2007/161/EC: Commission Decision of 10 August 2006 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case No COMP/M.4094 — Ineos/BP Dormagen) (notified under document number C(2006) 3592) (Text with EEA relevance)
Date: 2006-08-10
Institutions: European Commission
Subjects: chemical alcohol, hydrocarbon, merger, merger control, vertical agreement

L 69/40

EN

Official Journal of the European Union

9.3.2007

COMMISSION

COMMISSION DECISION

of 10 August 2006

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement
(Case No COMP/M.4094 — Ineos/BP Dormagen)

(notified under document number C(2006) 3592)

(Only the English text is authentic)

(Text with EEA relevance)

(2007/161/EC)

On 10 August 2006 the Commission adopted a Decision in a merger case under Council Regulation
(EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1),
and in particular Article 8(1) of that Regulation. A non-confidential version of the full Decision can be
found in the authentic language of the case and in the working languages of the Commission on the
website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/comm/
competiton/index_en.html

(1)

On 24 January 2006, the Commission received a notifi-
cation by which the BP Ethylene Oxide/Ethylene Glycol
Business (BP Dormagen Business) controlled by British
Petroleum Group (BP) by way of purchase of assets.

No COMP/M.4005 — Ineos/Innovene, the main trans-
action).

(2)

Ineos is a United Kingdom limited company with various
wholly owned subsidiaries which are active worldwide in
the production, distribution, sales and marketing of inter-
mediate and speciality chemicals. On 16 December
2006, Ineos acquired Innovene, the former olefins, deri-
vatives and refining business of BP (excluding the BP
the acquisition of which is the
Dormagen Business,
subject of this decision) which manufactures a range of
petrochemicals,
including olefins and their derivatives
and a range of refinery products (2). That operation was
cleared by the Commission on 9 December 2005 (Case

(1) OJ L 24, 29.1.2004, p. 1.
(2) Innovene operated three sites in the EEA: Grangemouth (United
Kingdom), Lavera (France) and Dormagen (Germany). Grangemouth
and Lavera were acquired by Ineos as a result of the Main Trans-
action.

(3)

(4)

BP Dormagen Business, which consists solely of a plant
located in Köln/Dormagen (Germany),
currently
controlled by BP and is active in the manufacture of
ethylene oxide (EO) and ethylene glycols (EGs or glycols).

is

The Advisory Committee on Concentrations, at its 143rd
meeting of 28 July 2006, delivered a favourable opinion
on a draft Decision granting clearance submitted to it by
the Commission (3).

(5)

The Hearing Officer,
in a report dated 26 July 2006,
took the view that the right of the parties to be heard
had been respected (3).

(3) OJ C 54, 9.3.2007.

(6)

(7)

(8)

(9)

9.3.2007

EN

Official Journal of the European Union

L 69/41

I. THE RELEVANT MARKETS

Background

examination of

the main transaction,

In its
the
Commission assessed the markets for ethylene oxide
(EO) and for a number of
in
particular, alcohol ethoxylates, glycol ethers (GEs) and
ethanolamines (EOAs). The Commission concluded that
that main transaction did not raise serious doubts as to
its compatibility with the common market on the hori-
zontally and vertically related markets.

its derivatives (EODs),

The only products manufactured and sold by the BP
Dormagen Business are EO and EGs. Ineos produces a
wide range of chemicals including EO and EO-derivatives
the only horizontal
(including EGs). Consequently,
overlaps which arise as a result of the proposed acqui-
sition by Ineos of the BP Dormagen Business relate to
EO and EGs.
In addition, vertical relationships exist
upstream of EO (as regards ethylene) and downstream
of EO (as regards EO derivatives).

Relevant product markets

EO is a colourless gas, which is produced by the partial
oxidation of the ethylene. EO has an ethylene content of
a hazardous product, being highly
82 % and is
inflammable and explosive.
It is also toxic and carci-
nogenic. EO can be used in the non-purified state to
produce EGs or be further purified.

market for EO as it is characterised by low substitut-
ability especially when used as a direct raw material in
chemical
case
confirmed this product market definition.

investigation in this

reactions. The

(12) As only purified EO is sold to third parties, the compe-
tition assessment in this case concentrated on the market
for purified EO. At a late stage of the proceedings, Ineos
submitted that the purified EO could be further sub-
segmented into high-grade EO (HG-EO) or low-grade
EO (LG-EO) depending on the level of
impurities
(mainly the content of aldehydes). However, the market
investigation confirmed that
it was not necessary to
further sub-divide relevant product market according to
purity levels of the purified EO as only H-G EO was sold
to the third parties.

