2003/26/EC: Commission Decision of 20 December 2001 declaring a concentration to be compatible with the common market and the EEA Agreement (Case COMP/M.2389 Shell/DEA) (notified under document number C(2001) 4526) (Text with EEA relevance)
Date: 2001-12-20
Institutions: European Commission
Subjects: competition law, economic concentration, energy industry, hydrocarbon, merger control

21.1.2003

EN

Official Journal of the European Communities

L 15/35

COMMISSION DECISION

of 20 December 2001

declaring a concentration to be compatible with the common market and the EEA Agreement

(Case COMP/M.2389 Shell/DEA)

(notified under document number C(2001) 4526)

(Only the English text is authentic)

(Text with EEA relevance)

(2003/26/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area, and in particular Article 57(2)(a) thereof,

Article 4 of Regulation (EEC) No 4064/89 (the Merger
Regulation), of a proposed concentration by which
Deutsche Shell and RWE acquire, within, the meaning
of Article 3(1)(b) of the Merger Regulation, joint control
of a newly created joint venture (Shell/DEA or JV) that
will combine their
respective downstream oil and
petrochemicals businesses. After an interim period
ending on 1 July 2004 at the latest, Shell will acquire
sole control of the combined businesses.

Having regard to Council Regulation (EEC) No 4064/89 of 21
December 1989 on the control of concentrations between
undertakings (1), as
last amended by Regulation (EC) No
1310/97 (2), and in particular Article 8(2) thereof,

(2)

Having regard to the Commission’s decision of 23 August
2001 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to
make known their views on the objections raised by the
Commission,

Having regard to the opinion of the Advisory Committee on
Concentrations (3),

Having regard to the final report of the Hearing Officer in this
case (4),

WHEREAS:

I. INTRODUCTION

(1)

On 10 July 2001,
the undertakings Deutsche Shell
GmbH (Deutsche Shell) and RWE Aktiengesellschaft
in accordance with
(RWE) notified the Commission,

(1) OJ L 395, 30.12.1989, p. 1, corrected version OJ L 257,

21.9.1990, p. 13.

(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ C (cid:133)
(4) OJ C (cid:133)

(3)

(4)

After examination of the notification, the Commission
by decision of 23 August 2001 concluded that
the
notified operation fell within the scope of the Merger
serious
to its
Regulation and
raised
and the
common market
compatibility with the
functioning of
the EEA Agreement. The Commission
accordingly initiated proceedings in this case pursuant
to Article 6(1)(c) of the Merger Regulation and Article
57 of the EEA Agreement.

doubts

as

II. THE PARTIES AND THE OPERATION

group
in

active world-wide

Royal Dutch/Shell
is

of
The Dutch-British
the
(Shell)
companies
exploration, production and sale of oil and natural gas,
the production and sale of chemicals, power generation
and the production of energy from renewable resources.
Shell’s wholly owned subsidiary Deutsche Shell GmbH is
active mainly in the refining of crude oil and the
distribution and sale of refined products in Germany, in
the production,
certain
distribution and
chemicals, in the production and distribution of natural
gas and crude oil, and in the solar energy business.

sale of

RWE is the ultimate parent company of a group of
companies focusing on a multi-utility strategy with
activities in energy, water distribution and treatment,
services,
mining and raw materials,
petroleum and
and
chemicals,
construction. The upstream and downstream oil and
petrochemicals business of RWE is operated via its

environmental
industrial

systems

L 15/36

EN

Official Journal of the European Communities

21.1.2003

subsidiary RWE-DEA Aktiengesellschaft f(cid:252)r Mineraloel
und Chemie (RWE-DEA). The affected downstream oil
and chemicals activities are operated via DEA Mineral(cid:246)l
AG, a 100 % subsidiary of RWE-DEA.

as

separate

Shell/DEA.

Shell will

The parties will use
existing DEA Mineral(cid:246)l
the
company as the joint venture vehicle, which will be
its
renamed
downstream oil business in Germany, currently operated
by Deutsche Shell, and contribute this business
to
Shell/DEA,
including certain of Shell’s petrochemicals
assets, namely its aromatics production from its plant at
include the entire
Godorf. As a result, Shell/DEA will
downstream oil business and petrochemicals business of
each of Shell and RWE-DEA in Germany. The joint
venture will operate its business under the brands of
both Shell and DEA. The joint venture will not extend
to any upstream oil or any natural gas businesses of the
parties.

Shell. Resolutions in the shareholders’ meeting will be
taken by simple majority. As each party will hold 50 %
of the voting rights, decisions can be blocked by either
party. During the initial period certain decisions within
Shell/DEA will be taken by a JV Committee composed
of six members, three nominated by each shareholder.
Decisions will require unanimity. The JV Committee will
have sole discretion and authority for a number of
strategic decisions such as the business plan, the annual
JV,
operating
the
investments
appointment of members of the management board. In
the
veto rights of both parties
safeguarding their decisive influence in the JV, it can be
concluded that during the first period, Shell and RWE
will have joint control over Shell/DEA.

structural
a

budget,
above

in the
and

threshold

light of

changes

certain

these

Shell and RWE-DEA signed a Joint Venture Agreement
on 5 July 5 2001. Pursuant to this agreement, the shares
in Shell/DEA will be held 50/50 by RWE-DEA and Shell
for an initial period. RWE-DEA will have a first put
option to sell its 50 % stake in the JV to Shell between
[(cid:133)]* (*) and [(cid:133)]*. If the put option is not exercised,
RWE-DEA will be legally bound to sell and Shell will be
legally bound to purchase [(cid:133)]* % of
the shares in
Shell/DEA effective [(cid:133)]*. In addition, Shell will grant
RWE-DEA a
second put option for RWE-DEA’s
remaining shares in the JV, to be exercised between
[(cid:133)]* and [(cid:133)]*, effective [(cid:133)]*. Given this structure,
Shell will in any case have a [(cid:133)]* % stake in Shell-DEA
by 1 July 2004 if it has not acquired the whole share
capital of this company by then.

III. CONCENTRATION

two subsequent

transaction consists of

The
steps,
namely an initial period which will end either with the
exercise of the first put option by RWE-DEA or, at the
latest, with the purchase of the additional [(cid:133)]* % of
Shell/DEA’s shares by Shell effective 1 July 2004, and
the period after that date.

(9)

(10)

the

initial period,

the members of

During
the
management board which is in charge of Shell/DEA’s
day-to-day operation will be equally appointed by each
shareholder via the JV Committee and Shell/DEA’s
supervisory board. The chairman of the management
board will have a casting vote and will be a nominee of

the decisions of

transfer sole control

After 1 July 2004, unless RWE-DEA exercises the first
to Shell
put option, which will
even earlier, Shell will hold [(cid:133)]* % of the shares in
Shell/DEA. Shell will control
the
shareholders’ meetings as far as they are taken by simple
majority, as well as the day-to-day management of
Shell/DEA through the management board. It is foreseen
that Shell’s majority in the shareholders’ meeting will
translate into an appointment of its representatives for
the management board at this stage. The JV Committee
will remain in place, but the reserved items, requiring a
unanimous decision, will become
limited to core
arrangements concerning issues such as changes in the
articles of association of the JV or in the JV agreement,
restructuring with a project value above significant
thresholds, dividend policies and cash calls on partners.
Veto rights in these areas do not appear to confer on
RWE-DEA the ability to exercise a decisive influence
over Shell/DEA. They appear to be limited to issues
necessary to protect the financial interests of RWE-DEA
as a minority shareholder. It can therefore be concluded
that Shell will acquire sole control over Shell/DEA after
1 July 2004 at the latest, resulting in a concentration
within the meaning of Article 3 (1) (b) of the Merger
Regulation.

the acquisition of

considered as one

transaction can be

The
single
sole
concentration consisting of
control over Shell/DEA by Shell, although effectuated in
two consecutive steps, with a starting-up period of joint
control. Point 38 of
the Commission notice on the
concept of concentration under Regulation (EEC) No
4064/89 on the control of concentrations between
undertakings (5) states that an operation will normally
be considered to be an acquisition of sole control,

(5)

(6)

(7)

(8)

(*) [(cid:133)]* represents text omitted for confidentiality.

(5) OJ C 66, 2.3.1998, p. 5.

21.1.2003

EN

Official Journal of the European Communities

L 15/37

where it leads to joint control for a starting-up period
of up to three years, but according to legally binding
agreements this joint control will be converted into sole
control by one of the shareholders.

VI. ASSESSMENT UNDER ARTICLE 2 OF THE MERGER
REGULATION

(11)

In the present case, from today on, the acquisition of
sole control by Shell within less than three years is a
legal certainty. [Shell will also have a strong influence in
the operational management of the JV]*.

IV. COMMUNITY DIMENSION

(12)

turnover

The undertakings concerned have a combined aggregate
worldwide turnover of more than EUR 5 billion (6).
an aggregate
and DEA each have
Shell, RWE
Community-wide
in excess of EUR 250
million. Not all of the undertakings concerned achieve
more
aggregate
Community-wide turnover within one and the same
Member State. The notified operation therefore has a
Community dimension within the meaning of Article
1(2) of the Merger Regulation.

two-thirds

their

than

of

V. PROCEDURE

(15)

(16)

of

all

the Merger Regulation,

(13) On 3 August 2001 the German competition authority,
the Bundeskartellamt, informed the Commission that the
concentration threatens to create or to strengthen a
dominant position as a result of which effective
competition would be significantly impeded on a
market within Germany, which presents
the
characteristics of a distinct market pursuant to Article
9(2)
the
Commission to partly refer the case. The request related
to the markets for downstream mineral oil products in
Germany, including in particular the markets for motor
gasoline, diesel and light heating oil
retailing and
wholesaling, aviation fuels, heavy fuel oil, bitumen and
lubricants. The request did not concern the markets for
petrochemicals, the markets for upstream oil activities
as well as the markets for downstream oil products
outside Germany. By decision of 23 August 2001 the
Commission partly referred the case to the competent
German authorities as requested.

requested

PART 1: ETHYLENE

A. RELEVANT PRODUCT MARKET

Ethylene is one of the most important basic chemical
products, which belongs to the olefin group consisting
of ethylene, propylene, and butadiene.
In Western
Europe, ethylene is produced principally from naphtha
(itself a product of the process of refining crude oil) in
steamcracking equipment. It is used as a raw material
for ethylene derivatives such as polyethylene and PVC
and no other product can replace it.
In line with
ethylene (7),
the market
previous
investigation has confirmed that ethylene constitutes a
separate product market.

decisions

for

B. RELEVANT GEOGRAPHIC MARKET

it

investment

is neither profitable nor practical

In line with its previous decisions the Commission
considers that the relevant geographic market for the
supply of ethylene is a function of the extent of the
available pipeline network (8). Ethylene is a hazardous
gas which is highly flammable. Due to these product
to
properties
transport ethylene overland by road or rail. For instance
in Germany,
this transport would require a special
permit and transport by barge on the Rhine is even
prohibited. Over long distances, ethylene is transported
either in compressed form by pipeline or in liquid form
by refrigerated ship. However, such transport requires
major
such as
pipelines and specially equipped sea terminals which in
turn are often connected to pipelines or to one or
several ethylene consumers. In order to reduce transport
costs and logistical difficulties, ethylene consumers tend
to be located near to the ethylene production sites. It is
impossible in practice to move large quantities of
an inland
ethylene
consumption site if the two sites are not connected to
the same network of pipelines. Consequently, given
the transportation of ethylene,
these constraints for
are
and
production
ethylene
characterised by individual systems where producers and
consumers are combined on-site or linked by a pipeline
and/or the access to deep sea terminals. Therefore, the

from a production site

consumption

in logistical

equipment

sites

to

(14) On 24 October 2001 a Statement of Objections was
sent to Shell and RWE, which sent a combined reply on
5 November 2001. As requested by the parties, a
hearing was held on 6 November 2001.

(6) Turnover calculated in accordance with Article 5 (1) of the Merger
Regulation and the Commission notice on the calculation of
turnover (OJ C 66, 2.3.1998, p. 25). To the extent that figures
include turnover for the period before 1 January 1999, they are
calculated on the basis of average ECU exchange rates and
translated into EUR on a one-for-one basis.

(7) See Cases COMP/M.1628 (cid:151) Totalfina/Elf, OJ L 143, 29.5.2001, p.
IV/M.361 (cid:151)
IV/M.550 (cid:151) Union Carbide/Enichem,

1; COMP/M.2345 (cid:151) BP/Erd(cid:246)lchemie, 26.4.2001;
NestØ/Statoil, 17.2.1994;
13.3.1995.

(8) Cases COMP/M.1628 (cid:151) Totalfina/Elf, IV/M.361 (cid:151) NestØ/Statoil,
IV/M.550 (cid:151) Union Carbide/Enichem. In case M.2092 (cid:151) Repsol
Chimica/Borealis (19.12.2000), the Commission left open whether
the relevant market was local or wider, but in the area at question
(the Iberian peninsula)
there were no ethylene pipelines. The
geographic scope of the ethylene market was also left open in
COMP/M.2345 (cid:150) BP/Erd(cid:246)lchemie.

L 15/38

EN

Official Journal of the European Communities

21.1.2003

relevant geographic market is delineated by the available
pipeline network.

(20)

can be

therefore

It
relevant
geographic market is the pipeline system of the ARG+
ethylene pipeline.

concluded that

the

(17)

(18)

and

owned

operated

for delineating the
The pipeline network relevant
relevant geographical market for ethylene is the pipeline
by
network
Aethylenrohrleitungsgesellschaft mbH & Co
KG,
together with its associated pipelines (the so called
(cid:145)ARG+(cid:146) pipeline network),
these associated pipelines
being mostly owned by the linked ethylene consumer or
producer. The ARG+ links various production sites and
ethylene consumers in Belgium,
the Netherlands and
Western Germany.

