Commercial

How we set our tariffs

All tariffs and charges in the FPS are governed by 3 key principles:

1. Set by a competitive process where appropriate and otherwise economically justified
2. Reflective of the nature of service being provided
3. Representative of a fair balance between risk taken and return earned

The Components of the Tariff

The tariff has been built up from 4 key components that fully reflect the cost of developing and operating the Forties System:

1. Historic Capital Investment
2. Future Operating Costs
3. Future Capital Costs
4. Future Decommissioning Costs

Historic Capital Investment

The magnitude of the Historic Capital Investment component has been evaluated following Office of Fair Trading guidance that states 'it is justifiable to seek recompense for a historic investment (through tariff) where it can be shown that the investor has not yet recovered a reasonable return on that investment.' Investment in FPS can be categorised into three individual investment phases (as shown in the diagram below). To fairly evaluate the return of the system each investment decision has been evaluated independently.

The £200m initial investment in the FPS in the 1970's was made primarily to export Forties Field oil production. As this investment was never expected to be recompensed by 3rd party tariff revenue it has been excluded from the historic capital investment component of the tariff.

The second £1bn investment phase in the early 1990's was made to expand the capacity of FPS in order to win additional 3rd party business. This investment was over and above that required to provide continued service to existing customers and did not have the security of guaranteed future volumes or revenue.

The profitability of the £1bn investment has been accessed by comparing the cost of capital of the project at the time of inception with the actual return achieved from business subsequently won (post '93).

A third tranche of investment was made in the mid 2010's to comply with environmental legislation to ensure future system longevity. Further investment is anticipated for the first half of the 2020's to enable FPS to continue to provide services out to 2040 and beyond.

The analysis has shown that the return associated with the £1bn investment (including an equivalent notional return from INEOS equity business) has yet to meet the cost of capital. A return on the £400m investment is built into the standard tariff which is payable by new customers from 2014 onwards. In both cases the revenue required to meet the cost of capital has been assumed to be shared equally amongst all past and/or expected future barrels, as appropriate.

The ability to meet the cost of capital over the full life of the system may be inhibited by the ability to manage future risks such as:

• Safety & Integrity
• Environmental Legislation
• Rising Costs
• Reducing Throughputs
• Decommissioning

These factors remain as significant risks for INEOS.

Future Operating and Capital Costs

INEOS will invest significant sums in FPS to maintain availability and integrity. The future operating and capital cost components have been estimated to evaluate the future cost of operating the system up to 2040 and then have been averaged across all forecast barrels.

Decommissioning Costs

In a similar manner, the total cost of decommissioning FPS System has been shared equally amongst all past and expected future barrels.

In the event that additional treatment is required (e.g. if fluids do not meet standard specification) the transportation tariff shall be amended accordingly to reflect the cost of providing such additional services.

INEOS' Operating Cost Option

The standard form FPS Transportation and Processing Agreement (TPA) contains an option for INEOS to switch customers from a tariff-based charge to a cost-share based charge.

INEOS appreciates that FPS customers would like to understand if and when INEOS is likely to exercise this option. The predominant factors which will influence INEOS' decision for onset of cost-share in FPS are long term system throughput, each entrant's utilisation of the FPS facilities and their current tariff. Clearly this will be dynamic, involving variables out-with INEOS direct control or influence. Nevertheless, we will be open and honest in our discussions with customers as to a range of potential dates for the onset of cost-share.

Overview

The Form of Agreement will typically deal with the following issues:

• Link up to FPS
• Capacity Booking Process and Firm Maximum Quantity profile
• Quality and entry specification
• Tariff and Charges
• Provision of secondary allocation services

It is intended that the Form of Agreement will be a slim document and we anticipate that this will enable swift completion of contractual arrangements with FPS. FPS redelivers Forties Blend and raw gas to each customer. Each individual field owner will therefore also be required to enter into a 'Raw Gas Sale and Purchase Agreement' (RGSPA) with INEOS.

Downloads

The documents can be downloaded by clicking the appropriate links:

RAW GAS SALES AND PURCHASE AGREEMENT CONFIDENTIALITY AGREEMENT FPS TPA Section 1 FPS TPA Section 2

Overview

We believe the trend towards smaller field developments in the North Sea requires quicker and simpler commercial processes. Our Standard Terms help in reducing the need for extended negotiation to access infrastructure and provide greater transparency in the marketplace.

Please note that existing Transportation and Processing Agreements may cover incremental production from existing fields and their satellite field developments in which case these terms may not apply to such additional liquids.

The information contained in this website is a summary only. The outlined terms are not intended to be an offer capable of acceptance or to create any legally binding obligation on any party.

INEOS' and Customer's Obligations

The basis for the parties obligations to each other will normally be as follows:

INEOS FPS undertakes to:

• Transport the customer's Pipeline Liquids through FPS
• Process the customer's Pipeline Liquids at the Kinneil Terminal
• Allocate Forties Blend in accordance with the FPS Allocation Procedure
• Store temporarily the resultant Forties Blend at Dalmeny
• Deliver the Forties Blend at Hound Point Terminal
• Deliver the Raw Gas at the agreed Redelivery Point
• We expect FPS to continue in operation until at least 2040

The Customer undertakes to:

• Tender for delivery at the Transfer Point agreed quantity of customer's Pipeline Liquids
• Comply with the agreed specifications for customers Pipeline Liquids
• Comply with the operational requirements of FPS (including the System Operating Procedures)
• Provide notification and information to INEOS FPS as INEOS FPS may require to carry out its obligations
• Accept delivery of its entitlement of Forties Blend and Raw Gas, at the agreed redelivery points
• Pay the tariff

The customer is responsible for the work and cost required to gain access to FPS at the Transfer Point, and for ensuring that any access meets with FPS requirements.