(13)

The Commission also investigated whether a distinction
needs to be made between long term arrangements for
supply of EO to customers whose plants are located on,
or adjacent to, the EO supplier’s site and connected via
pipe line (on-site) and supplies to other customers (off-
site) which are served by other means such as truck or
rail. The Commission found that
there were some
differences in price levels, contract lengths, and quantities
purchased between these two supply methods. However,
the Commission did not have to make a decision on this
issue, given that the transaction would not significantly
impede effective competition, irrespective of whether on-
site and off-site supplies are considered to constitute a
single or two separate markets.

EGs are intermediate chemicals produced mainly by the
non-catalytic hydration of EO. EGs account for 37,5 % of
total EEA consumption of EO and are only produced by
integrated EO producers.

(14)

(10) An alternative route for processing EO involves

its
further purification: purified EO can then be used for
production of various other chemical
intermediates.
Most of this purified EO is used captively by the inte-
to
grated EO producers
produce EO derivatives, the remainder is sold to third
parties, which compete with EO producers on the
various EO derivatives markets.

in downstream operations

Ethylene glycols

Ineos submitted that EGs constitute a separate product
market, in line with a previous Commission Decision (5).
in a subsequent decision (6), the Commission
However,
had noted that demand-side considerations might make
it necessary to distinguish between the different types of
EG. These are: mono-ethylene glycol (MEG), di-ethylene
glycol (DEG) and tri-ethylene glycol (TEG). MEG accounts
for the great majority of the production (about 90 %),
with the remaining production divided between DEG
(about 9 %) and TEG (about 1 %).

Ethylene oxide

(11)

The Commission has
It
previous

cases (4).

examined ethylene oxide
identified a

in
separate product

(15)

In this case, the majority of market participants indicated
that EGs should be further segmented into three markets,
for MEG, DEG and TEG, because they are used in very
different applications and are not substitutable to any
from the supply-side point of view,
extent. However,
MEG, DEG, TEG are invariably manufactured together

(4) Case COMP/M.2345 — Deutsche BP/Erdölchemie, 26 April 2001
and Case COMP/M.4005 — Ineos/Innovene, 9 December 2005.

(5) Case COMP/M.2345 — Deutsche BP/Erdölchemie, 26 April 2001.
(6) Case COMP/M.3467 — Dow Chemicals/Pic/White Sands JV, 28 June

2004.

L 69/42

EN

Official Journal of the European Union

9.3.2007

and are always produced in very similar proportions. The
exact market definition was left open as the transaction
would not significantly impede effective competition
with respect
the alternative
to EGs under any of
product market definitions.

market for EGs is at least Western Europe and even
global. This is because EGs are not hazardous products
and, in consequence, they are easily transportable. Prices
are comparable at a global level, and imports into the
EEA, mainly from Middle East and Russia, represent
around 13 % of the total EEA consumption.

Relevant geographic markets

Ethylene oxide

(19)

(16)

the EO market

In previous decisions (7) the Commission has considered
the geographic dimension of
to be
probably Western Europe (defined as the EEA plus Swit-
zerland) although the exact market definition was left
open.
In this case the relevant production plants are
located in Antwerp (Belgium), Lavera (France) and
Dormagen (Germany). Ineos submitted that the market
is EEA-wide as EO from these plants is transported over
long distances (according to Ineos’ data, in some cases
more than 1 000 km, although the majority of deliveries
the great majority of
are within 600 km). However,
customers and at least half of the competitors consider
the geographic market to be regional. Shipping distances
appear to be between 0 km to 800 km with the large
majority between 0 to 600 km, due to transport costs
and the hazardous nature of the product.

(iv)

(17) According to the limitations on transport distance, the
Commission identified possible regional markets for EO
as: (i) United Kingdom and Ireland, (ii) Nordic countries
(Norway, Sweden and Finland), (iii) Mainland North-West
Europe, or MNWE (the Netherlands, Denmark, Belgium,
Luxemburg, Germany, Austria, Central and Northern
France),
the Mediterranean basin (Italy, Portugal,
Southern France, and Spain), and (v) Central and
Eastern Europe. In addition, the Commission found out
that regional price differences and limited trade flows
tend to confirm this geographic market segmentation.
it was not necessary to conclude as to the
However,
the
exact geographic market definition for EO as
Commission found out that the transaction would not
significantly impede effective competition on either
(an EEA-wide geographic
possible geographic market
wide or a MNWE market,
the only regional market
where both parties were active).