C. COMPATIBILITY WITH THE COMMON MARKET

(21) On 27 July 2001 BP plc (BP) and E.ON AG (E.ON)
notified the Commission of their agreement whereby
BP, together with E.ON, will acquire joint control over
Veba Oel AG (Veba) (case COMP/M. 2533 (cid:150) BP/E.ON).
This
for
ethylene on the ARG+. A single analysis of this market
was carried out for the two cases, which leads to the
present decision as well as to a parallel decision in case
M. 2533 (cid:150) BP/E.ON, adopted simultaneously.

transaction will equally affect

the market

imports and their restricted
The limited amount of
availability for consumers means a broader definition of
the geographic market is not possible. There are five sea
terminals linked to the ARG+ which allow for ethylene
imports by ship from production sites located outside
total ethylene consumption by
the ARG+ area. Of
ARG+ consumers, approximately 15 % were imported
from outside the ARG+ area in 2000, which was a peak
year due to several unscheduled downtimes of ethylene
production facilities (so-called (cid:145)crackers(cid:146)) on the ARG.
Usually imports account for approximately 10 % of total
(captive and merchant) demand. By far the greatest
share of imports is done by the owners of the import
terminals, third-party imports only account for 10 to
20 % of the total imports. For third parties, the amount
of ethylene imports into the ARG+ catchment area is
severely restricted. First, there are no public terminals
offering free access to third parties, but all are owned by
ethylene producers. Second, existing terminals have
the ethylene needs of
been designed primarily to fit
their owners, they are in addition to imports used for
the storage of excess production of the cracker usually
linked to the terminal, and do not provide sufficient
long-term capacity for the open market. Even if third
parties are allowed to use these terminals, third parties
raised a number of contractual and practical difficulties
which prevent them from using these terminals on a
structural basis. In contractual terms,
it appears to be
very common that terminalling contracts are linked to
the existence and duration of a supply agreement with
the terminal owner and that the terminal is only made
available for a certain percentage of the volumes which
are supplied directly by the terminal owner. In addition,
such contracts partly provide for certain rights of the
terminal owners whereby the ethylene purchaser
is
obliged to negotiate with the terminal owner whether
the purchaser would accept direct supply instead of
using the terminal. Third, consumers which are not
directly linked to a sea terminal have to pay ship freight
cost, terminalling fees and transportation costs charged
by the ARG for transport over the pipeline, which
means that large scale imports are not an economically
viable alternative to product produced on the ARG+.

(22)

(23)

(24)

1. Current market structure

1.1. The market

for ethylene is already today
characterised by a high degree of concentration

In line with previous decisions of the Commission (9)
and the view of Shell and RWE, the parties’ and other
market participants’ market shares are calculated and
considered with regard only to the merchant market.
The merchant market comprises sales to third parties,
and does not consider production volumes which are
used internally within the
the
conversion into products further downstream (captive
use).

group for

same

it

Furthermore, market shares of ethylene suppliers as well
as the volume of the merchant market itself may be
calculated in principle on a net basis as regards sales
and purchases on the ARG+. In case a producer is at
the same time selling and purchasing on the merchant
market,
is appropriate to consolidate sales and
purchases to a net position as either net buyer or net
seller. The Commission’s investigation has shown that
swaps among producers as well as sales and purchases
on the (spot) market in the same year are mainly carried
out for operational reasons and not for the purposes of
a systematic and large scale on-sale. Furthermore, swaps
do not reflect independent market power on the part of
the participating undertaking and cannot be compared
to sales. For the special situation as regards Erd(cid:246)lchemie,
see recital 40.

the

Imports by producers connected to the ARG+ from
outside the ARG+, whether they are delivered by one
and
companies or
company/group of
purchased from third parties, are accounted in the same
way as ethylene production on the ARG+.
It is not
imports onto the ARG+ as
appropriate

to treat

same

(19)

The parties did not dispute the Commission definition
of the geographic market.

(9) See Case IV/M.361 (cid:151) NestØ/Statoil, 17.2.1994.

21.1.2003

EN

Official Journal of the European Communities

L 15/39

purchases in the ARG+ (which, as a consequence, would
lower the importer’s net selling position and market
share). Imports on a continuous basis are not readily
available for all ethylene consumers in the ARG+. In
addition, large-scale imports usually are not operated on
a swap basis or for other operational reasons without
market effects. Therefore, via imports a considerable
market position can be achieved and the offset of
sales would lead to a
imports
individual
significantly
the
in line with
undertaking’s market share. Furthermore,
the parties’ submissions, imports account for a part of
the total ethylene market volume on the ARG+. In order
to be consistent, the market share deriving from these
imports also has to be attributed to the undertaking
selling these imports within the ARG+ catchment area.

against merchant
distorted

picture

of

The parties argue that volumes sold to third parties on
the basis of long term, formula based contracts should
be excluded from the merchant market and market
share calculation. They submit that these contracts are
economically comparable to captive use and should
therefore be treated likewise, that is to say, excluded.
The volumes under these (cid:145)mechanistic(cid:146) contracts are
committed for an extremely long period (longer than 15
years) and are therefore not available for the market in
the medium term. The pricing is based on a mechanistic
transfer price without
further negotiation taking into
the actual market situation. The pricing for
account
these volumes
linked to and not
these
relevant
contracts were excluded from the market, the parties’
combined market share would be approximately [5 to
15 %]*.

the overall merchant market.

therefore not

for

is

If

The Commission does not share the parties’ view that
long-term supply contracts based on a price formula
should be excluded from the market calculation. As a
general point,
it appears that a different treatment of
contracts based only on their pricing formula would
lead to inconsistent and arbitrary results. [There are
contracts of a mixed nature combining the two pricing
schemes. It appears to be highly artificial and arbitrary
to split one single contract with regard to market share
calculation]*.

these contracts. On the market

justify the
The long term character as such cannot
exclusion of
for the
supply of ethylene, long-term contracts are the rule and
therefore do not qualify these contracts as exceptional.
It is possible that on the basis of a snapshot view on the
market in a given moment, these volumes might indeed
be not immediately available. However, on the basis of a
forward looking analysis of
the market which is
required by the Merger Regulation, these volumes will
be on the market at the time of expiry or re-negotiation
the respective
of

the contracts, and therefore reflect

(25)

(26)

(27)

contracts

producer’s medium and long term market power.
Furthermore, there are continuously and in a revolving
manner
require
renegotiation on the market. Therefore, these long term
contracts are not excluded from competition between
suppliers and they regularly allow for market interaction
when they expire.

expire

that

that

or

(28)

(29)

The formula character of the pricing scheme does also
not justify an exclusion from the market calculations.
Market shares are used as an indicator to measure
market power because they reflect market success in the
past, and there is a certain likelihood that this success
will continue at the same level in the short and medium
future. Against this background, market shares based on
formula based contracts also appear to be meaningful.
the
Formula based contracts are often a result of
disintegration of
intra-group supplies with
physical
links between supplier and consumer. As a
result, there is some probability, although no certainty
that the supplier will gain the respective part of the
market also in the future.

former

justify an exclusion of

The fact that there are no quarterly market related price
negotiations during the term of the contract does also
not
these contracts from the
assessment of the parties’ market power. Also formula
based contracts are not fixed entirely for the whole time
of their duration. They often provide for adjustments of
the formula in case of supply and other developments
excluded from competitive
and therefore
are not
interaction during their
term. For example, DEA’s
contract with CPO (which the parties want to exclude
from their market share with respect to the part of the
volumes
[(cid:133)]*.
a
Furthermore, in [(cid:133)]* the parties agreed on a discount
from the formula based price of an additional DEM
[(cid:133)]*. This further illustrates that the price actually to be
entirely
paid under
mechanistic,
and
amendments which are influenced by general market
conditions. The DEA-CPO contract contains another
strong link to market pricing [(cid:133)]*. Therefore, it cannot
be argued that
formula based contracts are entirely
unrelated to market developments and negotiations.

is not
renegotiation

contract
for

supplied

formula

formula

a
but

allows

basis)

on

(30)

In conclusion, it is not appropriate to exclude long-term
formula based contracts when calculating market shares
in the present case.

(31)

The above described concept for the definition of the
merchant market and the calculation of market shares
does, however, not remove the necessity to individually
assess restructuring operations which may lead to an
increase
leading to a
corresponding direct and immediate increase of market

shares without

in market

L 15/40

EN

Official Journal of the European Communities

21.1.2003

case of

a divestiture of

activities
supplies

some
intra-group

power. Such a situation may in particular occur if, in
in
the
downstream production,
of
ethylene are replaced by long-term supply agreements
with third parties. As a consequence of the new third
the former captive use is
party supply agreements,
accounted for the merchant market and may generate
additional market
such additional
shares. However,
market shares may not necessarily be considered as a
full reflection of new market power. Such operations
and their particularities have to be assessed on a
case-by-case basis.

(35)

(32) On the basis of the foregoing, the market shares and
capacities of the ethylene sellers on the ARG+ merchant
market as well as imports by third parties for the year
2000 are as follows:

Table 1

Market shares

Ethylene seller

Share of merchant
market %

Capacity

kt

Veba

DEA

Shell

[25 to 35]*

[900 to 1 000]*

[10 to 20]*

[400 to 500]*

[10 to 20]*

[900 to 1 000]*

BP/Erd(cid:246)lchemie

0,0

[900 to 1 000]*

BASF

Atofina

Exxon

[10 to 20]*

[1 300 to 1 400]*

[5 to 15]*

[700 to 800]*

[5 to 15]*

[400 to 500]*

Imports third parties

[0 to 10]*

capacity of its two crackers in Gelsenkirchen of around
[900 to 1000]* kilotons per annum (ktpa), a production
which was fully exploiting the capacity and was entirely
sold to the merchant market in the year 2000 (as also
in the years 1998 to 1999),
it is by far the largest
player in the merchant market in the ARG+ catchment
area with a market share of around [25 to 35]* %.

reflect

share does not

The other market player belonging to the first group is
DEA.
In the ARG+ area DEA owns two crackers in
Wesseling with an ethylene capacity of [400 to 500]*
ktpa which was [highly]* exploited in the year 2000.
The whole production was sold to the merchant market,
as was also the case for the years 1998 and 1999 (10).
DEA’s market share lies around [10 to 20]* %. The
parties argue that DEA only has one customer, CPO,
which it has supplied since the 1970s, and thus its
market
its market position
appropriately. However, CPO is not a consumer on its
own, nor is it an independent trader. It negotiates the
supplies
for Basell, Clariant, Celanese, Vinnolit and
Vintron. [(cid:133)]*. The respective agreements are a result of
the divestment of
the Hoechst
group, for which economic supplies had been secured at
the time. The contracts of CPO with its customers are
limited to the duration of CPO’s supply contracts with
DEA (and Veba). Furthermore, [a large proportion]* of
CPO’s demand is passed on to Basell, the Joint Venture
between Shell and BASF, both net
sellers on the
merchant market. Basell
today has its own ethylene
cracker and is likely to be able to procure remaining
demand at economic terms via its parents. Against this
background, CPO itself expressed the expectation that it
will not continue to exist in the present form after the
expiry of its supply contracts with DEA and Veba.

former members of

(33)

In general, the ethylene suppliers in the ARG+ area can
be grouped into three different categories. These are:

(36)

In conclusion, the two players DEA and Veba provided
[a significant proportion]* of the merchant market in
the ARG+ area in the year 2000.

(i)

suppliers which
downstream and
production on the merchant market;

vertically
their whole

not

sell

are

integrated
ethylene

(37)

(ii) ethylene producers which are vertically integrated
ethylene
partly
it on the

downstream and
production captively and partly sell
merchant market; and

their

use

(iii) ethylene producers which are vertically integrated
and use their whole ethylene production captively.

Shell is seen by the market as belonging to the second
category. Shell owns an ethylene cracker at Moerdijk,
the Netherlands, connected to the ARG via a proprietary
pipeline. Shell submits that it is an overall net purchaser
of ethylene due to the fact that the demand of its Basell
joint venture
and ownership
together with BASF) has to be taken into account as
captive use. This argument cannot be accepted. As a
full-function joint venture within the meaning of the
Merger Regulation, Basell is set up as an autonomous
economic entity which only initially will purchase

control

(under

joint

(34)

Veba Oel is seen by the market to belong to the first
category (non-downstream integrated full seller). With a

(10) Although DEA was, to a limited degree, active in downstream
ethylene derivatives production until early 2001,
their entire
production on the ARG was available to the merchant market.
DEA’s downstream activities were mainly located off the ARG at
Heide/Brunsb(cid:252)ttel and thus were not supplied via the ARG.

21.1.2003

EN

Official Journal of the European Communities

L 15/41

smaller parts of its required ethylene supply from its
parents (11). Since at least in a medium-term perspective
Basell
is free in its choice of ethylene supply, Basell’s
actual demand cannot be included in the calculation of
Shell’s net balance of
assessment
ethylene. This
to the market perception according to
corresponds
in the ethylene
which Shell
is a significant player
merchant market at
In addition to
Shell’s production on the ARG+, its imports onto the
ARG+ are added to its production. According to this
calculation Shell’s 2000 market share amounted to [10
to 20]* %.

the ARG+ level.

non-integrated consumers
such as Sasol, Celanese,
Ineos and Borealis, which are
Solvay/Solvin, LVM,
entirely dependent on third ethylene producers’ supplies
for their requirements of ethylene on the ARG+.

1.2. As the only non-integrated suppliers, DEA and
Veba are the main price settlers in the ethylene
market and therefore play a decisive role for
the functioning of the market

(38)

figure may understate Shell’s

actual market
This
potential.
In the year 2000 the capacity of Shell’s
ethylene cracker in Moerdijk was increased from [600
to 700]* kt to [800 to 900]* kt. The expansion of
cracker capacity, which is not reflected in the 2000
market share, will strengthen Shell’s market position in
the future and increase its market share in excess of the
current level.

(39) Other players belonging to the second group are BASF
with a market share in the merchant market of [10 to
20]* %, Atofina with a significantly lower market share
of around [5 to 15]* %, and Exxon with a market share
of [5 to 15]* %. Exxon’s share is largely based on its
imports on the ARG from its ethylene production sites
in the United Kingdom. The remaining market shares
are accounted for by imports carried out by other
parties.

(40)

BP belongs to the third category with respect to its net
ethylene balance, consuming all its ethylene production
captively on a net basis (see recital 23), even taking into
account BP’s considerable imports in the year 2000.
This still holds true after the taking over of sole control
over Erd(cid:246)lchemie in April 2001. However, Erd(cid:246)lchemie
still supplies customers with ethylene on the basis of
to
long-term contracts. Although
the
Commission’s market
Erd(cid:246)lchemie’s
ethylene sales are decreasing (from [(cid:133)]* kt in 2000 to
expected [(cid:133)]* kt in 2001) following the acquisition of
sole control by BP, Erd(cid:246)lchemie’s sales nevertheless give
BP a market perspective and intelligence also from a
seller’s point of view.

investigation

according

(41) Other players belonging to the third group are DOW,
DSM and Basell, as their entire ethylene production (in
is used captively, and they
terms of a net balance)
purchase additional volumes on the market.

(42)

Beside these ethylene consumers which are themselves
active in the ethylene production there are also free,

(11) See Case COMP/M.1751 (cid:151) Shell/BASF/JV Project Nicole,

29.3.2001.

