Building on the combined strengths of Linde and BOC, the new German-British Linde Group stands out among its peers, as it is a major player in both industrial gases and process engineering, asserts executive board member Dr Aldo Belloni.
“Being active in both markets creates enormous internal synergies and a unique selling proposition other gases producers do not have,” says the long-time Linde executive. “Having in-house process expertise is a good door opener for tonnage applications, for example.”
While leveraging these strengths was always a competitive advantage for Linde, the critical mass added with Sweden’s AGA in 1999 and BOC in 2006 broadened its technological platform as well as enhancing its marketing capability.
In December 2007, the engineering division’s excellent connections to the Middle East paid off, as Linde nailed down a major strategic partnership in gases with a powerful petrochemical player.
The long-standing engineering cooperation with the Borealis / Abu Dhabi National Oil Company (Adnoc) joint venture Borouge, for which Linde is currently building a $1.3bn ethane cracking plant (“Borouge 2”), led to a 49:51 joint venture agreement with Adnoc. The new company trading as Elixier will supply gas users throughout Abu Dhabi.
This means, Belloni says, that “we have achieved what no other Western company has been able to do up to now. Not even the oil majors were granted a more than 40% share in an Abu Dhabi joint venture.” What makes this joint venture even more attractive is that Linde will be able to market part of production as merchant gases throughout the Middle East – from Saudi Arabia to Oman.
In typical Linde understatement, the Italian-born doctor of chemical engineering adds: “This gives us a very favourable market position in Abu Dhabi.” On top of the intake from the Borouge 2 ethylene cracker, Linde will realise “double-digit profits” from the air separation plants set to go on stream in 2009.
The deal could also open up chances in liquefied natural gas (LNG), where Linde already has considerable experience. Adnoc has access to around 90% of Abu Dhabi’s oil and gas reserves, regarded to be the world’s fourth largest, and is in the process of exploiting these both on- and offshore.
The Middle East has provided other synergies for Linde’s gases and engineering divisions. With Qatar Shell GTL’s ‘Pearl’ project, the group is currently executing the largest single contract ever placed for air separation units at Ras Laffan, Qatar. Eight large air separation plants will produce 860,000 m³/h of oxygen, with one going on stream every quarter up to 2010.
Work on the project is progressing well, says Belloni – during 2008 the coldboxes will be shipped from Linde’s component construction facility at Dalian, China. “The greatest challenge,” he says, “is getting the local work completed.” As many as 20,000 people are working at the construction site altogether.
Another promising geographical market has “eastern” in its name. The former state-run economies of Central and Eastern Europe, including the Czech Republic, Hungary, Poland, Russia and Romania, are currently undergoing rapid development, largely involving outsourcing of former state-run facilities.
Belloni makes no secret of the fact that Linde, as regional market leader for industrial gases, is profiting from this “unique opportunity.”
Although “everyone is in China, in many respects Eastern Europe is even more lucrative,” he says. Especially as Chinese companies are often not too keen on inviting international gases producers to build and operate on-site plants.
The Linde manager also sees “intriguing possibilities” in the steel markets of Russia and the CIS countries. The best approach to the region “is with an internationally renowned partner, such as ArcelorMittal or Tata,” he says.
Much farther east, the group’s position in Japan market shrank as anti-trust constraints forced it to divest a large chunk of BOC’s interests. For Belloni, this market “does not have the highest priority at present.” However, in the growing electronics and specialty gases sector, Linde holds a stake in a European joint venture with Taiyo Nippon Sanso (TNSC).
Mandated divestments also chipped off some of Linde’s US profile, but its position there “improved through the BOC takeover.” Moreover, Belloni points out that “we obtained good prices” for the assets sold.
In the US, Linde is concentrating on its tonnage business, where it has a “satisfactory” position. Establishing a major presence in the pipeline networks market there “is not a realistic scenario for us,” he admits.
Not only traditional gases markets are driving the new Linde Group. Even before the merger, its predecessors were jockeying for position in new energy markets.
“The energy sector is very important to us,” Belloni says. “Thanks again to our competence in engineering we are active across the whole range of technologies. We participate in all megatrends – from enhanced oil recovery (EOR) and LNG via gas-to-liquids and coal-to-liquids to hydrogen and photovoltaics.”
He is especially pleased that, “every new engineering project now has an energy or environmental component.”
A major priority for most companies these days is, of course, how to reduce their CO2 footprint. All the major energy suppliers are actively pursuing commercialisation of reduction technologies, and Linde is a partner in many projects.
Carbon capture and storage (CCS) is a “serious business opportunity” for Linde, according to Belloni. At the Schwarze Pumpe complex in the heart of the former East Germany’s lignite belt, engineers are putting the finishing touches on a 30-MW pilot plant with substantially reduced CO2 emissions, thanks to CCS.
Linde supplied the cryogenic air separation and CO2 recovery units for this project based on oxy-fuel technology, and the future holds more promise. Swedish owner Vattenfall plans to build a full-scale 250-600 MW oxy-fuel plant over the next decade.
Linde’s engineering division is also involved in a CO2 sequestration and compression pilot project in eastern Germany for Gaz de France subsidiary EEG (Erdgas Erdöl), and in an EU-sponsored project it is helping Norway’s StatoilHydro find ways to purify, transport and compress CO2 captured from power plant flue gases, for injection into North Sea reservoirs.
At the RWE energy group’s lignite-fired power plant at Niederaussem, Germany, Linde is building a CO2 scrubbing pilot plant to test BASF’s scrubbing solvents.The hope is to make the technology – claimed to remove more than 90% of the CO2 from flue gases – commercially available to Germany’s key lignite plants by 2020. In the UK, the BOC arm is working with a RWE-led consortium to develop a process for applying CCS to a proposed coal-fired power station at Tilbury.