Ethylene glycols

(18)

Ineos submitted, in line with what has been argued in
previous decisions (8),
relevant geographic

that

the

(7) Case COMP/M.2345 — Deutsche BP/Erdölchemie, 26 April 2001
and Case COMP/M.4005 — Ineos/Innovene, 9 December 2005.
(8) Case COMP/M.2345 — Deutsche BP/Erdölchemie, 26 April 2001,
Case COMP/M.3467 — Dow Chemicals/Pic/White Sands JV, 28 June
2004.

least EEA-wide. However,

The vast majority of
the respondents to the market
investigation confirmed that the geographic market is
the
at
decision, the exact market definition was left open as
the transaction would not significantly impede effective
competition in the common market or a substantial part
of it under any alternative geographic market definitions.

for the purposes of

II. ASSESSMENT

Ethylene oxide

The overall size of the EO market in the EEA, including
production for captive use, is around 3 000 ktpa (kilo-
tonnes per annum). The merchant market represents
around 18 % of
about
560 ktpa, of which about 33 % by value is accounted
for by on-site customers and 67 % by off-site customers.

total production or

the

In terms of market structure, the transaction is a merger
between two of the three largest EO suppliers giving rise
shares above 45 % under any
to combined market
reasonable definition of
and
for EO. The combined entity’s
geographic markets
closest competitor, Shell, represents (15-25) % of
the
overall merchant market for both on-site and off-site
the remaining competitors have market
supplies. All
shares below 10 % (many below 5 %)
for both total
and off-site sales.

relevant product

the

(20)

(21)

(22) However, taking into account that the merchant market
represents a fairly small proportion of total production,
relatively small changes in the overall production may
have a significant impact on the merchant market. As a
result, in its assessment the Commission concentrated on
the importance of integrated producers’ captive use of
EO and its
to third parties. The
Commission examined the conditions relating to the
supply of EO and,
in particular, those factors capable
of constraining the behaviour of the combined entity
on the merchant market for EO.

impact on sales

9.3.2007

EN

Official Journal of the European Union

L 69/43

(23)

In order to do so, the Commission identified the main
aspects on which the availability of EO on the merchant
the
the production capacity for EO;
market depends:
in
purification capacity;
the downstream uses of EO,
the
particular the split between EGs and other uses;
incentives to use additional EO internally and/or sell to
the merchant market.

(24)

First,
the Commission assessed whether currently the
parties’ competitors have sufficient spare EO capacity
to supply the merchant market. In this regard, it is the
purification capacity that is critical as merchant market
sales are only of purified EO. The investigation showed
that although the parties’ plants represent an important
part of the spare purification capacity, their competitors’
spare capacity would be able to constrain the parties’
anticompetitive behaviour as they represent significant
volumes compared to the relatively small merchant
market.

(28)

(29)

in case of

The Commission then estimated how big this potential
swing from glycols to purified EO could be, taking into
account all capacity constraints. The Commission found
that
foreseeable reduction in
production of glycols the potential swing from glycols
to purified EO could, in case of unilateral price increase
by the merged entity, bring to the EO merchant market
quantities that are significant compared to the current
overall size of that market.

the largest

The Commission also took into consideration the impact
of new glycols capacity coming on stream in the Middle
East and Asia on the market situation in Europe. It found
that these new EO production capacities were likely to
result in an increase of exports of EGs to the EEA and
that as a result a decrease in EG production in the EEA
could be expected. This in turn could increase the avail-
ability of EO in the EEA for third party sales and the in-
house production of other EO derivatives.

(25) Also, an important part of the Commission assessment
in this case was focused on a relationship between the
production of purified EO and EGs. A reduction in the
production of EGs may enable integrated producers
(those producers making both EO and EGs) to increase
their purified EO production. This relationship is based
on the fact that both products use the same raw material
(unpurified EO) and, consequently, a reduction in the
production of EGs will release unpurified EO which
could be used for the production of additional quantities
of purified EO — subject
to purification capacity
constraints.