(43)

The vast majority of ethylene supplies are based on
long-term contracts between suppliers and consumers.
In general, there are three different types of contracts in
terms of pricing schemes.

(44)

(45)

First and foremost,
large volume contractors widely
refer in their long-term contracts to a basic contract
price, which is then adjusted via individual discounts.
Whilst the individual discount is fixed for the whole
term of the contract, the basic contract price is subject
to renegotiation between the partners every quarter. A
these contracts contain fallback
large proportion of
clauses which state
contract price
published by the industry report ICIS-LOR as agreed in
case the parties do not reach an agreement in their
negotiations.

reference

the

the first

the most

(having a contract of

Second, there are contracts mainly for smaller volumes
that do not
foresee quarterly price negotiations, but
refer to the published reference contract price, which is
also adjusted by an individual discount agreed for the
whole term of the contract. The actual price to pay
varies automatically according to the movements of the
published reference price. The price to pay according to
these types of contracts therefore follows the price of
the first type of contracts. To arrive at this published
important players on the
reference price,
market
type) with
minimum volumes to negotiate of around 200 kt report
their contract prices (without discounts) which they
agreed in the quarterly individual negotiations
to
publishing organisations like ICIS-LOR or CMAI. Other
parties which also have to negotiate prices either follow
this price or deviate from it, and these facts are
subsequently also reported and published. After certain
deals have been closed at the same price, this price is
considered as the accepted contract price for a certain
quarter, and published by ICIS as the headline reference
Price
price
In case no such reference price is widely
(NWECP)(cid:146).
accepted, a weighted average is published as
the
headline quarter price. As a consequence, all other
contracts referring to this price without any further
renegotiations will be adjusted accordingly.

(cid:145)North Western

European

Contract

L 15/42

EN

Official Journal of the European Communities

21.1.2003

(46) On the basis of this pricing mechanism,

are

not

and

role

that

sellers,

therefore

the most

already play

and DEA are

setting mechanism. This

influence on
significant volumes of product does not only have an
impact on the individual contract, but has a broader
impact on the general pricing level on the ethylene
important
market. Veba
an
merchant
important role in terms of volumes in the described
price
is particularly
emphasised by the fact that Veba and DEA are the only
suppliers
products
downstream of ethylene. Consequently, the prices they
set are considered to be entirely free from biasing
interests in downstream markets and considerations of
captive use, and driven only by objective aspects of the
ethylene market
the
supply/demand balance, margin trends, and so forth.
Although the contracts of other suppliers have been
reported in the past as well, all market participants that
answered to the Commission’s questionnaires agreed
that Veba and DEA were the price setters in the ARG
ethylene market, ensuring a supply/demand orientated
price finding widely accepted by the market.

integrated

feedstock

such

cost,

as

in

(47)

(48)

The parties argue that the role of DEA (and Veba) for
the
the pricing mechanism and the functioning of
market is widely overstated for the following reasons:
DEA has only one supply contract with one customer. It
was partially integrated downstream of ethylene until
April 2001, as was Veba until 1998, which did not
influence their role as independent price settlers. Several
other suppliers contributed to the settling of the ICIS
price in the past, and even parties not linked to the
ARG+ pipeline can settle the ICIS prices. There are also
other mechanisms that could replace the ICIS reference.
Finally,
combined
bargaining position of
Shell/DEA entity and its incentive to achieve the highest
possible price for the ethylene vis-(cid:224)-vis CPO would be
the same as for DEA alone.

the

a

independent

suppliers. DEA’s main

The Commission does not agree with those arguments.
The situation of DEA’s only customer CPO is addressed
in detail below in recital 138. The degree of
downstream integration of DEA and Veba was limited
in the past and therefore did not alter their perception
as
ethylene
derivatives plants were located outside the ARG+, and
DEA did not even supply the derivatives plants which it
owned on the ARG+. Therefore, the total volume of its
ethylene production site on the ARG+ was destined for
the merchant market even at the time when DEA had
some downstream activities. In addition, DEA’s former
captive use of ethylene accounted only for [a small
proportion]* of total production, the remaining [(cid:133)]* %
were supplied to the merchant market which also was
the overall focus of its activities. As regards Veba,
its
proportion of former captive use is estimated between
its production. The majority of the
25 and 50 % of
the open
volume was

therefore also intended for

market. Furthermore, Veba divested all its downstream
activities in 1998 and therefore has already been acting
for a significant
time as a wholly independent, pure
merchant seller on the market.

(49) As regards the influence of other producers in the
price-settling mechanism, market participants submitted
that over the last five years on less than 10 occasions
the quarterly ICIS reference price was based on other
agreements than those involving DEA and Veba (mainly
with CPO). It further appears that suppliers outside the
ARG+ never formed a basis for the ICIS reference price.
This is due to the fact that the ARG+ area is the only
cluster with a sufficient number of producers and
customers of ethylene to allow for market interaction,
whereas at most other production sites in Western
Europe there is one supplier and very few customers,
interlinked via pipelines and without a choice in their
contract partners. Although there might be other
pricing schemes
such as
references
or margin sharing
arrangements, these other mechanisms are not such a
close reflection of the ethylene market conditions, and
therefore are less
likely to be applied by market
participants.

than the ICIS reference,

feedstock

cost

to

(50)

(51)

Finally, as it will be set out in detail below (recitals 84
to 104), after
its merger with the fully vertically
integrated supplier Shell, DEA’s incentives, which so far
focused only on the ethylene merchant market, will be
significantly altered and biased by Shell’s downstream
activities, and thus alter its negotiation behaviour.

Third, there are formula-based contracts, which usually
take into account the supplier’s cost, feedstock prices,
cracker economies and downstream derivatives margins.
There are no regular price negotiations, as prices are the
result of the objective data which is processed through
the formula calculation. This type of contract is mainly
used in situations where formerly integrated production
sites belonging to one group were split and the
derivative production unit downstream of ethylene was
sold to a third party. Of total volumes contracted on the
to
merchant market,
account for [a small proportion]*.

type of contract appears

this

2. Collective dominance

(52)

The Commission considers that following the proposed
concentration and if the transaction between BP and
E.ON is implemented a collective dominance of the two
new entities on the ARG+ market for ethylene will arise.
In former collective dominance cases, the Commission

21.1.2003

EN

Official Journal of the European Communities

L 15/43

(iv)

price

transparency;

(ii) homogeneity of

supply concentration;

has referred to the following elements to establish the
existence or not of a collective dominant position (12):
(i)
the
(iii) symmetry of market shares, costs, and
product;
interests;
retaliation
(vi) high entry barriers and absence of
possibilities;
potential
demand
(vii)
and
without countervailing buying power. However, this list
is neither binding, in particular in that not all of these
elements have to be present to establish a collective
dominant position, nor exhaustive but merely serves to
provide a set of useful indicators. In the light of these
factors the present case must be assessed as follows:

competition,

inelastic

(v)

(56)

(57)

(58)

(59)

2.1. After the proposed mergers, Shell and BP will
have together a market share of around [55 to
65]* %, and will not be exposed to comparably
strong competitors

(53)

The most obvious and important effect of
the two
transactions on competition in the ethylene merchant
market would be the disappearance of DEA and Veba as
independent competitors and non-integrated suppliers
from the merchant market. The main consequence for
the market structure would be brought about by the
loss of independence of the most important sellers to
the merchant market, which is particularly aggravated
by the fact that the merged entities would not be able
to play DEA’s and Veba’s current role as independent
price settlers in the ethylene market on the ARG+, and
that no other independent ethylene producer, without
interests in downstream production, would be left on
the ARG+.

(54) After the proposed mergers, the market shares of the
ethylene sellers on the ARG+ would be as follows:

Table 2

Market shares post merger

Ethylene seller

Market share in %

BP/Veba

Shell/DEA

BASF

Exxon

Atofina

[25 to 35]*

[25 to 35]*

[10 to 20]*

[5 to 15]*

[5 to 15]*

(55)

Shell and BP would have arithmetically a combined
market share of [55 to 65]* % (Shell/DEA [25 to 35]* %
and BP/Veba [25 to 35]* %). The situation would not
change considerably if, in a post merger scenario, BP’s

(12) See, for example, Case IV/M.1383 (cid:151) Exxon/Mobil, 29.9.1999.

further net demand were to be balanced against Veba’s
In such a
surplus as outcome of a net calculation.
scenario (also if the merchant market volume is reduced
by BP’s net deficit)
the two entities would have a
combined market share of [55 to 65]* % (Shell/DEA [25
to 35]* % and BP/Veba [25 to 35]* %). Applying the net
calculation directly to the immediate future amounts to
a very conservative presentation of the BP/Veba market
position as Veba’s market sales will not immediately
decrease once the merger has been completed, as was
also is the case with Erd(cid:246)lchemie.

The increase in market share also corresponds to an
increase in market power of Shell/DEA and BP/Veba as
a result of
the two transactions. Since currently the
ethylene production of DEA and Veba is entirely
designated to be sold on the merchant market,
the
market shares would also correspond to the respective
market power of the combined Shell/DEA and BP/E.ON
in the merchant market. The increase in market power
may even go beyond the mere gain of market shares
since DEA and Veba have been of particular importance
in their role as ethylene producers
for
without downstream interests and independent price
settlers. The transactions would therefore not only lead
to pure formal changes in market share figures, but
would considerably affect
structure in
substantive terms.

the market

the market

the

The capacity share for the ethylene production in the
ARG+ area of
two new entities would be
approximately [10 to 20]* % for Shell/DEA (with a
capacity of [1300 to 1500]* ktpa) and approximately
[15 to 25]* % for BP/Veba (with a capacity of [1900 to
2000]* ktpa). Other producers’ shares would be BASF
with [10 to 20]* %, Atofina with [5 to 15]* %, and
Exxon with [2 to 7]* %. The two new entities would be
the two biggest producers of ethylene along the ARG+.

Beside the two new entities, only the following three net
ethylene sellers on the ARG+ would be left: BASF,
Atofina and Exxon. According to the Commission’s
market investigation, DOW is not a seller of ethylene on
the ARG+. All these ethylene suppliers are, in the same
way as the combined entities, though not necessarily as
regards
integrated
products,
downstream and share similar incentives with regard to
the supply of ethylene to customers with whom all
these companies compete downstream on the market
for ethylene derivatives.

vertically

same

the

The next strongest competitor would be BASF whose
market share is considerably smaller [10 to 20]* % for
link between
the year 2000). A very strong structural
BASF and Shell lies in the JV Basell to which BASF and
Shell
in
polypropylene and polyethylene. The joint ownership of
Basell gives BASF the incentive not
the
downstream polyethylene competitors by economically

contributed

to support

interests

have

their

all

L 15/44

EN

Official Journal of the European Communities

21.1.2003

priced ethylene supply (as outlined for Shell below at
recitals 84 to 104) and thereby reduces its incentives to
compete fiercely via price decreases with Shell and BP in
the ethylene market on the ARG+. Furthermore, BASF is
also active in other downstream markets,
such as
ethylene oxide/monoethylene glycol. Thereby the same
to compete with the two new
incentives arise not
entities on the upstream market
as
for
discussed for Shell and BP below (recitals 84 to 104). It
can thus be expected that BASF will follow the two new
market leaders rather than play the role of a maverick.

ethylene

the parties to the two transactions, nor does it have any
incentive to do so.

2.2. The two new market leaders have a privileged

position in essential infrastructure

2.2.1. BP/Veba will have privileged access

to the ARG
pipeline and a strong influence over the ARG company
structure

(60)

(61)

(62)

its

steam crackers

In addition, whereas the merged entities would be active
also in the upstream business BASF lacks the vertical
integration upstream into refineries and the ready
naphtha supply for
from own
sources. The parties submitted that this does not lead to
a decisive disadvantage as naphtha is readily available
on the market. However, although this may be the case
for the supply of BASF’s crackers in Antwerp,
the
situation appears to be different for the Ludwigshafen
crackers. The cost disadvantage does not only refer to
the necessary shipping of naphtha to these crackers, but
BASF is dependent for a certain amount of naphtha on
the supply via the Rhein-Main Rohrleitungstransport
pipeline (RMR), a multi-product pipeline leading from
the Amsterdam/Rotterdam/Antwerp (ARA) region to the
Frankfurt/Ludwigshafen area in Germany [(cid:133)]*. For
transport via the RMR pipeline BASF is dependent on
the shareholders of the pipeline company namely BP,
Veba and in particular Shell. These factors very much
limit BASF’s possibility and incentives
to exercise
pressure on the two merged entities in the ethylene
market on the ARG+.

Post-merger, Atofina’s market share would reach [5 to
15]* %. This limited share of the merchant market as
well as Atofina’s lack of
[(cid:133)]* do not give Atofina
sufficient market power to increase competitive pressure
on the two merged entities, and its
to
vigorously compete with BP and Shell are limited by its
extensive downstream interests.

incentives

Exxon’s ethylene production capacity in the ARG+ is
limited to its minority 35 % share in the Fina Olefins
Antwerp (FAO)
Its market
joint venture in Antwerp.
to third parties are largely dependent on its
sales
is
imports and its market share, being [5 to 15]* %,
much smaller than those of the merged entities. The
capacity of the FAO joint venture has been [highly]*
exploited in the year 2000 and according to the
Commission’s market investigation there are indications
its incentives to supply
that Exxon [(cid:133)]*. In addition,
the ethylene derivatives producers with economically
priced ethylene is also restricted by its own large
production of ethylene derivatives. Hence, Exxon is also
likely follow the two market leaders’ strategy, and is not
able to provide for sufficient competitive pressure on

(63)

(64)

at

of

product

Therefore,

to this pipeline

the ARG pipeline as

the only
The importance of
economic means of transport for ethylene in the area
has been outlined already (recitals 16 and 17). In the
ARG area, ethylene is not transported via any other
and
availability
means.
competition between the different suppliers connected
to this pipeline for the supply of customers very much
relies on access
competitive
conditions. Ethylene suppliers are mainly located at the
the pipeline system.
Western and Eastern end of
Without the economic possibility to transport product
over the ARG pipeline,
the ability and incentive for
those producers to compete for contracts along the
whole of
thus limiting
achieve
customers’
competitive ethylene prices. This also applies to the
competitive force of
terminals
which allow for ethylene imports via deep sea ships are
located at the North Sea coast. Consequently, especially
for customers located at the Eastern part of the ARG,
imports are not readily accessible and cannot be used as
a constraint to ARG-suppliers without the availability of
the ARG transport pipeline at low prices.

the ARG will be restricted,
ability

imports. All

import

choice

their

and

to

it

will

The position of the merged entity BP/Veba Oel on the
ARG ethylene market will be supported by the increased
Aethylen-
share
Rohrleitungs-Gesellschaft mbh & Co. KG (ARG
company), the company owning the core ARG pipeline
network. The current holding of the share capital in the
ARG company is as follows:

hold

the

in

Table 3

ARG ownership

Shareholder

Capital share

BP (incl. Erd(cid:246)lchemie)

Veba (E.ON)

Degussa (E.ON)

Bayer

DSM

33,33 %

16,66 %

16,66 %

16,66 %

16,66 %

(65)

BP/Veba as a shareholder in the ARG company [(cid:133)]*

21.1.2003

EN

Official Journal of the European Communities

L 15/45

(66) Moreover, BP/Veba will have significant influence over
[(cid:133)]*
the ARG company policy and in particular
through its combined capital share. According to the
articles of
required for
decisions of crucial importance such as[(cid:133)]*. A [special
majority]* is required for [strategic decisions]*

association, unanimity

is

(70)

(71)

(67)

(68)

(69)

the combined BP/Veba alone will hold
Post merger,
50 % of the capital, meaning it will be able to block all
decisions requiring a [special majority]*.
It would be
therefore in a position to block,
in particular, [(cid:133)]*.
BP/Veba would therefore be able to exercise a significant
influence over [strategic decisions]*.

