For centuries, hydrogen has been widely used in major industries, but in recent years the gas has been catapulted into the spotlight as the fuel of the future, and is giving our industry a much cleaner image.
As an industrial gas, hydrogen has many applications across a range of processes. It plays a key role in oil refining, chemicals production, semiconductor manufacturing and metal processing, to name just a few.
As a fuel, the gas is becoming increasingly popular, and the industrial gas majors are heavily investing in extensive research, in order to make it more readily available on a commercial basis, to power cars and houses for example.
The H2 market
Since most hydrogen is derived from natural gas, the pricing of the two is very closely linked.
When natural gas prices are high, the price of hydrogen is also higher. This does not mean however that the industrial gas company is making any more profit, in fact as a proportion of the total hydrogen price, the company is actually generating lower profit margins, because the total amount of profit remains the same per tonne of hydrogen, regardless of whether the price of natural gas is high or low.
When the natural gas price is low, the profit portion of the hydrogen price makes up a bigger proportion of the price, and margins are improved.
Going into recession, natural gas prices have been lower, which has artificially inflated profit margins.
For example, in the third quarter of 2009, Air Products EBIT margin, at 17.6%, was up 200 basis points on the same quarter of 2008. However, the natural gas pass-through impact benefited EBIT margin to the tune of 240 basis points, meaning underlying profit wasn’t up at all.
Despite the pressures of the financial crisis, the hydrogen market has remained resilient. The Linde Group told gasworld that in terms of availability, the majority of the tonnage supply agreements, and on a broader basis the supply demand balances, have not been impacted significantly.
Demand for the gas is primarily driven by two factors, firstly, as high quality ‘sweet’ grades of crude oil are becoming more and more scarce, there has been high demand for refinery hydrogen. The hydrogen is used to remove and process the large amounts of hydrogen sulphide that are associated with the lower grades of crude coming out of the ground these days.
Secondly, refineries have been under pressure to produce lower sulphur-containing fuels – production of which requires large amounts of hydrogen. With the aid of hydrogen, more advanced versions of existing hydrocarbon fuels, like petrol, diesel and suchlike, can be produced, which are much better for the environment.
From an environmental point of view, such fuels are widely recognised to result in lower and less harmful emissions, as well as often imposing less wear and tear on engine and mechanical components, which is particularly important for a lot of new engine technologies that have come on-stream during the last decade.
According to Linde, increased hydrogen consumption in the chemical, metal and electronics industries is also a key driver for continuous growth in the hydrogen market, as well as increased outsourcing of hydrogen demand from the captive to on-site merchant market.
On a regional basis, Linde believes the fastest growing regions for hydrogen are expected to be in Asia, the Middle East, and South America, followed by select markets in North America and Europe.
The company claims that for tonnage hydrogen sales, the biggest opportunities are related to the implementation of global clean fuel programmes, as well as refinery and chemicals plant capacity expansions.