I can remember where I was when news of the great CO2 shortage broke; I was still in the birthing centre a little while after welcoming our second daughter into the world.
I had been informed that there were supply issues a couple of weeks beforehand – mainly in mainland Europe but as yet, unsubstantiated. However, the team at gasworld continued to investigate the situation and soon discovered that CO2 had gone ‘critical’.
One week later, and a storm in a pint glass was brewing as gasworld broke the story and the world at large began to realise how important carbon dioxide (CO2) is to everyday life as the whirlwind of the world’s mainstream press reported on beer gas shortages and commodity production squeezes.
Having been on paternity leave for the duration of the story unfolding, and the aftershocks rippling through end-user markets, it’s been interesting to observe the story ‘from afar’ and the mild panic that ensued.
It’s still remarkable how little appears to be known about this gas, as one of the key aspects of the ‘Invisible Industry’ that the industrial gases business is – but I guess I should not be surprised after all these years reporting on it.
Personally, I’m certainly not surprised by the shortage itself or how it has arisen. We’re well aware of the balance that CO2 generators and CO2 suppliers have to strike in the period of March through to May, when a number of plants associated with the fertiliser industry close down for maintenance.
That’s not to say that I or others had any inkling a shortage would occur, as the situation of fertiliser plants going down in the spring is a common occurrence. There are usually a number of other plants operating and also plenty of storage as suppliers ‘stock-up’ for the peak season. However, the supply chain is more complex as suppliers are reliant on the source of carbon dioxide (the generators) being available and it stands to reason that any product that is dependent upon another feedstock or process is susceptible to outages beyond its control.
It reminds me of the global Helium Shortage 2.0 a few years ago now. Unlike production of the air gases (oxygen, nitrogen, argon) which are produced almost ‘independently’ by air separation units (ASUs), helium is a commodity delivered though a complex supply chain. It is largely a by-product of natural gas exploration projects and that natural gas feedstock.
Carbon dioxide is very similar, reliant as it is upon ammonia and to a lesser extent bio-ethanol and other chemical production processes. In the case of ammonia, this is also a feedstock that is renowned to be very seasonal in nature.
Planned – and sometimes unplanned – maintenance downtime is common for ammonia or chemicals production facilities, just as it is for the natural gas plants that drive helium production.
What we experienced with the CO2 shortage is a perfect storm of supply chain conditions that were largely beyond the control of the CO2 business itself. The maintenance procedures across key ammonia plants, bio-ethanol and chemical production facilities, as well as some CO2 plants themselves, coincided to create a lack of raw gas sourcing for CO2. This was compounded by the extreme heatwave that hit Northern Europe in May – creating an unprecedented demand for CO2 from the food & beverage sector – and the major sporting event that is the FIFA World Cup.
The harsh reality is that once a shortage unfolds, of the product that is available, if any of those suppliers have moved into Force Majeure conditions then volumes cannot be just moved around to meet demand hubs.
So what lessons have been learned? What this shortage does suggest is a lack of a Plan B for a market inherently dependent upon other factors. If this shortage has told us anything, it’s that we clearly need a diversification of the supply chain for the industry itself and those end-users that so rely upon CO2.
Once a shortage has occurred, it’s always plausible that it could happen again – and we have seen CO2 shortages before in the past, just not at this scale. This is the fourth CO2 shortage in the last 10+ years, all with the same background of coinciding plant outages across the region.
With the pricing of ammonia and natural gas as further determining factors in the supply chain (ammonia is currently down while natural gas is up, squeezing margins), there exists a certain level of sourcing fragility.
Continuing to look at this on a commercial level, a lesson to be learned outside of the industry would be that this is not a simplistic market to better plan or control. A lot of talk swirled to the effect that someone in the gases sector should have been taking command of the situation and better planning or coordinating plant outages, without realising that this would in fact be illegal; competition law requires that competing suppliers must think, plan and act independently, however frustrating that may seem in the event of a shortage like we have just seen.
Last week’s shortage also highlights a glaring need for greater CO2 recovery efforts, in my view. I’ve heard countless comments over the last couple of weeks such as, “you’d think they can just suck it out of the sky” and to an extent there’s some truth in that. They can and they do, I countered, and a relatively nascent CO2 capture/recovery market already exists.
But as I’ve pondered over the last couple of weeks away from the office, are we really doing it enough? Does this shortage tell us that we need even more deployment in CO2 recovery technology – and could that be part of the supply chain diversification in the future?
The caveat to this point, of course, is that this is also not as simplistic or straightforward as it might seem – despite the widespread perception, the level of CO2 in the atmosphere is actually very minimal. In fact, it can be pegged at around 500 parts-per-million (ppm), which is less than 0.05%. Not only is this in our own personal interests as levels anywhere near 1-2% would present both a global warming and intoxication hazard, it also underlines the common confusion between the levels of CO2 as a greenhouse gas and its actual concentration in the atmosphere – two very different things.
Finally, it’s been concerning to hear questions raised over the need for food-grade CO2 in the beverages business and whether that can be circumvented, as a result of the media storm surrounding this shortage. This is another lesson in perception, panic and misunderstanding. Food-grade CO2 should never be in question, it is an ingredient and it’s law – besides which, food-grade and industrial grade CO2 are from one and the same capacity. There is no difference in where the product comes from, it is simply a further level of (necessary) purification that takes place post-production – and safety should never be compromised in the maelstrom of commercial alarm.
“…the spot market is a less than safe bet if that product is clearly so important to your operations”
Likewise, this one and the same capacity is exactly that – there was and is no supply being squirrelled off that could otherwise be released to the market. The product simply hasn’t been there, contrary to any of the largely uninformed lobbying that may have been taking place over the last fortnight, at both a commercial and government level. If it can’t be produced, then it isn’t there to be sold or re-allocated – and the spot market is a less than safe bet if that product is clearly so important to your operations.
In the here and now, we understand that the shortage both in Europe and the UK will be relieved as the main culprits in the shortage – the fertiliser plants – start up again as market conditions change. The beer gas storm will, if you pardon the pun, soon fizzle out. But clearly there are long-term lessons to be learned from this particular market frenzy.