Furthermore, until July 2001 there were three managing
directors appointed one each by the shareholders DSM,
Veba and Erd(cid:246)lchemie (BP). This
situation will be
changed officially by the end of 2001 towards a system
of one managing director who is recruited from the
outside,
and not directly appointed by individual
shareholders. There are already respective subcommittee
resolutions, and the shareholders are expected to agree
In
on the new concept by the end of
preliminary execution of this change, since July 2001
there has been only one acting managing director for
the ARG company.[(cid:133)]*. With its blocking vote,
BP/Veba will be
the
appointment of a managing director]*.

in a position to [influence

this year.

It

ethylene.

ready supply of

It cannot be argued that, prior to the combination of BP
and Veba, BP already enjoyed a blocking minority with
regard to decisions requiring a [special majority]*, and
that the transaction would therefore not bring about
any substantial change with regard to the ARG. The
merger will completely change BP’s interests in the use
of the pipeline and in exercising the rights conferred by
its shareholding in the pipeline company. BP currently
is a net ethylene buyer on the ARG+ and has an interest
in opening third party producers’ access to the ARG to
guarantee
formed a
counterbalance to E.ON, which controlled the shares of
Veba (cid:151) the strongest net seller (cid:151) and Degussa, in any
strategy the E.ON group was to adopt
in the ARG
company. BP itself, on the other hand, was exposed to
the E.ON block of comparable strength, which it had to
consider in any strategy for the ARG company. After
the merger the combined BP/Veba will become the
It will
seller of ethylene on the ARG+.
strongest
therefore be no longer interested in supporting and
defending the interests of ethylene buyers in the ARG
pipeline company, namely open access at low prices for
suppliers and consumers. In particular, BP/Veba could
use its share in the company conferring a blocking vote
to[(cid:133)]*. Moreover, BP/Veba will be the only shareholder
be
with a
counterbalanced
strong
shareholder. This puts the new entity in a position of
particular strength.

capacity,
any

it will not

and
other

blocking

equally

by

It can therefore be concluded that BP/Veba will have
[(cid:133)]* and significant influence over the ARG pipeline
which is
the present
ethylene market.

infrastructure of

the essential

further be
BP/Veba’s position in infrastructure will
strengthened by the ownership of or
influence on
extension pipelines. Veba owns the pipeline which links
certain ethylene consumers [at a site in the Rhine/Ruhr
area]* with the ARG pipeline via Veba’s cracker in
Gelsenkirchen (13). The supply of these consumers, who
account for a considerable amount of total merchant
is fully dependent on the access to this
market sales,
pipeline. As none of
the consumers linked via this
pipeline are vertically integrated, they entirely depend
on supplies from third parties on the open market. Any
supply by Veba’s competitors would need the consent of
the pipeline. This gives Veba
Veba for
considerable control over the choice of suppliers for
these
pressure
the
alternative suppliers could exercise.

the use of

competitive

consumers

and

2.2.2. Shell/DEA will have privileged access

to import
infrastructure and control over important pipeline links

(72) Due

to extremely high investment

costs, market
participants agreed that the entry of a completely new
supplier on the ARG ethylene market based on a new
cracker has to be excluded for the short and medium
term. Additional capacity can only be expected from the
debottlenecking of existing producers’ facilities, which
will not introduce a new independent competitive force
on the market. Therefore,
the only
additional
source of ethylene supplies
which could constrain the current suppliers’ position on
the market. Imports of ethylene can only be fed onto
the ARG via the existing import terminals. These can
thus be considered as a bottleneck control of which
confers a considerable influence over competition on
the ARG+ ethylene market.

independent

imports

are

(73)

Shell currently owns one of the five import terminals
for ethylene connected to the ARG (14), which will
significantly support Shell/DEA’s strong position on the
market. First, it enables Shell/DEA to import additional
volumes into the ARG and therefore to react flexibly to
from cracker
supply/demand
downtimes or demand fluctuation. Shell/DEA will be
able to closely follow market movements by still
constantly maintaining high utilisation rates for their

imbalances

resulting

(13) The pipeline is actually owned by Ruhr Oel GmbH (ROG), a
50:50 joint venture between Veba and the Venezuelan oil
company PdVSA. [(cid:133)]*.

(14) The others are owned by Exxon, FAO (a 65:35 JV between

Atofina and Exxon), BASF and Dow.

L 15/46

EN

Official Journal of the European Communities

21.1.2003

crackers, which is of an essential
importance for the
economic production of ethylene. This flexibility also
allows Shell/DEA to bring additional volumes on the
market even in times of full capacity rates at the ARG
production sites.

works. It can therefore be concluded that the ownership
for an
of an import
ethylene producer on the ARG which significantly
enhances its competitive power on the ARG.

is an important asset

terminal

(74)

Second, via the terminal ownership Shell/DEA will
control the access of third party ethylene consumers to
this
terminal and therefore their ability to access
competitive ethylene sources from outside the ARG
area. Through the capacity provided for third party
throughput and the respective terminalling fees and
terms, Shell/DEA will be able to influence to a large
extent the volumes available for third parties through
imports and the terms and conditions under which
these imports can be operated, thereby being able to
make
to high
terminalling fees and capacity limitations.

least uneconomic due

imports

at

(75)

The parties submit that its terminal ownership does not
mean that Shell/DEA has a privileged position. The Shell
terminal is only one of five import terminals linked to
the ARG, resulting in ample alternatives for third parties
requiring import
enough spare
capacity. There
capacity at Shell’s terminal today which is not used for
Shell’s own needs and which is made available for third
parties at competitive terms.

is

(78)

(79)

limited

so that

their own interests

it appears that Exxon’s own terminal

(76) However, although there are other import terminals, all
these terminals are owned by ethylene producers, that is
to say, there are no independent terminal and storage
in ethylene
providers without
production and distribution. Therefore, all
terminal
owners share the same interests with regard to their
own ethylene activities and do not have greater interest
in providing import capacity to third party competitors.
In particular,
is
fully utilised by Exxon itself as the largest importer of
for
ethylene volumes
third
terminals.
to the
is
parties
Furthermore, although Shell
today allows third party
access to its terminal, the respective amounts are very
limited. Third party imports via Moerdijk accounted for
only [10 to 80]* kt in 2000 (a peak year due to cracker
downtimes on the ARG) and [5 to 75]* kt in 1999. The
volumes imported by Shell
in the same period are
[several]* times higher. The limited capacity available
for third parties is also due to the fact that the terminal
owner will reserve a large margin of manoeuvre in the
terminals capacity for its own needs to fully enjoy the
flexibility described above (recital 18). For example, in
2000, Shell increased its own imports via Moerdijk by
[a large degree]* due to increased outside requirements
as its cracker at Moerdijk was down for expansion

terminal access
four

other

(77)

In addition, Shell owns a pipeline link between the core
ARG pipeline, its cracker and sea terminal at Moerdijk
and sites near Rotterdam. The Port Authority of
Rotterdam plans to connect Rotterdam to the core
ARG-pipeline on the basis of [(cid:133)]*, which will enhance
intelligence and influence in the
Shell/DEA’s market
ethylene market.
In the other direction, this pipeline
to the Antwerp area with its
gives Shell access
numerous ethylene consumers without having to use
the core ARG.

2.3. Ethylene is a homogeneous product without
significant innovation on a mature market

The ethylene transported on the ARG pipeline is subject
to a common binding specification and therefore there
are no quality differences between the different
suppliers. There have been no major
research and
development advances over the last 20 years.

it

as

the

itself

product

although

the only means

The parties argue that the market for ethylene is lacking
homogeneity
is
as
the different contracts are not. These
homogenous,
contracts in their view differ significantly in terms of
volumes, duration and pricing mechanism thus not
allowing for any coordinated behaviour in that respect.
firstly has to be noted that due to the
However,
importance of pipelines
for
transporting ethylene,
the terms of distribution are
similar [(cid:133)]*. Secondly, differences in contracted volume
and duration do not appear to constitute a considerable
difference which would exclude tacit coordination. The
same applies to the differences in pricing schemes. The
vast majority of ethylene supply contracts refer to a
quarterly contract price or directly to the respective
published reference price, subject to a discount within a
limited range. Differences might be observed with
regard to pricing schemes based on cracker economics,
margin sharing or other cost related formula. However,
these contracts are of a limited importance in relation to
sales on the ARG market.
the overall merchant
Moreover, it might be anticipated that at the expiry of
contracts of this type the pricing scheme, which reflects
the disintegration of formerly intra-group activities, may
be changed to one of the other two contract types. In
formula based contracts are not entirely
addition,
disconnected from market pricing, as they allow for
negotiated discounts from the prices resulting from the
formula and in some cases contain references
to
published prices as maxima or minima (also see recital
29).

21.1.2003

EN

Official Journal of the European Communities

L 15/47

(80)

The market for ethylene is mature, with growth rates
linked to the GDP and an estimated basic growth trend
of 2,5 %.

2.4. There is a strong similarity between Shell and
BP in terms of market shares, capacity and
costs

feature of

combination is a general
the majority of
markets where physical products are delivered. There is
no indication that either of the two new entities would
be in a fundamentally different position as regards
transport costs in relation to the other entity. The
lower costs and
advantage of BP/Veba in terms of
preferred access
its
shareholding in the ARG company is balanced by the
fact
that Shell/DEA after the merger will dispose of
production sites at both ends of the ARG and therefore
has a certain ability to avoid long distance transports
over the ARG.

to the pipeline by virtue of

(81)

(82)

(83)

The merged entities BP/Veba and Shell/DEA will have
very similar market shares in the range of [25 to 35]* %
each. After the transactions the company structures of
the two entities will be aligned as both are vertically
integrated upstream into raw material supply as well as
downstream into ethylene derivatives. They are also the
ethylene producers who dispose of the largest cracker
capacities in the ARG+ catchment area. Even if the size
of their crackers is not identical, their overall capacities
are similar ([1200 to 1600]* and [1600 to 2000]*) and
they have the two biggest production capacities linked
in company and
to the ARG+. These similarities
production structure will
the
respective cost structures of
their businesses in the
ARG+ area.

lead to a similarity of

The parties argue that based on a market
share
calculation excluding long term formula based contracts
(as suggested by the parties), the market shares of the
two new entities would differ significantly ([(cid:133)]* and
[(cid:133)]* % respectively). However, as the Commission does
not accept the market share calculation suggested by the
parties, this argument is also unfounded with regard to
an alleged market share asymmetry.

The parties further argue that there is no symmetry in
costs, as the production costs vary significantly from
cracker to cracker, and transportation costs vary from
supplier to supplier and customer to customer, based on
their relative location. However, although the efficiency
and as a result the production costs of different crackers
in particular of different capacity might vary, the overall
range of variation is limited. According to industry
consultants,
the maximum difference in production
costs between the most and least economic plant is less
than 25 %. [(cid:133)]* Furthermore, it has to be considered
that in terms of size, Shell/DEA’s crackers are on the
extreme points of the possible range (one cracker over
[(cid:133)]* kt and two relatively small crackers of [(cid:133)]* kt
each), whereas BP/Veba will have a homogeneous set of
four crackers of approximately [(cid:133)]* kt. Consequently,
as production cost is strongly related to the capacity
size of the cracker, it can be assumed that the overall,
average production cost of both entities will be in a
sufficiently similar range. In addition, the smaller scale
crackers of DEA, BP and Veba respectively are located at
the
combined
economies of scale with regard to raw material supplies
and logistics. Finally, the fact that transportation costs
supplier-customer
might

and therefore

allow for

given

differ

same

any

site

for

2.5. Both groups are vertically integrated in a
similar way
similar
interests with respect to the upstream market
for ethylene

therefore

have

and

(84)

(85)

Ethylene is a basic raw material
for a number of
downstream products. BP and Shell are (cid:150) contrary to
the current situation of DEA and Veba (cid:150) vertically
integrated downstream into ethylene derivatives, as
would be the remaining ethylene suppliers post merger.
Due to their vertical integration the combined entities
Shell/DEA and BP/Veba will share similar incentives
with respect
to ethylene sales to ethylene derivatives
producers, in particular to those downstream producers
which do not have their own ethylene supply or do so
only in part. Such sales may give the parties to the
transactions incentives to increase ethylene prices in
order to reduce the competitiveness of competitors in
ethylene derivatives. Since most of the price formulas
laid down in ethylene supply contracts are linked to
published reference prices such a price increase would
not only relate to the direct contract partners of the
merged entities but could translate into higher market
prices in general.
In addition the published reference
price NWECP, exclusively set on the ARG+, also applies
to ethylene sales outside the ARG+ area. An increase of
the ethylene price on the ARG+ can therefore translate
into a price increase outside the ARG+.

the two merged entities’

the same downstream markets as

The similarity of
incentives
does not imply that they necessarily have to be active in
the same downstream products. Such incentives are
already provided by the fact that they are active in some
the ethylene
of
customers and derivative producers linked to the ARG+,
partly also direct ethylene customers of the parties to
the two transactions. Such incentives can in particular
be shown with respect
forms of
polyethylene, ethylene oxide/its derivatives, and ethanol.

to the different

2.5.1. Polyethylene

(86) Around 55 % of

ARG+ network is used for

the ethylene produced within the
the

the production of

L 15/48

EN

Official Journal of the European Communities

21.1.2003

different types of polyethylene (approximately 9 % are
used for low density polyethylene (LDPE), approximately
23 % for linear low density polyethylene (LLDPE), and
approximately 23 % for high density polyethylene
(HDPE)). 42 % of the Western European LDPE capacity,
and
approximately 34 % of
approximately 46 % of the HDPE capacity are based on
the ARG+. The ethylene costs amount to 67 % of the
price of HDPE.

