One of the big topics of the last year for the global industrial gases business has been the future-proofing of the industry, as it simultaneously comes up against and leverages the opportunities of various external trends.
With the dawn of a new year and a new 12 months in prospect, here we look at five things to watch out for in 2020.
1. Economic climate
Let’s get the obvious one out of the way immediately – those macroeconomic headwinds that we so often hear about.
The picture moving into 2020 is an interesting, if not complex, one indeed. We are all no doubt aware of at least one or more geopolitical factors creating hesitancy in the global markets, whether it is escalating tensions in the Middle East region, the ongoing machinations of ‘Brexit’ in Europe or the delicate balancing act of relations between the US and China. The list of possible headwinds continues to grow.
These headwinds have noticeably crept back into recent financial disclosures, largely as a precautionary note and certainly inescapably, but it’s worth noting that the economic picture will be something to keep tabs on in the year ahead.
2. Trade tariffs
At the heart of economic uncertainty in the last year or more has been the implementation of trade tariffs between nations, a situation that has steadily accelerated.
Fears appeared to linger in the US for much of last year that US tariffs on steel and aluminium imports would contribute to an economic downturn of some degree. Whilst that has perhaps been avoided, there is also a feeling that the full effects of these trade tariffs are yet to be seen.
The US tariffs against China were authorised under Section 301 of the Trade Act of 1974 and foreign steel had been subject to 25% tariffs in the US since March, leading to higher profits for domestic steel producing companies who in turn raised their prices by as much, or more, and thereby drove up costs for US manufacturers. End-users have also felt the effect of trade wars as a result, with higher tariffs on imports creating price rises for goods like gas cylinders, bulk tanks, tube trailers and valves as manufacturers as they deal with the higher cost of raw materials.
Manufacturers of steel gas tanks, tube trailers, cylinders and equipment have been watching the situation closely and with no sign of any easing in geopolitical tensions and, therefore, trade tariffs, we can expect this concern to rumble on into 2020.
The increasing digitisation of the industrial gases business, from fully automated cylinder filling plants to asset tracking and telemonitoring and greater collection and analysis of data, has been one of the stories of recent years for the industry.
And yet, it is fair to say that the industry has still only experienced the first baby steps of digitisation, with much more still to come – beginning in earnest in 2020. We will see more progression in e-commerce platforms, more and better connected assets, more discussion around augmented reality (VR) technologies in the industry and artificial intelligence (AI).
gasworld Advisory Board Member Ravin Mirchandani (Mack Valves) agreed in a recent column for the 2019/20 gasworld Yearbook, in which he wrote, “In 2020 AI will start to accumulate the data needed for digitisation to truly start making a difference.”
Digitisation will mean disconnected assets such as valves, meters, tanks will also start to become additional data points. Engines driving customer portals will slowly learn how to prognose demand, and not only help customers order easier with one click, but will also start to allow manufacturing locations to forecast demand well in advance, optimising stock levels and costs.”
“We will start to see real efficiencies emerge right across the value chain,” he added. “2020 will be the start of the era of ‘AI as a service’ to customers.”
This will not only be an important trend to watch out for and partake in as 2020 unfolds, it could also help to offset the negative effects of any aforementioned economic setbacks that could occur in the future. Against a backdrop of growing cost and margin pressures for the industry, there are the productivity levers that digitisation brings to be leveraged.
This was a point made by Linde plc Executive Board Member Sanjiv Lamba, during his keynote talk at gasworld’s Future-Proofing Industrial Gases Summit in Singapore last June (2019). Describing how technology is forcing the pace of change in the gases industry, he commented, “What is the currency in our world today? The one currency that is certain the world over today is uncertainty. That uncertainty has a lot of implications, and for our industry too.”
“The one immediate reaction to that from most industries, including our customers, is that investment decisions get put on hold. That is critical for us, because we are seeing investment cycles put on hold… and I know this uncertainty is impacting all of our decisions going forward.”
“Technology is forcing the pace of change,” he said. “We are of course advanced, but we can often be followers rather than leading, and we are being forced by technology to move forward and embrace digitalisation.”
“It’s about the importance of the customer experience. It’s about product lifecycles being shorter and shorter. It’s about intelligent supply chains and a move to mass customisation. It’s about a sharing economy shaping consumption. All of this currently is part of what we do, every day, but we recognise as an industry we have a long way to go and as market leaders we have a responsibility to keep moving forward and harness the change that is all around us.” Harnessing this change could be a key theme of 2020.
4. Clean energies
The realm of clean energies needs no introduction for the industrial gases community, such will be its prominent role in the energy transition, but it will certainly be an increasingly hot topic for the industry in the year ahead.
LNG will continue to grow in significance from this month onwards (January 2020), as IMO 2020 takes effect and the maritime industry implements a new sulfur cap on its fuels. Under the new global cap, in force from 1st January 2020 by the International Maritime Organisation (IMO), ships will have to use marine fuels with a sulfur content of no more than 0.50% against the current limit of 3.50%, in an effort to reduce the amount of sulfur oxide. The Emission Control Areas (ECAs) will remain at the 2015 standard of 0.1%S content.
So 2020 will be an important year for LNG, with the fuel regarded as key to compliance with these new regulations.
It will also be another pivotal year ahead for hydrogen. Last year was something of a breakout year for hydrogen energy, with recognition of its role in the energy transition only expanding and developments in technology, commercialisation and infrastructure build only accelerating.
The industrial gas and equipment business has an invaluable role to play in the hydrogen energy sector, in fact one might even describe it as being fundamental to its successful development, such is the industry’s knowledge and expertise of the molecule, its storage, handling and application.
This is a point not lost on William J. Kroll, industry stalwart and gasworld Editorial Advisory Board member, who recently mused, “The use of hydrogen in all forms of vehicle fuelling is one of the bigger bright spots I’ve seen in my tenure with the industrial gases business industry.”
With all of this in mind, hydrogen and the clean energies transition will undoubtedly be one of the hottest topics for the gases industry in the year(s) ahead.
5. Supply chains
Finally, it’s worth noting that the same complex and constrained industrial gas supply chains will no doubt continue to be areas to keep a close watching brief on – with argon, helium and CO2 in particular focus.
Concern is known to be building in the US where argon capacity is concerned, where a relatively tight balancing act is often the status quo as new nameplate capacity struggles to keep pace with demand growth. When it comes to carbon dioxide (CO2), clearly this is a high-profile supply chain challenge for the industry globally, but particularly so in regions such as Europe and the Americas. The great CO2 shortages of 2018 in Europe and Mexico really brought the fragilities of those supply chains into focus, while there is known to be a delicate balancing act in progress in the US market too.
As for helium, this supply chain needs no introduction for gasworld readers. From shortage to surplus, shortage to balance and in more recent times shortage again, the global helium markets continue to fluctuate at the hands of planned and unplanned downtime for key feedgas plants and, increasingly, geopolitical factors as well. The general consensus is that we will see the first signs of Helium Shortage 3.0 coming to an end throughout 2020, with a real easing of the market in 2021 when expected new sources come into play for the market. But as always with helium, and as known by all those in the helium business, this is most definitely a market to keep a close track of.
Ultimately, if 2018 was a year of delivery, and 2019 has been a year of transformation in the competitive structure of the industrial gases market, then one might expect 2020 to be a year of realisation for our industry – realisation of global economic positions, of the new structure of the industry, and of the many growth opportunities. The foundations are in place for an exciting 12 months in prospect, and all of the above watching briefs will provide challenges and opportunities in equal measure.