Linde is especially proud of its specialised coal gasification know-how, which Belloni says, “covers the entire value chain, and has a good, above-average market coverage.”
While some have suggested that French rival Air Liquide’s acquisition of German engineering contractor Lurgi could fire up competition for Linde in coal gasification, Belloni takes a different view.
Although Lurgi has an established position in coal gasification, he says Linde is “better positioned downstream,” as it can provide the gas technology needed to produce polycarbonate or isocyanates, which need a purification stage. He hints that “we are in a promising position for another coal gasification project to be signed in China soon.”
The LNG sector offers “especially interesting prospects to supply gas customers far away from large grids,” Belloni says. At Hammerfest, Norway, a Linde-built facility is claimed to be Europe’s first baseload LNG plant and the first worldwide to not only separate CO2 from natural gas but also dehumidify, compress and inject it back into the gas reservoirs.
Also in Norway, the engineering division is building a 300,000 tpy reduced emission natural gas liquefaction plant for Skangass, a Lyse Gass joint venture, which will supply the Scandinavian and Baltic markets from 2010. Subsidiary AGA will take a sixth of the output and market the gas in the region.
Linde is also enthusiastic about hydrogen, particularly technologies for automotive applications. Here, the BOC merger “came at the right time,” Belloni remarks. Among the gas market’s five major players, the two companies were the most advanced in realising a hydrogen energy infrastructure.
BOC added some 100 hydrogen facilities worldwide to the more than 200 Linde had built and equipped before. Quantitatively more important than the automotive application, the group is supplying hydrogen to multinationals that use it to purify and desulphurise crude oil.
Last year, Linde commissioned a 5 tpd hydrogen liquefaction plant, Germany’s second, at the Leuna chemical park. It also is keeping an eye on the biofuels/biomass segment, cooperating with biofuel producer Choren and researching the potential of glycerine for steam reforming. However, Belloni sees a viable commercial market for “green” hydrogen as “some way down the road.”
The photovoltaics market also seems to have a bright future. In Belloni’s view, it will become “a bigger gases customer than the semi-conductor industry” in the near future. Linde supplies the European sector through its joint venture with TNSC, Linde Nippon Sanso.
In the Americas and Asia, BOC boosted Linde’s photovoltaics position, and the traditional German base provides a good platform from which to win European and extra-European business. In 2007, Linde captured an estimated 65% of all new gas supply contracts in the innovative and rapidly expanding thin-film solar market.
Here, Belloni believes the German federal government, often accused of providing insufficient support for new technologies, “got it right.” Germany is now seen internationally as the largest global photovoltaics player.
EOR is another “especially interesting” market for the group, which erected the world’s largest ASU site at Cantarell on the Gulf of Mexico, where nitrogen is used for enhanced oil recovery. “First,” Belloni recalls with a smile, “we sold it to BOC for Pemex, and then we bought BOC. Now it is all part of The Linde Group.”
Dr. Wolfgang Reitzle
Affirming the positive outlook of Dr Belloni,
CEO, Dr. Wolfgang Reitzle, points to the stability of the company’s business model and indicates a bright future ahead.
The new Linde Group has made substantial progress in leveraging the strengths of its two predecessors, Reitzle said in presenting results for 2007 – the first year in which BOC, acquired in September 2006 for €12bn, was fully consolidated.
Speaking at Munich headquarters, he said the group is now the gases market leader in 46 countries and number two in a further ten, global leader in air separation plants and second in hydrogen and synthesis gas plants.
According to Reitzle, Linde achieved all of its objectives in the BOC takeover, and in fact, “significantly exceeded them.” Realisation of the budgeted €250m in annual synergies, planned to become fully effective by 2009, is ahead of schedule, while integration of operations is on target.
Thanks in major part to favourable prices received for assets sold to meet anti-trust regulations, debt has been pared quicker than expected. At the same time, Reitzle remarked that management has learned from mistakes made when buying Sweden’s AGA in 1999. Speedy reduction of debt left finances stretched too thin to fund the desired expansion.
Consolidation in the gases sector is now too advanced to allow major acquisitions, but the CEO said, “We want to assure that we will have the means to continue profitable growth.” Without being specific, he said Linde “will continue to search for further investment opportunities in interesting market segments.”
With the gases market seen as growing at 7% annually, the German-British group intends to grow faster than the market and increase earnings at a faster rate than sales.
Despite possible economic fall-out from the US real estate crisis, Reitzle said that, due to its concentration on gases and engineering, Linde is now “much less dependent on global economic cycles.”
He believes the strong demand for Linde’s products will hold up, especially as the gases sector appears relatively immune to many of the woes dogging financial markets. Currency risks have been fully hedged.
In 2007, the Linde Group increased sales nearly 14% to €12.3bn, and operating profit by 18% to €2.4bn, while achieving a double-digit return of 10.3% on capital employed (ROCE) a year ahead of schedule. The figures have been adjusted to reflect the new corporate structure, with BOC consolidated for a full 12 months and assets divested to meet cartel restrictions excluded.
The gases division saw sales growth of 9.4%, with operating profit – up 13.7% to €2.3bn – again outpacing sales improvement. “We achieved similar profit margins of 20-30% in all regions, which says a great deal about the stability of our business model and our evenly balanced global representation,” Reitzle remarked.
Figures show cylinder gases sales up 12% to nearly €3.7bn and liquefied gases sales up more than 9% to €2.8bn. The on-site business grew by 5% to €2.1bn, medical gases by 11% to €983m. Average margins on gases improved by around 100 basis points to 25.1%.
For 2008, Reitzle forecast further improvement and confirmed the group’s medium-term objective to achieve operating profit of more than €3bn by 2010 and ROCE “of at least 13%.”