LLDPE capacity

the

(91)

(92)

(93)

(87)

(88)

(89)

(90)

In previous decisions the Commission (15) defined the
market as 1. HDPE individually, and either 2. C4 LLDPE,
C6 LLDPE and LDPE together or 3. C4 LLDPE and C6
LLDPE together and 4. LDPE individually. In order to
assess the incentives of the parties to the transactions
with regard to the ethylene supply it is sufficient to
limit the analysis to the three main families of PE: LDPE,
HDPE and LLDPE (defined as C4 LLDPE and C6 LLDPE).

Shell is active in the polyethylene market via its joint
venture Basell which Shell
jointly controls with BASF.
Basell is active in LDPE, HDPE and LLDPE, producing
these petrochemicals partly in its different production
sites linked to the ARG catchment area, partly outside
the ARG area, mainly in Western Europe. Basell’s
market shares of the Western European PE market are
in the range of [15 to 25]* % for LDPE, LLDPE and
HDPE.

BP is also active in all three types of PE in Western
Europe. Its market shares are [between 5 to 15]* % for
LDPE and [10 to 20]* % for LLDPE. After the recent
combination of BP’s and Solvay’s HDPE production and
marketing businesses in Europe (16), becomes effective,
BP’s market share (including the JV) in HDPE will have
in a Western European
[approximately doubled]*
market.

Producers of polyethylene downstream linked to the
ARG+ and belonging to the group of ethylene net
buyers are in particular Borealis (which is not vertically
integrated in ethylene production in the ARG+) and
DSM (which has to source ethylene to a considerable
extent
from third parties on the ARG+ and whose
production sites are directly supplied by parties to the
transactions). Borealis has Western European market
shares of approximately [10 to 20]* % for LDPE, around
[2 to 8]* % for LLDPE and [10 to 20]* % for HDPE.
Parts of
these volumes are produced in Borealis’ PE
plant
linked to the ARG+. DSM’s market shares are
[between 10 to 20]* % for LDPE, LLDPE and HDPE,
respectively. DSM is vertically integrated only as regards

(15) See Case COMP/M.1671 (cid:151) DOW Chemical/Union Carbide, OJ

L 245, 14.09.2001, pp. 1 to 25.

(16) Case

COMP/M.2299 (cid:151) BP

Chemicals/Solvay/HDPE

JV,

29.10.2001.

its plant in Geleen, whereas its PE production site in
Germany, producing LLDPE and HDPE, is supplied with
considerable volumes of ethylene from the merchant
market. A further PE producer linked to the ARG+ and
not vertically integrated in the ARG+ area is Polimeri
with a production site in Oberhausen.

in

be

either

therefore

integrated

supply of

companies would

These
direct
competition with the PE businesses of Shell and BP, on
the one hand, and would be dependent on ethylene
supply from the ARG+ on the other,
as
non-vertically
companies upstream into
ethylene or net ethylene buyers on the ARG+. These
downstream competitors are [inter alia, supplied by
parties
to the transactions]* With regard to these
companies the said entities would share the incentives
not to support their direct downstream competitors by
economically priced ethylene. The
the
interests of the combined entities are already now rather
similar even if Shell’s position (via Basell) currently is
slightly stronger than BP’s position in the markets for
the different forms of PE in general. The similarity in
shares and structure has been very much
market
reinforced by the Solvay/BP Chemicals/HDPE JV as this
will lead to nearly identical market shares of Shell and
BP in the field of HDPE. The contribution of Solvay’s
HDPE plant in the ARG+ to the JV may be seen as a
consequence of the lack of upstream integration into
ethylene in a market which is already now rather
concentrated.

for which 3 % of

The strong position of the parties to the transactions
with regard to the supply of ethylene to downstream PE
competitors is strengthened by BP’s and Shell’s position
in linear alpha olefins (LAOs). LAOs, a further ethylene
downstream product
the ethylene
produced on the ARG+ is used, are a necessary
copolymer for the production of HDPE. BP and Shell are
the only producers of LAOs in Western Europe, having
market shares between 30 % and 40 % for the year
2000 if
is considered to be Western
European-wide in scope (the remaining share relates to
imports). The strong position in this field gives BP and
Shell a further advantage over the downstream HDPE
competitors
the
incentives as regards the ethylene supply in the ARG+.

and reinforces

similarity of

the market

the

2.5.2. Ethylene oxide/ethylene oxide derivatives

by

the

produced

is a highly reactive ethylene
Ethylene oxide (EO)
downstream product,
catalytic
oxidation of ethylene at elevated temperature and
pressure. 15 % of the ethylene produced on the ARG+ is
employed for
the
Western European EO/EO derivatives capacity is linked
to the ARG+. Ethylene cost as a percentage of the total
EO cost amounts to approximately 70 %. After BASF,
which is not active on the merchant market, BP, with a

the production of EO, 73 % of

21.1.2003

EN

Official Journal of the European Communities

L 15/49

capacity of [400 to 500]* kt,
including Erd(cid:246)lchemie,
and Shell, with a capacity of [300 to 400]* kt, are the
largest producer of EO in Western Europe. EO is mainly
used to produce
(EG), comprising
ethylene glycol
mono-ethylene glycol (MEG) (ethylene cost amounting
to approximately 63 % of the total production cost) and
the by-products di-ethylene glycol and tri-ethylene
glycol. Other
ethoxylates,
EO derivatives
ethanolamines, glycol ethers and akoxylates (ethylene
cost amounting to approximately 63 % of
the total
production cost). There is also, compared to total
capacity of approximately 2 600 kt in western Europe, a
relatively small merchant market
for sales of EO in
western Europe, of [less than 1 000]* kt.

are

Shell’s and BP’s market shares in the Western European
EO merchant market are around [25 to 35]* % (Shell)
and [40 to 50]* % (BP, including Erd(cid:246)lchemie). The next
competitors in the EO merchant market are Ineos and
Sasol with market shares in the range of [5 to 15]* %.
Both undertakings produce the EO in plants linked to
the ARG+ and, hence, are direct competitors of Shell
and BP and dependent on ethylene supply within the
ARG+ network.

the most

Shell/DEA and BP/Veba are also active in the production
of MEG, as
important EO downstream
to the Commission’s market
product. According
investigation their market
shares each lie between
approximately [5 to 15]* % on a Western European
merchant market for MEG and they directly compete
with Ineos (having a market share of around [15 to
25]* %), producing MEG in a plant in the ARG+ area
and being,
to the
transactions. The same situation applies to di-ethylene
glycol and tri-ethylene glycol as all producers of MEG
produce, and sell, these petrochemicals as bi-products.

supplied by parties

inter alia,

(94)

(95)

(96) According to the Commission’s investigation Shell and
BP are active in further markets for EO derivatives and
compete there with non-integrated ethylene consumers
linked to the ARG. This is the case, for example, for the
sale of forms of akoxylates for which they compete with
Ineos and Sasol which have linked their correspondent
production sites to the ARG+.

2.5.3. Ethanol

(97)

The proportion of
the ethylene production on the
ARG+ used for ethanol, a further product downstream
to ethylene, is somewhat lower compared to PE and EO.
BP is active in the production of ethanol, having a

market share of around [35 to 45]* % of synthetic
the next
in a Western European market,
ethanol
competitor is Sasol, which has a market share of around
[15 to 25]* % and produces synthetic ethanol in a plant
linked to the ARG+. The structural situation and the
if, as
corresponding incentives would not
submitted by the parties, agricultural ethanol were to be
included in a
In these
circumstances, BP’s market share would be around [10
to 20]* %.

ethanol market.

general

change

2.5.4. Arguments of the Parties, conclusions

The parties submit that the vertical integration arising
from the mergers does not create incentives to raise the
to the detriment of downstream
ethylene prices
competitors. According to the parties there are no
appreciable incentives to raise downstream competitors’
costs as the benefit for Shell/DEA and BP/Veba would
since such incentives arise only for
be very small
downstream markets
in which they themselves are
active and with regard to volumes which are supplied to
the ARG+ merchant market.

the

First, it should be clarified that the Commission has not
analysed whether the parties will, after the merger,
achieve a dominant position in the downstream markets
which would enable them to raise prices in the ethylene
derivatives markets. The analysis of
collective
dominance of the two entities in the ethylene market
refers to the alignment of the merged entities’ incentives
in the (upstream) market for ethylene, which arises from
their activities in the ethylene derivatives market. This
incentive does not necessarily imply that the merged
entities will be able to raise prices in the downstream
markets. Such incentives
from the
possibility to carry out a strategy to reduce the
competitiveness
ethylene
derivatives by increasing their ethylene supply costs,
thus squeezing their margins.

already derive

competitors

the

of

in

(98)

(99)

capacity

in Western

(100) Second, the ARG+ accounts for 42 % of the ethylene
production
and,
accordingly, for a major part of the ethylene derivatives
production capacity in Western Europe. Downstream
competitors of
the merged entities which are not
vertically integrated into ethylene on the ARG+ account
for
ethylene
derivatives markets.

considerable market

in the

Europe

shares

to

further

(101) The fact that the situation seems to be different with
regard
asethylene
products
dichloride/VCM does not alter the conclusion that BP
and Shell are to vertically integrated to a similar degree
and share similar incentives with regard to the supply of
ethylene producers on the ARG+.

such

as

L 15/50

EN

Official Journal of the European Communities

21.1.2003

(102)

it has been shown for several of

In conclusion,
the
ethylene downstream products that due to the similar
degree of vertical
integration of Shell and BP the
combined entities would share similar incentives with
regard to the supply of ethylene in the ARG+ area. A
comparison of the parties’ market shares, and those of
their respective competitors’ demonstrates that the new
entities would be in a position where it would be both
plausible and feasible to exercise competitive pressure
on their competitors downstream in order to weaken
competitive potential and to gain additional
their
market share on a long term basis. Furthermore, such
pressure would have a high probability of success.

2.6. The competitive situation on the downstream
markets for ethylene derivatives does not limit
the two entities’
joint pricing
strategy

ability for

this

reason,

(103) The parties submit that there is a limit to the potential
increase in ethylene prices on the ARG+ as most of the
ethylene derivatives markets may be considered as
Western European-wide in scope, some of them even as
global. For
the producers of ethylene
derivatives linked to the ARG+ will not be able to pass
the increased raw material costs on to their customers
since they are exposed to competition from producers
having their production site outside the ARG+ and in
into Western Europe. The
particular
parties
the
in turn, would limit
potential for an increase of ethylene prices in the ARG+
by ethylene producers.

from imports
this,
that

submit

(104) According to the Commission’s market investigation it
may be the case that
the producers of ethylene
derivatives in certain market situations will not be able
to pass the increased raw material cost on to their
customers due to the competition which they face from
producers located outside the ARG+ and imports of the
ethylene downstream product. However, such a limit for
the increase of ethylene prices does not change the
general
incentives of the merged entities. Even if the
ethylene prices cannot be increased above a certain limit
the merged parties would share the incentives
to
increase prices up to this limit, gain the profits of the
downstream derivatives producers and reduce their
competitiveness
to their own ethylene
derivative units.

compared

2.7. Competition between the two new entities
risks to lapse on the basis of a tacit allocation
of contracts

(105)

In light of the contractual and geographical situation on
the ARG ethylene market, there is a clear and easy to
handle mechanism at the two new entities’ disposal to
tacitly divide the market among them according to two
closely related criteria (i) continuity in long term
contracts and (ii) geographical proximity.

(106) The vast majority of ethylene supplies are based on long
term contracts, spot sales do not play any role in this
market. As will be explained in more detail (recitals 112
to 115), there is a high market transparency in terms of
the parties to individual contracts and the volumes and
involved. The ethylene production
reference prices
capacity is published in journals as CMAI, the volumes
and the corresponding ethylene need of the respective
derivative plants are known, and the owners of
the
infrastructure may also learn about actual throughput to
individual customers.

in

to

order

economise

(107) The Commission’s market investigation has revealed that
transport costs on the core ARG are a non-negligible
factor. Therefore, contracts are primarily entered into by
those ethylene producers and consumers which are
located close to each other. This close relationship is
often supported by the transport of
the supplied
quantities via privately/producer owned extensions of
the ARG pipeline
on
transportation costs arising from the use of the core
supply contracts
ARG. This allocation of customer
among the producers based on the proximity of the
buyer to the own ethylene production site can also be
applied to new customers. Such a strategy will be
significantly facilitated by the market structure post
mergers. Whereas
the
Gelsenkirchen/Cologne area usually dual-sourced their
supply from Veba (having a cracker in Gelsenkirchen)
and BP (with Erd(cid:246)lchemie’s cracker in Cologne), after
the total supply of
the merger BP/Veba will control
those customers, supplying them partly by pipelines
owned or under control of the merged entity. DEA, on
the other hand, mainly supplies the Wesseling area and
plants further to the south of Germany being directly
linked to their Wesseling production site by extension
Shell
pipeline, whereas
to
natural
consumption sites
located in Rotterdam from its
ethylene cracker and sea terminal in Moerdijk.

now buyers

access

until

has

in

(108) The parties argue that the continuity of existing long
term contracts and a preference for closely located
suppliers is already a result of the general economic
circumstances of the ethylene supply market such as
high transport costs and physical links between certain
the
supplier/customer
mergers therefore would not add any further elements
to the prevailing circumstances.

In their view,

combinations.

fact

that

competition for

the
certain
(109) However,
customers
is already limited for geographical and
duration reasons does not mean that this situation will
not be worsened. There is currently a certain degree of
competition for contracts over the whole of the ARG,
and also long term contracts do actually change hands.
[(cid:133)]* Several parties and third parties stated at
the
hearing that they consider suppliers/customers in the

21.1.2003

EN

Official Journal of the European Communities

L 15/51

this

does not mean that,

whole ARG area, and not only those closely located to
their sites. In addition, third parties like BASF indicated
a significant number of contracts which they won or
lost over the past years. It is true that Shell’s and DEA’s
production sites are located at the ends of the ARG
after
area. However,
termination of DEA’s CPO contract,
they would not
become competitors for contracts all over the ARG+.
the possibility of swaps currently also
Furthermore,
enables
further away
without incurring significant transport costs. Therefore,
there
considerable degree of
a
competition for expiring and new contracts throughout
the ARG which could and would be eliminated.

to reach customers

currently

suppliers

still

is

the

(110) Besides and in addition to the tacit allocation of
contracts, which affects
competition for new
contracts, it has to be expected that there will also be a
tacit alignment of the duopolists’ behaviour as regards
the quarterly contract price negotiations with their
current customers. Due to the similarity of incentives
to enhance downstream competitors’ potential
not
through cheap supplies of ethylene, any initiatives to
lower prices, in order to keep the nominated volumes at
the upper end of
the possible ranges, will become
unlikely after the merger.

