Volatile market looks to new methods of supply
By Staff -- Purchasing, 11/4/1999
The industrial gas market can be very volatile. Seasonal production level changes due to weather conditions, combined with the fact that the largest cost factor in industrial gas production is energy pricing, price and supply swings in the market are not at all uncommon. Even when there is enough gas production capacity available, energy-related problems can affect supply. As a result, producers are increasingly pursuing new gas technologies and new supply methods, such as on-site gas generation.Shipments of industrial gases in the U.S. are forecast to increase 6.3%/yr through 2003 according to a study by The Freedonia Group. The strongest gains for gases will be found in the water treatment and electronics industries.
Industrial gases are primarily used in chemical processing, petroleum refining, and metals industries. Nitrogen and oxygen account for most industrial gas demand. These gases can be recovered by cryogenic or non-cryogenic air separation. Argon and specialty gases (such as neon, krypton, and xenon), carry higher price tags and account for much less of demand. Despite their relatively low demand compared with commodity gases such as oxygen, the strongest demand gains will be made by these specialty gases. Applications including metals processing, lighting,0 and electronics etching will help boost demand up over the coming years. Yet the highest demand increases will be found with hydrogen. Hydrogen demand will be pushed up by applications in refineries due to mandates of the Clean Air Act and the production of cleaner burning fuels.
Major players in the U.S. industrial gas market include Praxair, Air Products and Chemicals, Air Liquide America, and BOC Gases. In July, Air Products and Air Liquide made a bid to acquire BOC Gases. The European Commission and U.S. Federal Trade Commission both are investigating the proposed acquisition; results are not yet final. The companies expect the investigation to be completed by January.
Changes in supply
All major gas suppliers are building on-site plants for former merchant customers. Praxair, for example, expects to be supplying up to 35% of its former merchant customers via on-site generation within the next few years.
Production on-site can provide significant cost savings for both producers and customers. For one thing, it eliminates large portions of transportation and delivery costs. Industry estimates say that buyers of on-site supplied gas can reduce costs up to 20% compared with merchant-supplied gases.
On-site production is an outgrowth from industrial gas companies supplying large users directly via pipeline from a nearby factory. The number of dedicated facilities continues to grow. Example: Air Products has brought on-stream a dedicated air separation plant in Dinwiddie County, Va., to provide 250 tons/day of oxygen to a steel mill belonging to TXI Chaparral Steel.
Another supply change is the increase of non-cryogenic production, which allows for smaller volume customers to produce gas on-site. However, non-cryogenic technologies can't be used by customers with large volume demand, nor for those with high-purity requirements. As a result, cryogenic air separation will continue to play the significant role in chemicals, metals, and electronics.
Producers continue to build facilities. Praxair has announced the start up of its hydrogen purification facility in Lake Charles, La. This expands the company's pipeline capability in the Gulf Coast region by 20%. A Conoco refinery in Lake Charles will use about 75% of the hydrogen produced at the facility. A consortium led by BOC has completed financing to build and operate the world's largest nitrogen generation complex which will be located in Mexico. The facility will have a capacity 1,200 million cubic feet/day. The high-purity nitrogen will be used by Pemex Exploracion y Produccion at its Cantarell oil field.
Prices should move up
Although prices for industrial gases tend to rise in the summer months, then slip once autumn gets under way, data from the U.S. Bureau of Labor Statistics' Producer Price Index indicates that overall industrial gas producer prices are higher when compared to last year. In August, preliminary numbers show a producer price index of 146.2--up 3.6 compared with August 1998. The rise for some individual gases is even more dramatic. Preliminary data for carbon dioxide shows an August index of 128.9--up 10.1 compared with the previous year. In August, the producer price index for nitrogen was up 5.1 points compared with 1998 and oxygen was up by 4.9. This data indicates some cost pressure, which will most likely lift prices compared with last year.
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