEXES [5]

[5] SEC(2000) 1180 - Commission staff working paper - Report from the Commission - 1998 Report on Energy Investment Projects of Community Interest - Part B - Annexes.

Annex 1 Oil - Refining Capacity in the EU

Annex 2 Oil - Evolution of Conversion and Distillation Capacities at EU-15 Level

Annex 3 Oil - Desulphurisation, Alkylation and Etherification Capacities in the EU

Annex 4 Oil - Future Changes in the Refining Capacities at EU - 15 Level

Annex 5 Natural Gas - Length of Pipelines in kilometres, diameter above 300mm

Annex 6 Natural Gas - LNG Plants, LNG storage in m³/max. regasification Capacity in m³/hour

Annex 7 Natural Gas - Storage Facilities, Useful Capacity in bcm.

Annex 8a Electricity - All Plants under Construction or Planned

Annex 8b Electricity - Conventional Thermal Plants

Annex 8c Electricity - Nuclear Plants

Annex 8d Electricity - Hydro Plants

Annex 8e Electricity - Transmission Lines and Cables

Annex 9a Electricity - Conventional Thermal Plants by Country

Annex 9b Electricity - Conventional Thermal Plants by Category

Annex 10a Electricity - Nuclear Plants by Country

Annex 10b Electricity - Nuclear Plants by Category

Annex 11a Electricity - Hydro-Electric Power Plants by Country

Annex 11b Electricity - Hydro-Electric Power Plants by Category

Annex 12a Electricity- Transmission Lines and Cables by Country

Annex 12b Electricity - Transmission Lines and Cables by Category