(111) To conclude, it is likely that the market will be tacitly
shared on the basis of the mechanisms described above.

2.8. The ethylene market is sufficiently transparent
to allow for tacit coordination between the
two new market leaders

(112) The

is

that

there

argue

parties

sufficient
transparency in the market. Although the vast majority
of contracts contain a reference to the published ICIS
quarterly contract price, the actual prices paid are secret
as the individual discounts from the basic contract price
are not disclosed.

not

(113) The Commission nevertheless takes the view that the
ethylene market on the ARG+ is sufficiently transparent
tacit coordination and the lapse of
to allow for
competition between the two new market
leaders.
Although the exact terms of individual contracts are not
openly accessible, there is a high degree of transparency
with regard to price trends and contract participants.
The Commission’s concerns mainly relate to the fear
that the two new entities will not actively compete for
the other’s current customers, which are mainly linked
by long-term contracts, and therefore engage in a
market sharing based on continuity and geographic
tacit market sharing, no
proximity. For this kind of

individually detailed contract data and transparency is
necessary. It was confirmed by several third parties that
due to the very limited number of players in the market,
the published data
together with general market
intelligence make it possible to determine whether
contracts changed the supplier and who won them.

(114) The same holds true with regard to the lapse of any
downward price
in the quarterly price
initiatives
negotiations. Price reporting agencies publish reference
prices for spot and longer term sales on a quarterly to
weekly basis. These prices closely reflect the result of
individual negotiations and apply to the majority of the
contracts. Furthermore,
for example ICIS-LOR in its
weekly market overviews reports individual negotiations
that allow experienced market players, due to the high
concentration of the merchant market and the limited
number of participants, to identify even the individual
parties to a contract. In ICIS-LOR’s reports of last year,
the following passages have been published:
(cid:145)A major
German producer agreed a price of EUR 705, an
increase of +EUR 20/mt over Q3 (17), with a major
large
German consumer. The
volumes
settlers(cid:146),
and
(cid:145)Additional support was registered this week for the Q2
contract price agreed initially last week between a
German producer and Benelux/Med consumer at EUR
640 FD(cid:146),
in
Germany between several major players for a Q1 price
(cid:145)a German
decrease of EUR 40/mt to EUR 665 FD(cid:146),
it had offered a EUR 30/mt
producer indicated that
though by late Friday,
decrease to all
these had
favourably(cid:146). Market
to respond
participants declared that this information can easily be
interpreted in a way that reveals the parties to the
contract
type of
information available through publication to all market
participants, activities of other competitors and price
trends are transparent in the ethylene market.

(cid:145)news came late today of an agreement

contracts
traditional

represent
price

In the light of

its customers,

in question.

involve

failed

this

(115)

It further has to be noted that the tacit coordination and
the lapse of competition between the players does not
require the entire transparency of all contract details. In
order to monitor whether the other group follows the
general price trend and the tacit pattern not to compete
through price cuts, the data published by ICIS appear to
be sufficient. The parties argue that if the ICIS price and
reporting system were to be (cid:145)abused(cid:146) by the parties to
coordinate pricing strategies, and the contract partners
considered that it no longer reflected market conditions,
it would simply not be used any more and thus
disappear as an element of transparency. However, the
vast majority of contracts contain a reference to the ICIS
price and are concluded for a long term. Any change in
the pricing reference would only be possible at the end
of the contract. During the lifetime of the contract, any
change of the ICIS reference is generally foreseen in the

(17) I.e. the published contract price for the third quarter.

L 15/52

EN

Official Journal of the European Communities

21.1.2003

contracts only in case ICIS does not publish a reference
price any longer, and not in case this price is no longer
considered as credible.

2.9. There are sufficient means of retaliation at the

two players’ disposal

(120) Despite the mainly long-term nature of contractual
agreements for the supply of ethylene, there is sufficient
immediate reaction in response to any
room for
deviation from a parallel
trend. There are a large
number of contracts running in the market, which
overlap in terms and expire on consecutive dates.
Therefore, in addition to contracts for new volumes and
are
involving
permanently
need
re-negotiation, and where one of the two new leaders
to retaliate for
could aggressively attack the other
deviation from parallel behaviour.

contracts which

new market

participants,

there
or

terminate

in the

relations

contractual

(116) The parties argue that there are no credible and efficient
means of retaliation at the new entities’ disposal to deter
the other new entity from deviating from a pricing or
market sharing pattern. Due to the long term nature of
the
ethylene market,
opportunities to retaliate come up infrequently and with
significant delay after the deviation. According to the
parties, any attempt to retaliate via aggressive pricing
would leave the retaliator with a costly low or zero
margin contract for a long term making the measure
disproportionately harmful in relation to the gain from
deterring the deviating rival. The costs for retaliation
and the disproportion are further increased by high
transport costs which would occur if retaliation involved
targeting a customer located further away.

(117) The Commission takes the view that the two combined
new entities have sufficient means of retaliation to deter
the other entity from deviating from parallel behaviour,
both with regard to the tacit allocation of contracts and
with the lapse of downward pricing initiatives
in
quarterly negotiations.

(118) Through

the

and

pricing

detailed

is a high transparency of

negotiation
information which is openly published by ICIS or CMAI,
there
the pricing and
contracting activities of the other competitors on the
market. Consequently, it will be possible for both parties
to closely monitor whether the other party follows an
initiative to increase prices and, more generally,
to
monitor the duopolistic behaviour according to the
criteria set out recitals 105 to 111.

(121) Moreover,

as

for

the

a general point,

to counterbalance

retaliation occur with the

the necessity and
sophistication of a retaliation mechanism cannot be
analysed without taking the incentives and abilities to
deviate from a behavioural pattern into account. The
retaliation mechanism must be sufficiently plausible and
existing degree of
effective
probability and incentives to deviate in the market
situation of the individual case. In the present case, the
parties’ argument related to the long term nature of the
contracts also applies to the possibilities to deviate. The
same
possibilities
frequency as the possibilities deviation, and therefore are
sufficiently frequent and effective. In addition, if in the
parties’ view market interaction is relatively slow and
infrequent
then the
compared to other markets,
possibilities for deviation in the first place are as well,
and underpin the probability and stability of the market
sharing pattern. The same applies to the cost argument.
If the parties take the view that retaliation is costly, then
the cost of deviating by winning a contract in deviation
from a coordinated pattern in the first place is very
high, too, and reduces the likelihood of such action.
This is particularly true in the light of the likely market
sharing pattern based on continuity and proximity to be
followed by the two new entities. Any deviation from
that pattern would mean that the deviating entity would
bid for a contract which has been in the hands of the
other competitor for a long time and where he has
preferred competitive ability to supply. Consequently,
the deviator would have to invest considerably to bid
for this contract where he has a less favourable supply
position, which decreases his incentives to do so.

for

able

to be

to compete

(119) Both new entities will dispose of sufficient accessible
the other’s
volumes
customers. In addition to its capacity on the ARG, Shell
has privileged access to imports from outside the ARG
area through its import
In addition, Shell
could shift the capacity which was used by third parties
to own imports. As an ethylene producer, BP has
preferred access to other producers’ import terminals, as
it can offer swap agreements between the Antwerp area
and its production sites which are located at the Eastern
end of the ARG. In addition, BP plans to increase the
capacity of its Erd(cid:246)lchemie crackers in 2001/2002.

terminal.

(122) Retaliation is also possible with regard to the quarterly
negotiations on the basic contract price in long term
contracts. At that stage, a change of the supplier and
therefore an attempt to win the contract itself is not
possible. However, due to the two new entities’ strong
influence in the published price setting mechanism,
retaliation is possible in the form of the agreement and
publication of a lower quarterly contract price, which
then results in a significant pressure on the other party
to follow this trend, as its customers will refer to the

21.1.2003

EN

Official Journal of the European Communities

L 15/53

lower price
customers.

agreed by the other party with its

(123) Moreover, BP/Veba will be able to use its influence over
the ARG company as a deterring factor vis-(cid:224)-vis
Shell/DEA. Due to its ability to block essential decisions
on the use of the ARG, BP/Veba is in a position to
competitive
[(cid:133)]*, which could harm Shell/DEA’s
position. Shell currently is an active user of the ARG
pipeline, and DEA has to be considered as a potential
user after the expiry of its contract with CPO.

(127) The spare capacity which the terminal owners do not
use for their needs is furthermore primarily reserved for
swaps with other terminal owners. By these exchange
agreements terminal owners allow other owners to use
their
in case of capacity bottlenecks, and
acquire in turn the right to use the other’s terminal in
case they themselves do not have enough spare capacity
to handle incoming import volumes. [(cid:133)]* Due to these
agreements, the capacity available for third parties is
further reduced.

terminal

(124) On the other hand, Shell controls one of the import
[(cid:133)]* Thus, Shell/DEA
terminals linked to the ARG.
to any deviation by BP/Veba through
could react
restricting the access to its terminal and blocking the
actual handling of
incoming BP loads, which would
have an immediate impact on BP/Veba’s position on the
market.

(128)

In addition, the storage facilities of most of the import
terminals are to a significant extent used for the storage
of the owners’ production at the crackers nearby, and
only a proportion is used to store imported material.
There are indications that the storage capacity was not
expanded in parallel with production capacity increases,
which results in a decreasing trend of available capacity
for third party imports. There are no indications that
the terminal capacity will be significantly increased in
the foreseeable future. In addition to the considerable
cost for a large scale terminal estimated at around EUR
the
regulations
environmental
30 million,
building of additional capacity at the coast.

restrict

(125)

(126)

In conclusion, there is a variety of retaliation means at
the future duopolists’ disposal, which could be used
separately and in different combinations. They are
sufficient
any
deviation from tacit parallel behaviour of the two new
entities.

and penalise

to monitor,

support

2.10. There are high barriers to entry given the
and the

limited possibilities of
control of the necessary facilities

imports

of

the

that

peak

Imports are not likely to counterbalance the two new
entities’ market position. In 2000 imports amounted to
a
overall
approximately 15 % of
consumption due to unscheduled cracker downtimes,
whereas they usually account for around 10 % of total
(captive and merchant) demand. A large proportion of
these imports are related to ARG producers and
consumers
from their own
import material
production sites outside the ARG for captive use, such
as Exxon, BP and Borealis. Ethylene imports into the
ARG-pipeline have to pass via one of the five import
terminals located at the North Sea coast. There are no
other economically viable means of transport to feed
consumers linked to the ARG pipeline. All five import
terminals are owned by ethylene producers: Shell, BASF,
Exxon, Atofina (via FAO) and Dow. There are no
independent terminal and storage providers that could
offer capacity for third parties. Of the existing overall
capacity, only a small proportion is made available for
third parties, whereas the majority of
the terminals’
capacity was used for the owners’ own imports. Of the
total volumes imported via the individual
terminals,
only 10 to 20 % were terminalled for third parties.

(129) Furthermore,

ethylene

especially

consumers,

indicated that on the basis of

those
which are not vertically integrated upstream into
ethylene and therefore are not in a position to offer
product swaps,
their
agreements with the terminal owners they are not in a
position to secure their demand for ethylene by imports
on a long-term basis. Even if such consumers have
terminalling contracts,
for contractual and practical
reasons they are not able to enter into corresponding
long-term supply contracts. Practical problems may arise
in particular from the order of berthing of ships and
ship vetting. In contractual terms, it appears to be very
common that terminalling contracts are linked to the
existence and duration of a supply agreement with the
terminal owner and that
the volumes for which the
terminal is made available are at a certain ratio with the
volume directly supplied by the terminal owner.
In
addition, such contracts partly provide for certain rights
of the terminal owners whereby the ethylene purchaser
is obliged to negotiate with the terminal owner upon
direct supply instead of using the terminal. Therefore,
even if
concluded a
terminalling agreement, it can make use of imports only
on a case by case basis for spot volumes. There was
ethylene
agreement
consumers that it is not possible to import significant
volumes of ethylene on a long-term basis into the ARG.
Imports are considered only as a buffer for additional
spot volumes, but not as an alternative to cover a large
proportion of basic demand.

the majority of

consumer has

type of

among

this

the

L 15/54

EN

Official Journal of the European Communities

21.1.2003

(130)

further

another

capacity,

terminalling

low feedstock

terminal
are

significant obstacle

to be incurred for

from regions with

In addition to the bottleneck situation in terms of
and
availability of
transport
to
cost
imports. Transport cost have been estimated at between
EUR 15 to 55/t
from European sources up to EUR
150/t from sources in the Middle East. Whilst according
to third parties these transportation costs can partly be
compensated by lower purchasing prices for ethylene
supplied
and
production cost, this is not the case for the additional
transporting these
costs
imports from the port onwards. To the shipping costs,
terminalling fees between [approximately EUR 25 and
45/t]* have to be added. For consumers that are not
located close to the import terminal, transport costs on
the ARG pipeline also have to be taken into account,
which may reach EUR 70/t for the longest transports
according to the published ARG throughput tariffs for
consumers,
third
including one of the most important purchasers on the
merchant market, qualified these costs as prohibitive
and indicated that they considered imports not to be an
economically
remaining
consumers agreed that apart from smaller spot volumes
imports were not economic on a larger scale.

parties (18). Numerous

alternative.

ethylene

viable

The

(131)

It can therefore be concluded that imports will not be
able to put sufficient competitive pressure on the two
new entities.

2.11. New market entry through the building of
new capacity is not expected to a significant
degree

(132) Ethylene production capacity utilisation rates

are
estimated at around 96 % in Western Europe and even
higher in the ARG area. Therefore, significant volumes
to exercise competitive pressure on the market could
only derive from new capacity to come on stream in
the near future and which would not be absorbed by
increased captive use, but would be available for the
merchant market. However, this is not the case for the
ARG-area.

at

over

[EUR 500]* million

(133) Due to extremely high investment costs, which are
an
for
estimated
economically viable [(cid:133)]* kt ethylene cracker,
the
building of an entirely new cracker on the ARG
pipeline, either by a completely new entrant
in the
market or by an existing supplier is highly unlikely. The
parties agree that a large scale new entry cannot be
expected in the foreseeable future.