Liquid Specification and Composition

In order to maintain the availability and integrity of our pipeline system and the quality of Forties Blend, limitations apply to the composition and specification of Pipeline Liquids. The principal specification limits applicable to the Standard Terms include:

We are ready to discuss acceptance of Pipeline Liquids falling outside these limits or with other non-hydrocarbon components.

Commercial Terms

All new fields that meet the liquid specification above will be subject to the current standard FPS tariff, being £1.20 / bbl (referenced to 3Q 2003).

The indexation of the tariff from 3Q 2003 is based on a basket of indices that represent the FPS cost base. This basket is currently made up of 50% private sector earnings, 15% High Sulphur Fuel Oil, 15% fabricated metal products, 10% retail price index and 10% electricity price. This indexation methodology provides that the tariff level will rise and fall in line with the FPS cost base. This means that FPS customers will benefit from times when the cost base is low. It also ensures that INEOS' revenues increase in times when the cost base rises, in order that INEOS is able to continue to spend the money required to maintain and operate FPS safely and reliably.

Subject to certain reliefs, send or pay will be charged on 85% of the FMQ (Firm Maximum Quantity) profile (see below).

The above tariff and terms are standardised. The acceptance of Pipeline Liquids depends on meeting the specification and composition criteria, and is subject to the approval of INEOS FPS.

Capacity Booking Process

To meet the future throughput requirements of all customers, both new and existing, it is necessary to manage and optimize capacity within the FPS.

In addition to providing customers with certainty of future capacity, successful management of capacity ensures the FPS is able to maintain high levels of service and availability.

The FPS manages capacity using a booking mechanism as illustrated in the diagram below:

NB: The Unrestricted Booking Range only applies to fields with maximum production of less than 30 mbd.

Each contract will specify a Peak Entitlement that will govern the maximum allowable booked capacity in the system.

The Peak Entitlement is set at the time of contract execution to frame the level of capacity and service to which the agreed tariff and terms are applicable.

Each contract will contain an FMQ profile, representing the field owners' bona-fide life of field view of production at the time of contract execution. Each field shall be granted capacity rights in Forties System equal to the FMQ profile.

The FMQ may be changed by the field owners annually on a year ahead basis. Additionally, fields with maximum production of less than 30 mbd may change their FMQ quarterly on a two quarters ahead basis. This flexibility enables small fields to manage unexpected reservoir performance.

Each field shall be entitled to make unrestricted downwards revisions to its FMQ. In addition, fields with maximum production of less than 30 mbd shall be entitled to make unrestricted revisions to their FMQ profiles up to the Unrestricted Booking Range, and up to the Peak Entitlement subject to there being sufficient uncontracted capacity available within the FPS. This additional flexibility further enables small fields to manage unexpected reservoir performance.

The FMQ profile may not be increased above the Peak Entitlement.

All FMQ profiles should represent the field owners' bona-fide view of production for the life of field.

Additional & Spot Quantities

INEOS FPS will aim to accept the request by the customer's Operator on behalf of the customer's Group for the delivery of nominated Additional Quantities.

Where there is accessible capacity that is not being utilised on a given day, and a Customer has a demand that will take it above any contractual entitlements, then FPS may allow a field to export above its contractual limit. Any volumes above the contractual entitlement that are awarded on the day are known as Spot Quantities.

Spot Quantities are accepted and controlled by the Forties Pipeline Control Centre on a daily basis.

Additional and Spot Quantities will be subject to a 10% tariff uplift. 

Allocation Procedure

The quantity of Forties Blend and Raw Gas that each customer shall be entitled to have redelivered is calculated by the Forties System Allocation and Valuation system. This method of allocation and value adjustment is based on process simulation and on the principle that 'value in, equals value out'. The system has been tried, tested and well understood in the industry and is viewed as being fair and equitable.

Where the customers Pipeline Liquids are to be measured and sampled individually to a fiscal standard, the customer entitlement to Forties Blend and Raw Gas shall be performed on a primary basis.

Where the customers Pipeline Liquids are to be measured to a fiscal standard as part of a commingled stream, allocation will be performed on a secondary basis.

By default, all value adjustment is performed at the primary level, with secondary allocation being allocated on a volume basis only.

As an additional service and for an additional charge, customers may request the FPS to perform secondary allocation adjusted for both value and volume.

Disclaimer

No information contained in our website constitutes an invitation by or on behalf of INEOS FPS Limited or any of its subsidiaries to enter into a contract with you.

The information is intended to aid the negotiations process between INEOS and the owner(s) of crude oil and gas. We are of course happy to discuss with you the implications of any issue raised if you contact us.

The information presented in this website is not fully comprehensive. Despite our best efforts, it may not be accurate, up to date or applicable to the circumstances of any particular case. We cannot accept any liability for any inaccuracies or omissions and any decisions you make based on this information are your sole responsibility.

We reserve the right to update, modify or remove any part of the information in our website at any time.

All contents and downloads are Copyright, owned by or licensed to INEOS FPS Limited. All rights reserved. Please refer to the Legal Notice for other terms.

Detailed discussion may be subject to a confidentiality agreement.

Infrastructure Access Agreements (A-F)

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Infrastructure Access Agreements (G-Q)

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Infrastructure Access Agreements (R-Z)

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