(26)

showing that,

Ineos submitted that MEG is used as a swing product
allowing EO producers to switch to and from the supply
of EO or other EO derivatives depending on market
In order to prove it, Ineos submitted two
conditions.
the
econometric studies
parties’
their
the
the expense of
production of purified EO at
the
production of glycols in response to outages at
Ineos and BP Dormagen Businesses’ plants.
It was
found that reductions in the EO sales by the affected
plants were (to some extent) offset by increased EO
sales by competitors.

in the past,
increase

competitors were

able

to

(27)

The Commission concluded that although these studies
had some limitations, they indicated a potential for such
competitors to counteract anticompetitive behaviour of
the combined entity.

(30) Accordingly, the Commission considered it appropriate
to assess the impact of the operation in a prospective
manner, that is in relation to the forecast and reasonably
expected developments in the future.

(31)

The Commission’s investigation showed that the total
spare capacity for the production of EO in the EEA is
expected to grow in the coming years and utilisation
rates will be lower. Although the spare purification
capacity is expected to decrease in the near future,
however, as the merchant market
is relatively small
and is not expected to increase substantially in the
the remaining spare purification capacity
near future,
can still act as a constraint on unilateral
increases in
prices by the combined entity.

(32) Additionally,

in order

to assess

compensate

the impact of

the
anticipated increase in imports of glycols
from the
Middle East on the European EO merchant market,
future economic incentives of EO producers to supply
the merchant market were taken into account. In order
to
EO
predicted
consumption for glycols and in order to keep the utili-
sation rates for EO production at the highest possible
levels, EO producers would need to find other outlets
for their supply of EO. As all other EO derivatives
(apart from glycols) and the merchant market require
purified EO, European EO producers would have
incentives to increase their current purification capacities.

downturn

the

in

L 69/44

EN

Official Journal of the European Union

9.3.2007

(33)

(34)

The Commission found that expansion in the purifi-
cation sections of EO production is less expensive and
often does not need to be accompanied by other
investments across the plant. Assuming that competitors
will be able to increase their current purification capa-
to absorb the expected decrease in
cities
in order
production of glycols,
these increases
depends upon EO producers’ captive use of EO for
their ability to increase their EODs capacities
EODs,
it to
and their incentives to use EO captively or sell
the merchant market.

the extent of

The Commission’s investigation revealed that in the near
future, the EODs’ capacity of integrated producers will be
partially constrained due to increased demand for EODs.
Increases in EODs production capacity are more costly
and take more time than increases in EO purification
capacity. Consequently, not all of
the purified EO
released as a result of the decrease in production of
in the EEA will be absorbed by increased
glycols
production of EODs by integrated producers.
It will
consequently be available to the merchant market.

(35)

Therefore, a significant impediment of effective compe-
tition in the merchant market for EO can be ruled out.
EO customers will have supply alternatives which will be
sufficient to constrain the combined entity’s behaviour.

Glycols

(36) World production and consumption of EG is estimated
some 17 000 ktpa, of which EEA production is
at
around 1 700 ktpa for a demand of some 1 950 ktpa.
World demand over recent years has been relatively
stable, due in particular to the demand in China and

(37)

(38)

(39)

the Far East for MEG used for polyester textiles. This
has,
in turn, stimulated investments in substantial new
EG capacity in Asia and the Middle East scheduled to
come on stream over the next few years.

investigation indicated that

The Commission’s
the
combined entity’s market share on a global merchant
market did not exceed 5 % for any possible product
market definition. On an EEA-wide merchant market,
the combined entity’s share did not exceed 20 % for
any relevant product market. Also the combined entity
would face competition from various strong competitors
such as BASF, MEGlobal, Sabic, Shell, Clariant as well as
from imports.

the presence of

the combined entity’s limited market
In the light of
share,
significant competitors with
comparable or larger market shares and the predicted
downturn in glycols production in Europe (as a result
of increased imports), the Commission concluded that
the proposed transaction does not raise competition
concerns in the market for EG.

III. CONCLUSION

above,

impede

reasons

set out

the Commission
the
For
the proposed concentration does not
concluded that
significantly
the
effective
common market or a substantial part of it, in particular
as a result of the creation or strengthening of a dominant
position. The concentration is therefore to be declared
compatible with the common market in accordance with
Article 8(1) of the Merger Regulation and Article 57 of
the EEA Agreement.

competition

in