(134) However,

there are constant
capacity increases and debottleneckings of existing

the parties submit

that

these

plants, which exercise
significant pressure on the
market. According to the parties, although a large
proportion of
extensions will be
capacity
committed to captive use in the medium and long term,
they would effectively constrain existing suppliers’
market power during the time lag between ethylene
capacity expansion and the corresponding increase in
derivatives production.

independent

Furthermore,

the number of

(135) As a general point, any debottlenecking of existing
plants does not
existing
increase
suppliers on the market, and in particular does not
force on the merchant
provide a new,
market.
accepted by the parties,
ethylene supplies mainly rely on long-term contracts.
Consequently, volumes which are on the market only
the downstream
for a limited period of
is increased
consumption of
accordingly,
competitive
cannot
constraint with regard to the usual
long term supply
relations.

the respective supplier
a

time until

considered

be

as

(136) The most

important

foreseeable increase in existing
capacity is an additional 600 kt at Dow’s Terneuzen
the end of 2001. However,
facility scheduled for
according to the Commission’s market
investigation
these new volumes are intended for captive use in
DOW’s downstream derivatives
is
expected that [(cid:133)]*. Also the limited number of other
projects is driven by the enlarged captive demand of the
respective undertaking. This is the case for the projects
of the net buyers [(cid:133)]* as well as the capacity increases
of integrated producers with captive consumption [(cid:133)]*.
The latter projects,
in addition, only relate to smaller
volumes.

capacity and it

the

to counter

(137) As the huge majority of these new volumes will, at least
in a medium term perspective, be captively used and
not sold on the merchant market the envisaged capacity
increases will not be
joint
able
dominance of the merged entities. Furthermore, there
are several new projects of non-integrated producers
which will
increase ethylene demand, such as a new
propylene oxide/styrene monomer plant at Rotterdam,
which Bayer will operate through a joint venture with
Lyondell and which is expected to come on stream in
the second half of 2003 (19). Therefore, the remaining
volumes of the increases in capacity will be absorbed by
new downstream ethylene production sites and will not
be suitable to significantly alter the competitive situation
on the market in the short and medium term.

(18) Third parties [(cid:133)]* can obtain [(cid:133)]* discounts from these figures.

[(cid:133)]*.

(19) The Port Authority of Rotterdam is currently building a pipeline
link from Rotterdam to the ARG on the basis of Shell’s Moerdijk
pipeline, see the Article (cid:145)Investing in pipelines(cid:146) in ACN/CMR/ECN,
Port of Rotterdam supplement, September 2001, pp. 21 and 22.

21.1.2003

EN

Official Journal of the European Communities

L 15/55

2.12. There is no sufficient countervailing buying

power

(138) There

are

and

Sasol’s

a number of net

ethylene purchasers
connected to the ARG pipeline. The demand of the five
leading net buyers (Solvay, Borealis, Basell, Celanese,
and LVM) accounts for around [50 to 60]* % of the
total merchant market. Joint purchasing agreements are
limited to CPO, which negotiates ethylene supplies for
Celanese, Clariant and Basell, and Degussa’s handling of
requirements. The Degussa
Vestolit’s
arrangements will cease [(cid:133)]*. As regards CPO,
the
respective agreements are a result of the divestment of
former members of
for which
economic supplies had been secured at the time. CPO’s
contracts with its customers [(cid:133)]*. Furthermore, nearly
half of CPO’s demand [(cid:133)]*. Basell today has its own
ethylene cracker and is likely to be able to procure
remaining demand on economic terms via its parents.
this background, CPO itself expressed the
Against
expectation that
in the
it will not continue to exist
present form after the expiry of
its supply contracts
with DEA and Veba.

the Hoechst group,

(139) The parties submit

that ethylene consumers have a
significant flexibility in their demand, whereas ethylene
suppliers are forced to sell their volumes on the market,
due to limited storage capacities
for ethylene and
pressure for high utilisation rates as a result of high
investment
customers
could resist any price increase by lowering their off-take
volumes, fulfilling their derivatives contracts from their
stocks and putting ethylene producers under significant
pressure to sell their product which they are not able to
store. However,
situation does not
appear to counterbalance the new entities’ power.

costs. Consequently,

the consumer’s

ethylene

(140) First, ethylene crackers on the ARG are running at
extremely high utilisation rates of 97 % and more.
Therefore, ethylene producers do not appear to be in a
situation where they already suffer from low capacity
utilisation and would need to keep existing levels at any
price to avoid significant losses. In addition, consumers
of ethylene share the interest of high utilisation rates of
their ethylene processing facilities to minimise average
unit costs with the ethylene producers. Derivatives
producers confirmed that their plants are also designed
to run at a capacity utilisation of 90 % or higher in
order to be profitable. Therefore, consumers do not
enjoy greater flexibility than the ethylene producers in
that respect. Furthermore, ethylene producers do in fact
enjoy a certain flexibility in output by maintaining high
utilisation rates. Imports are one means of flexibility, as

they could be reduced in the short term to react to a
reduction in demand. Another option to buffer demand
movements are time swaps. There are always some
crackers out of production due
to scheduled or
unscheduled maintenance works. Suppliers could agree
to supply the other’s customers during its cracker’s
downtime, while getting the product back at a later
stage in the year.

(141) Second, the usual

long term contracts allow only for
limited decreases of the contract volumes. In general,
there is a range of approximately [(cid:133)]* % variation in
the volumes actually purchased in relation to the
initially agreed contract
figure, whilst other contracts
only provide for hardship clauses which allow for
adjustments only in exceptional situations. The potential
for ethylene customers to respond to a joint price
raising strategy by the new entities by threatening to
reduce demand is therefore limited.

option

fulfilling their

ethylene while

and uneconomic

for
an attempt

(142) Third, the allegedly greater difficulty in storing ethylene
than derivatives produced by ethylene customers does
not create a sufficient demand flexibility. This argument
is based on the assumption that ethylene consumers
would lower their production and consequently their
demand for
supply
obligations with their derivatives customers out of their
stock. However, there are several elements contradicting
this assumption. In general, keeping stocks to a larger
degree than is necessary for own operational purposes
and buffering movements in derivatives demand, is also
costly
for derivatives producers.
Investment in huge additional storage capacity in order
to be able to react to a possible attempt to raise prices
(of which the occurrence and timing is unknown) by
ethylene producers therefore does not seem a viable and
economic
To
the quarterly
counterbalance
contract price in a negotiable contract,
it would be
necessary to work three months off stocks. However,
the usual stocks of ethylene derivatives producers are
currently of a maximum 30 days. Even higher stock
volumes would be required to resist price rises at the
point of the negotiation of a long term contract running
for several years. Furthermore, derivatives producers
cannot anticipate when ethylene producers will start
their attempt to increase prices. On the other hand, they
need their stock for their own operational purposes to
buffer unexpected production and demand movements.
Therefore, an attempt to raise prices may occur at a
point in time when derivatives producers’ stocks are
or
low,
unscheduled production downtime. In such a situation,
the ability to lower ethylene demand and derivatives
production is even more limited. It therefore has to be
concluded that
the incentives and possibilities for a
lasting reduction of demand are limited and therefore

unexpected

derivatives

producers.

increases

to raise

demand

due

to

L 15/56

EN

Official Journal of the European Communities

21.1.2003

are not
increase prices.

suitable to counterbalance an attempt

to

2.13. Conclusion on collective dominance

in Degussa,

a controlling interest
the parties further
undertake that BP and/or E.ON will also vote the rights
attached to all three of the BP/Veba Oel shareholdings
in accordance with the unanimous decisions of
the
other shareholders in relation to decisions requiring a
[special]* majority.

(143)

is

therefore

concluded that

two proposed
It
concentrations would result
creation of a
collective dominant position of the two new entities
Shell/DEA and BP/E.ON on the market for the supply of
ethylene on the ARG+ pipeline network.

the
in the

3. Commitments

(144) On 28 November 2001 the parties in this case and of
case M.2533 BP/E.ON offered certain commitments to
the
remove
Commission had
Statements of
Objections of 24 October 2001. The commitments will
be summarised and assessed in the following points.

concerns which
in its

competition
identified

the

(145) The full text of the commitments of the parties is set

out in the Annex.

3.1. Commitments offered by Shell/DEA

(146) Shell and DEA commit

to make available access to
Shell’s terminal facilities at Moerdijk, Netherlands, and
to Ethyleen Pijpleiding Maatschappij BV (EPM)’s pipeline
from Moerdijk to Lillo (Antwerp) to one or more users
for a total aggregate ethylene volume of up to 250
thousand metric tonnes per annum. The terms on
which such access is to be made available are outlined
in an attached model Ethylene Terminalling Agreement.
This access will be made available from 1 January 2003
until
and
non-discriminatory terms to any one or more existing
or prospective competitor(s) or customer(s) for ethylene
on the ARG+. Preference will be given to such
competitors and customers who do not own a terminal
connected to the ARG Pipeline.

least 31 December 2012 on fair

at

3.2. Commitments offered by BP/E.ON

(147) BP and E.ON undertake to divest any two of the three
BP/Veba Oel shareholdings in the ARG, together with
all
attached to such
shareholdings
independent purchaser
suitable
approved by the Commission.

equity and voting interests

to a

(148) For an interim period, until

the shareholding in the
ARG is divested, the parties undertake not to exercise
their blocking minority with regard to decisions
requiring a [special]* majority. The parties undertake to
vote any two of
their shareholdings in the ARG in
accordance with the unanimous decisions of the other
shareholders, with regard to all decisions which require
a [special]* majority. As long as E.ON continues to hold

(149) BP/E.ON undertakes that

they will guarantee to [an
ethylene customer]* that ethylene delivered via the ARG
pipeline to Gelsenkirchen will be made available at [that
customer’s]* plant in the event of the supply contract
between [(cid:133)]* being terminated with effect from [(cid:133)]*or
thereafter. This guarantee is made regardless of
the
source from which [that customer]* may decide to
purchase ethylene. It will last for a period of [(cid:133)]*, with
an option exercisable by [that customer]* to renew for a
further period of [(cid:133)]*.

3.3. Assessment

(150) The major

competition concern identified by the
Commission is that the elimination of two independent
ethylene suppliers on the merchant market will lead to a
collective dominant position of the two new entities.
The underlying infrastructure in the ARG+ area, namely
import terminals and pipelines, is a key factor in that
concern in two respects. The access to and influence in
the infrastructure strongly enhances the market power
of the two new entities, [(cid:133)]*. Thus, the infrastructure is
a decisive factor
for competitive interaction in the
present market for ethylene, and its degree depends very
strongly on the open accessibility of the infrastructure
means. Both commitments taken together provide and
guarantee the openness of this essential infrastructure.

the

the

costs

identified

entry of

non-accessibility
for

(151) The opening of Shell’s import terminal for third party
import volumes of up to 250kt annually will strongly
enhance the availability of ethylene on the ARG market
from competitive and independent sources. Several third
of
parties
import
terminals on a long term basis,
considerable
the major
amounts and for competitive prices as
obstacle for imports. Due to the fact that in the light of
extremely high investment
a
completely new supplier on the market
is highly
unlikely in the foreseeable future, imports are the only
source of additional, independent ethylene supplies into
covered by the
the ARG+ market. The volumes
commitment
to
suitable
are of
considerably constrain the new entities’ competitive
the annual capacity of one
potential. 250 kt equal
whole smaller sized cracker, such as the ones operated
by DEA. If all volumes were contracted and imported,
this would equal the installation of a new independent
ethylene production site on the ARG.
It would also
represent an increase of the current third party imports
by nearly 400 %. The terms of access proposed by Shell
will allow for non-discriminatory,
long-term access to
the terminal at competitive prices, and will give a
preference to non-terminal owners as terminal owners
dispose of their own importing facilities.

size which is

a

21.1.2003

EN

Official Journal of the European Communities

L 15/57

(152) There is a high probability that these volumes will be
third parties were interested in
imported as several
imports on a long-term basis and sufficient volumes of
ethylene are available in particular from Saudi Arabian
sources.

(153) The divestiture of the import terminal to a third party,
which in theory would completely eliminate the control
of Shell/DEA over this infrastructure facility, does not
appear to be a viable option. First, the terminal is not
workable without
inter-linked storage facilities. These
ethylene tanks are themselves integrated in the cracker
the
facilities and operations. A large proportion of
terminal storage therefore is used at unforeseeable rates
for fluctuations in cracker output and demand.

the ARG area,

carrier will have
effects which will
two major
considerably improve the competitive situation in the
ARG area and thus counterbalance the new entities’
market position. First,
it will enhance competition
through existing suppliers on the ARG. The open access
to the pipeline at competitive cost should allow existing
suppliers to actively compete for customers over the
whole of
increase customer’s choice
between suppliers and remove the ability of the two
new entities to share customers according to the criteria
the
set out above. Second, and equally important,
competitive potential of Shell’s commitment to open the
import infrastructure can only become fully effective if
it is ensured that the additional volumes obtained from
independent
transported
sources
economically to locations all over the ARG up to its
eastern end.

outside

can

be

(154) Second, open and non-discriminatory access

to the
terminal would only be guaranteed by a buyer who is
not active in ethylene or ethylene derivatives, and thus
does not have any own business interests related to the
terminal. In light of the high cost of the terminal and
the need for significant market intelligence in relation to
ethylene to economically operate the terminal,
is
highly unlikely that such an independent buyer could be
found.

it

the

two of

divestiture of

reduced to that of

(155) The influence of BP/Veba in the core ARG pipeline
through its shareholding and its blocking rights in the
operating company is another element restricting open
access to infrastructure and thus enhancing the parties’
market power. In addition, these shareholdings restrict
the competitive potential of other non-shareholder
suppliers. The
three
shareholdings of a combined BP/E.ON will entirely
eliminate the decisive influence of
this group in the
ARG company. After this divestiture, BP/Veba will no
longer hold any preferred blocking rights and its
position will be
the other
shareholders. In addition, the entry of new shareholders
into the ARG company will broaden the different
interests which are represented by the shareholders in
the company and thus guarantee the common carrier
character of the ARG, without preferring any particular
supplier’s
interim
undertaking offered by BP/Veba will provide for an
immediate elimination of BP’s veto right with regard to
reduce BP’s
essential decisions on [(cid:133)]*. This will
position to that of a normal shareholder until
the
divestment procedure
completed and thus will
is
immediately remove the substantive concerns related to
BP/Veba’s combined shareholding in the ARG company.
The commitment also removes any concerns resulting
from the shareholding of Degussa, which belongs to the
E.ON group and is not part of the present transactions.

customer’s

interests.

