When hurricane Katrina ploughed into New Orleans, one of the casualties was the major liquid hydrogen plant belonging to Air Products. By coincidence, another Air Products liquid hydrogen plant was shut down due to feedstock supplier problems and the United States was suddenly short of more than 50% of its liquid hydrogen supply.
Most people this would probably assume that the only consequences would be another curtailment of NASA’s activities, that Air Products would have a short-term reduction in revenues and otherwise life would go on. In fact, the repercussions of this loss were much more severe.
Liquid hydrogen in the United States is the backbone of the distribution system that serves small volume, but generally high value-added customers. These customers include the electronics, glass, food, metal finishing and speciality chemicals sectors. Usually hydrogen is delivered to them either as liquid, which is pumped and vaporised to give the required gas flow and pressure or by tube-trailer often from a liquid-based filling system.
To make matters worse there was effectively no spare capacity at any of the major industrial gas companies and many customers were forced to operate at reduced capacity or shut down their operations.
The economic consequences are thus severe and will continue until capacity is reinstated in early 2006. Yet in terms of volumes, merchant hydrogen – liquid or tube trailer – represents less than 10% of the total hydrogen sold by the industrial gas companies HyCO businesses. Hydrogen is produced on a world-wide basis as shown in the table.
Most of the hydrogen is produced in a mixture with other gases as a feedstock for the production of bulk chemicals such as Ammonia and Methanol, but a significant amount, around 200 billion Nm3 per year, is produced “on-purpose” for use as hydrogen. The industrial gas companies markets are predominantly hydrogen for use in refineries followed by mixtures of hydrogen and carbon monoxide, “syngas”, for the synthesis of high valued-added chemicals. This market is currently worth around US$4 billion and is predominantly in the United States and Europe. The top five industrial gas companies have more than 90% of this market and Air Products is the market leader. It is the fastest growing sector of the industrial gases market, with long-term underlying growth of more than 10%
Hydrogen is generally used for its strong ability to cause chemical reduction, that is it can prevent “oxidation” by bonding with the potential oxidants, in applications such as electronics and metallurgy and glass. It is also used to “saturate” hydrocarbons, that is add additional hydrogen atoms to carbon compounds, to produce desired properties, such as turning oil into fat or to hydrogenate fine chemicals and drug precursors. The low density of hydrogen often means that when it bonds with other atoms that are solids, they become gases and can be treated more easily than their solid parent. This is clearly seen in the case of carbon (a solid) and methane (CH4) a gas, although the most common process for making hydrogen starts with methane, but the real driver for growth is hydrogen’s ability to bond with sulphur (notionally a solid) to produce H2S (a gas). This is the basis of the use of hydrogen to remove sulphur from crude oil products such as diesel and gasoline to meet environmental legislation. It is this legislation, starting in the United States in the 1980’s that provided the opportunity for industrial gas companies to sell large onsite volumes of hydrogen to Refiners “over the fence”.
The process started with Air Product’s plants for Tosco, 1993, and Shell, 1995, in Martinez, California. Until this time refiners had nearly always owned their own hydrogen plants, but the pressure on their capital for a variety of environmental regulations and the general perception of low margins in “downstream” offered a window of opportunity. It also generated a long-term technical alliance between Air Products and Technip (then KTI), which continues to operate with great success. With the exception of Linde AG of Germany, no industrial gas company had their own “hot” technology, although most had separation technology and a secure development relationship was essential. The other main players in the business soon followed Air Products’ lead in pursuing this new market and many set up alliances - Air Liquide partnering with Haldor-Topsøe, BOC with Foster-Wheeler (now with Linde) – Praxair alone choosing to play the field.
The outcome of this has been that in the last ten years 60% of new refinery hydrogen projects have gone the onsite route.
The bar chart shows the progression of onsite capacity over the last ten years, tagged with the main driving legislation, and the projection for 2010 based on current projections of the legislation on the composition of refinery products. In addition the countries in the Asia-Pacific region have similar legislative programs, but these are running approximately ten years behind the European program.
Apart from the good growth rate of the hydrogen business, the improved sales to asset ratio, compared to air gases, superficially adds more revenues. There is both an upside and a downside to this. Most onsite contracts pass through changes in natural gas cost and this can lead to related increases or decreases in revenues. Even though absolute profits, measured by EBIT, may stay constant, the margin relative to revenues fluctuates.
The effects can be quite significant as shown in the graph. A natural gas price variation of US$2 per MMbtu, which is not uncommon, can lead to a difference in revenues of US$ 30 million on a facility supplying 100000 Nm3. A major company, with ten times this installed capacity might thus see revenue variations of US$ 300 million from year to year. Gas Companies now report such variations to clarify their underlying performance.
So what of the “hydrogen economy”? The main impact on gas revenues so far is limited to a number of trials and government sponsored research programs. Even the most optimistic deployment scenario does not add significant volumes in the medium term, but it may change the way that hydrogen is supplied to industrial users.
Most hydrogen economy activity is focused on transport systems or isolated small stationary power generation. A few hydrogen powered buses and some prototype cars get a lot of publicity but do not represent major market penetration. Who would by a hydrogen powered car when there are no filling stations and who would build a filling station when there are no customers?
However, significant progress has been made on the development of compact plants for the production of hydrogen from light hydrocarbon fuels for stand-alone use at filling stations. The spin-off is that plants are becoming commercially available in the 50 Nm3/h range that are more than competitive with liquid or tube-trailer delivered hydrogen, for small industrial users.
Companies such as HyRadix are set to benefit from the “ill-wind” of Katrina and we may soon see the move to small onsites in the hydrogen business that occurred when PSA technology provided a realistic alternative to liquid nitrogen in many applications. This in turn may provide a genuine basis for a low-cost distribution system for supplying hydrogen to fuel cell powered vehicles and really speed the development of the hydrogen economy.