Published April 2016
The industrial gas industry has been at the forefront of consolidation for the past 10–15 years and is now highly concentrated. In 2015, the following four companies dominated the industry worldwide—Air Products and Chemicals, Inc. (United States); L’Air Liquide, S.A. (France); The Linde Group PLC (United Kingdom); and Praxair, Inc. (United States). Together, these companies supplied more than 60–70% of the industrial gas business.
The principal industrial gases are derived from air and occur in air in the following proportions—nitrogen, 78%; oxygen, 21%; and argon, 0.9%. Rare gases occurring in and recovered from air in much smaller quantities are krypton, neon, and xenon. Carbon dioxide, helium, and hydrogen are also present, but commercial quantities of these industrial gases are derived primarily from other sources.
The following pie charts show merchant consumption of oxygen and nitrogen by major region.
The primary factors aiding the growth of industrial gases in recent years have been the growth in the Asian economy, the high cost of energy, and climate change initiatives. Increasing demand from the iron, steel, and chemical industries, as well as for gasification of coal and coke for clean energy, is expected to increase demand for industrial gases significantly after the current depression in the oil markets. With the developing world poised to consume large quantities of steel to improve infrastructure, demand from these regions is positioned to grow at above-normal rates, although there has not been as much growth in the steel industry as anticipated. One area that is looking promising is the alternative energy sector. Major industrial gas companies have started to invest in technologies related to alternative energy.
Improvement in the global economy and growth in Asia had led to strong performance for the industrial gas business in the last few years. But during the last year, the general markets have underperformed, which directly affected the industrial gas market. When global growth picks up, particularly in Asia and Latin America, the industrial gas market is expected to revive and reach its normal levels of growth. Sectors that are growing, albeit from a low base, include health care and biotech. Increased growth is also expected in the semiconductor industry, which is seeing the fab size shift to 300 millimeters and rapid advancements in photovoltaic technology. Over the last few years, several major chip manufacturers have been building or planning to build 300-millimeter fabs.
The Chinese industrial gas market has almost doubled in value in the past few years. India and South Korea are expected to double their consumption volumes in the next few years. Demand from petrochemical, chemical, and refining operations is making the Middle East a significant player. The emerging economies in Eastern Europe are creating a major market, along with the major South American countries.
The current market is cautiously optimistic. Global GDP growth, which has been stuck around 2.5%, is not expected to progress much. Slower-than-expected production growth is expected to lower overall sales; however, areas like food, beverage, and health care are expected to grow strongly. Most of the major gas companies have reported declines in earnings resulting from manufacturing weakness coupled with currency impacts. The oil market has also not been favorable to the major oil companies that have associated engineering divisions. Order bookings have declined as a result of the low oil prices and are expected to be a burden until the market improves. Oil is expected to hover around $38 per barrel on average this year and rise again in 2017. According to IHS estimates, industrial activity will perk up after oil crosses the $45 per barrel level. Global GDP growth is expected to be slightly over 2.5% in 2016 and will rise to just over 3% in 2017 and 3.2% in 2018.
The growing need for alternate sources of energy is increasing the demand for industrial gases. Large-scale gasification plants and oxygen-based gas-to-liquid, coal-to-liquid, and coal-to-chemicals plants consume enormous quantities of oxygen. The next 10 years could see a potential increase of over 200 thousand metric tons per day of oxygen to satisfy the requirements from clean fuel demand and the need to reduce emissions of greenhouse gases. Increasing volumes of liquid natural gas (LNG) have led to considerable demand for nitrogen. Increased spending on infrastructure development is also a strong area of growth for industrial gases. Governments have been introducing stimulus plans that target several areas, including infrastructure, that can boost the economy. European governments such as France and Germany, along with Canada in North America, devote a large share of spending on infrastructure, ranging from 20% to 35%. In the United States, the percentage is much lower. Innovations in current technology are ongoing to reduce capital costs and drive up process efficiency.
The merchant market for oxygen in the four major regions is expected to grow at an average annual rate of about 4%. The global nitrogen market is expected to grow at just over 2% per year during the next five years, driven mostly by demand in the electronics sector in the developing regions and also by growth in the health care arena. In regions that are increasing spending on infrastructure, especially in Asia, nitrogen has good potential for growth.