The

or

(157) BP/Veba’s commitment

remain protected

to provide access

to ARG
supplies for the ethylene customers located at [a site in
the Rhine/Ruhr area]* (currently [(cid:133)]*) removes the
remaining bottleneck infrastructure which is under
It eliminates any possibility that
control of BP/Veba.
BP/Veba will
from competitive
constraints originating from alternative ARG suppliers
with regard to these customers. BP/Veba will no longer
be able to cut off these customers from the ARG via the
denial of access to the proprietary pipeline linking these
customers with the ARG This will allow for competition
on equal grounds also for these buyers, and will remove
another instrument
that would facilitate tacit market
sharing between the two new entities. There are no
other ARG+ connection pipelines under the control of
the future duopolist entities which could be used to cut
off ethylene consumers from competitive supplies over
the ARG.

3.4. Conclusion

(158)

It is concluded that the commitments offered by the
parties assessed in combination will remove one of the
their market power. They allow for
major bases of
(i)
sufficient new competitive constraints which will
(ii)
counterbalance the new entities’ market position,
deprive
their possibility to refrain from
competing actively on the market and (iii) eliminate the
possibility of tacit market sharing. On that basis, it is
concluded that no collective dominant position will be
created on the market
for ethylene in the ARG+
network and that the competition concerns expressed in
the Statements of Objections are resolved.

them of

PART 2: TOLUENE

A. RELEVANT PRODUCT MARKET

(156) Apart

from eliminating BP/Veba’s strong foothold in
infrastructure as a strengthening element of their market
power, the reconstitution of the ARG as a common

(159) Toluene is one of

the three so called aromatics
chemicals (alongside benzene and xylene) extracted from

L 15/58

EN

Official Journal of the European Communities

21.1.2003

is

in

turn

used

such as

(TDI), which

reformed naphtha or from pyrolysis gasoline (pygas).
Toluene is a liquid used for the production of toluene
di-isocyanate
to
manufacture polyurethanes, which are used in a variety
of goods
foams, coatings and waterproof
clothes. It is further used for nylon production and as a
solvent in the chemical and pharmaceutical
industries
for paints and greases. Toluene is also converted into
the other aromatics benzene and xylene. Finally, due to
its octane enhancing qualities, toluene is also blended
into gasoline, which can have a toluene content
between 1,5 % and 25 %.

(160) According to the application, toluene is produced in a
In the market,
variety of different grades of purity.
several denominations for typical purity grades are used.
The most common are (cid:145)TDI-grade(cid:146) toluene which is of a
high purity required for the production of TDI. On a
lower level there are (cid:145)industry(cid:146) or (cid:145)DSM-grade(cid:146), named
after the major customer who set this specification, and
(cid:145)nitration grade(cid:146), which are mainly used for nylon
production,
In the
following,
is used for
the term (cid:145)TDI-grade toluene(cid:146)
toluene of a suitable purity for the production of TDI,
which is 99,80 %.

solvents and gasoline blending.

(161)

several

customers have

In its Statement of Objections, the Commission reached
the preliminary conclusion that TDI-grade toluene forms
a distinct product market. The parties strongly dispute
this finding on the basis of the following arguments:
They submit that TDI-grade is not a fixed specification
but
their own differing
specifications. Only a small proportion of TDI-grade
toluene is sold to customers who need this high purity,
whereas more than two thirds of the parties’ production
is
sold to customers who could switch to lower
qualities. According to the parties, there is also a high
supply side substitutability as producers of lower grades
could upgrade their equipment for the production of
TDI-grade toluene with moderate investment. The fact
that most producers replied to the Commission that this
was not economically feasible results from the fact that
only a small, or even non-existent premium is payable
in respect of TDI-grade toluene compared to lower
grades. The parties calculate that only a [small]* price
premium would be required in order to allow the
toluene
required
recovery
production facilities to TDI-grade production. Only one
of the several price quotation organisations publishes a
spot price for TDI-grade toluene, but no contract prices
are published. This is a further
indication that no
separate market exists for TDI-grade toluene. The parties
further argue that there is an extremely high degree of
correlation between the prices for the different grades
(0,91 to 0,99). Although the published spot price shows
periods of price premiums for TDI-grade, this does not
reflect market realities. The spot market for TDI-grade is

upgrade

costs

to

of

quite illiquid and only very small volumes are traded on
show that
this market. The parties’
TDI-producers pay
customers of
TDI-grade toluene,
inter alia due to higher volume
packages purchased.

sales prices

than other

less

(162) The arguments brought forward by the parties and the
Commission’s further investigation indicate that
there
might
indeed be only one market comprising all
different grades of toluene. A large volume of TDI-grade
toluene appears to be sold to producers for example of
solvents which do not need the high purity and could
switch to lower grades. Several producers indicated that
due to limited price differences it was not economic to
produce and store several grades of toluene. DEA for
instance only produces TDI-grade toluene, and Shell
does so at its Godorf plant. However, they sell [a large
proportion]* of that production to customers other than
TDI-producers. Another producer sells 100 % of
its
production to solvent producers where the high quality
is not required. Some producers even sell TDI-grade
toluene as a lower grade without indicating the higher
quality, due to the lack of outlet for the product.

if any at all,

there is only a very
(163) This is also an indication that
for the higher
limited price premium,
grades of toluene. The parties’ sales prices show that
TDI-producers pay less than those customers for which
such a high quality is not indispensable. Due to the
apparently low volumes traded on the spot market, the
published prices which indicate some periods of price
premiums are in fact of
limited significance. On the
other hand, a high correlation between the prices for
the different grades of toluene can be observed.

(164) The parties estimate the costs of upgrading a toluene
production facility for higher grades of purity at [less
than EUR 15 million]*. This appears moderate and
indicates a relevant supply side substitutability, which
would increase if prices for TDI-grade toluene rise.

(165) However, it can be left open whether there is a separate
market for TDI-grade toluene or whether toluene forms
one single product market comprising all grades of
purity. TDI-grade toluene would have to be defined as
toluene suitable for the production of TDI. It appears
that a purity of 99,80 % (or higher) is sufficient for the
production of TDI. If all suppliers producing toluene of
this purity are considered, no competition concerns
arise, either on the narrower market
for TDI-grade
toluene or on an overall toluene market. It can also be

21.1.2003

EN

Official Journal of the European Communities

L 15/59

left open whether the lower grades of toluene might
form together a product market or whether each grade
forms a distinct product market, as DEA only produces
TDI-grade and therefore there is no overlap between the
parties’ activities outside TDI-grade toluene.

B. RELEVANT GEOGRAPHIC MARKET

toluene

from southern-Europe

(166) The parties submit that the relevant geographic market
for
(EEA+Switzerland).
is western Europe
Toluene is traded actively within this area. It is a liquid
which is readily transportable by ship, rail or road.
Transportation costs account for around 5 to 10 % of
the sales price, with a maximum of 15 to 20 % for ship
transport
(Iberian peninsula)
production sites to north-European customers. However,
this does not appear to act as a barrier to trade between
these
Iberian
peninsula sell an important part of their production (up
to 30 %) to northern Europe. In the light of this, it can
be concluded that the relevant geographical market is at
least western Europe. As the parties do not export any
the toluene they produce to destinations outside
of
western Europe,
the
it can be left open whether
geographical market is wider than western Europe.

located on the

as producers

areas,

C. COMPETITIVE ASSESSMENT

(167) The current structure of the market for toluene suitable
for TDI-production is as follows: Besides the parties,
BP, Atofina, Exxon,
Petrogal, Enichem and Aral
Aromatics are active on the market (20). Atofina and
Exxon both produce TDI-grade
[(cid:133)]*.
last year used TDI-grade toluene only
Enichem until
captively but became active on the merchant market
after the divestiture of a TDI-production unit to a third
party. Aral Aromatics was formerly part of the E.ON
group, but since January 2001 has been a subsidiary of
Redestillationsgemeinschaft GmbH (21). The volumes
sold by Aral Aromatics are obtained [(cid:133)]*.

toluene

at

(168) The market shares are calculated as follows: All sales
data are based on the year 2000 figures. However,

(20) The difference to the Commission’s findings in the Statement of
Objections with regard to the players on the market and their
market shares relates to apparently different
interpretations in
relation to the term (cid:145)TDI-grade toluene(cid:146). Whereas several toluene
suppliers initially indicated that they are not active in (cid:145)TDI-grade
toluene(cid:146), further investigation revealed that they either currently
sell toluene to TDI producers for TDI-production, or that they did
so in the past and their toluene produced today is still of a purity
which would suit TDI-producers.

(21) Redestillationsgemeinschaft

of Thyssen
a
KruppStahl, RAG AG, EBV AG, R(cid:252)ttgers AG, Salzgitter AG and
H(cid:252)ttenwerke Krupp Mannesmann GmbH.

venture

joint

is

Enichem is considered as a competitor on the merchant
market, as this reflects its actual and future market
situation. The market share figures are based on the
year 2000 volumes supplied to the recently divested
TDI plant. Similarly, Aral Aromatics is considered as an
in
independent competitor on the merchant market,
accordance with the actual situation in 2001. On that
basis,
the parties’ combined share would be [25 to
35]* % (DEA [15 to 25]* %, Shell [5 to 15]* %). They
are followed by strong competitors like Exxon [15 to
25]* %, Petrogal [10 to 15]* %, BP, Enichem, Atofina
[all 5 to 10]* % and Aral Aromatics [below 5]* %. On
an overall toluene market, the parties’ combined share
would be even lower, as additional suppliers like Cepsa
and Huntsman would be active on that market.

(169) Therefore, the parties will be subject to competition by
strong other suppliers of
toluene. Although [a large
part]* of Enichem’s volumes and [a large proportion]*
of BP’s volumes are committed to one customer on a
long term basis, these volumes will be available in the
medium term and constrain the parties’ position on the
market. With regard to the market
for TDI-grade
toluene,
the absence of some suppliers seems to be
motivated by a lack of sufficient price premiums for the
higher grades of toluene. Any attempt to increase prices
for TDI-grade toluene would attract
further potential
suppliers as the resulting price premiums would make
the upgrading of current low grade production facilities
economic. Finally, toluene is used for gasoline blending
with a certain flexibility in required toluene proportion,
as well as for the conversion into other aromatics.
Rising prices for TDI-grade toluene would ultimately
also attract volumes
from these application to be
switched to sales on the toluene merchant market.

(170) The fact that a large proportion of TDI-grade toluene is
sold to non-TDI-producers and that some volumes are
not even marketed as high quality indicates that there is
a certain oversupply of TDI-grade toluene with regard
to the demand of producers who actually require this
high quality.
there are five major TDI
producers in western Europe (Lyondell, Bayer, BASF,
Dow and BSI) which due to their buying power appear
able to balance the parties’ market position. With regard
to the parties, this is supported by the fact that the TDI
producers seem to obtain lower toluene prices than
non-TDI customers for the same quality of product.

In addition,

(171)

It can therefore be concluded that the transaction does
not give rise to competition concerns, either on a
market for toluene suitable for TDI production or on an
overall toluene market comprising all different qualities
of toluene.

L 15/60

EN

Official Journal of the European Communities

21.1.2003

VII. CONDITIONS AND OBLIGATIONS

(172) This chapter concerns the commitments offered by the

parties as regards ethylene (recital 143).

(173) Pursuant

of

to

the

the

first

sentence

second
subparagraph of Article 8(2) of the Merger Regulation,
the Commission may attach to its decision conditions
and obligations intended to ensure that the undertakings
concerned comply with the commitments they have
entered into vis-(cid:224)-vis the Commission with a view to
rendering
concentration compatible with the
common market.

the

fulfilled,

(174) The achievement of each measure that gives rise to the
structural change of the market is a condition, whereas
the implementing steps which are necessary to achieve
result are generally obligations on the Parties.
this
Where a condition is not
the Commission’s
decision declaring the concentration compatible with
stands; where the
the common market no longer
undertakings
an
a breach of
concerned commit
obligation,
the Commission may revoke its clearance
decision, acting pursuant to Article 8(5)(b) of the Merger
Regulation, and the Parties may also be subject to fines
in accordance with
and periodic penalty payments
Articles
the Merger
Regulation (22).

14(2)(a)

15(2)(a)

and

of

(175)

the foregoing,

this Decision must be
In view of
conditional upon full compliance by Shell with the
commitment to grant access to its terminal for third
parties as provided in paragraphs 1 and 3 of
the
commitments in the Annex. These commitments are
given in order to remedy the collective dominance of
Shell/DEA and BP/E.ON on the ethylene market on the
ARG+ and to provide for competition on this market.
The terms of use of
in
paragraphs 2 and 4 to 7 of the Annex as well as in the
draft terminalling agreement shall be obligations upon
Shell them, as they aim at implementing the structural
change of the market.

the terminal as

set out

does not create nor strengthen a dominant position as a
competition would be
result of which effective
significantly impeded in the common market or in a
substantial part of it. The concentration is therefore to
be declared compatible with the common market
pursuant to Article 8(2) of the Merger Regulation and
with the EEA Agreement pursuant to Article 57 thereof,
subject to compliance with the commitments set out in
the Annex,

HAS ADOPTED THIS DECISION:

Article 1

The notified operation whereby Deutsche Shell GmbH would
acquire sole control within the meaning of Article 3(1)(b) of
the Merger Regulation of the undertaking DEA Mineraloel AG
is declared compatible with the common market and the EEA
Agreement.

Article 2

Article 1 is subject to compliance with the conditions set out
in paragraphs 1 and 3 of the Annex.

Article 3

Article 1 is subject to compliance with the obligations set out
in paragraphs 2 and 4 to 7 of the Annex as well as in the
agreement
in relation to the terms of access to the sea
terminal.

Article 4

This decision is addressed to:

Deutsche Shell GmbH
Suhrenkamp 71-77
D-20355 Hamburg.

RWE Aktiengesellschaft
Opernplatz 1
D-45128 Essen.

VIII. CONCLUSION

Done at Brussels, 20 December 2001.

(176) For the reasons set out above, and subject

to full
compliance with the commitments given by the Parties,
it must be concluded that the proposed concentration

For the Commission

Mario MONTI

Member of the Commission

(22) See the Commission Notice on remedies acceptable under Council
Regulation (EEC) No 4064/89 and under Commission Regulation
(EC) No 447/98, OJ C 68, 2.3.2001, p. 3.

21.1.2003

EN

Official Journal of the European Communities

L 15/61

ANNEX

The full English text of the commitments referred to in Article 1 may be consulted on the following Commission
website:

http://europa.eu.int/comm/competition/index_en.html