North American region, the largest gases market in the world, was impacted last year by hurricanes Katrina and Rita. Despite the negative impact, the outlook for the region remains bright over the next five years as the industry benefi ts from increased homecare services and form higher hydrogen demand.
The traditional industrial gases business in the US is a relatively mature market and has shown signs over the past 10 years of slowing down in terms of growth.
At $16.2bn, the North American gases business accounts for 32 per cent of the global gases business \\$quot;“ approximately equal to that of Western and Eastern
European regions combined. Praxair, Air Products and Airgas (currently ranked 2nd, 4th and 7th of the seven largest gas companies by revenue) are all headquartered in the USA and between them account for 52 per cent of the North American market with Air Liquide, Linde, BOC and Matheson-Trigas accounting for a further 28 per cent. The remaining 20 per cent is supplied by independent \\$quot;˜Tier 2\\$quot; distributors and smaller localised distributors.
Whilst the total gases business is dominated by the major companies the same cannot be said for the packaged gas business worth an estimated $6.5bn in
2005. Whereas for the bulk business the majors have 80 per cent of the market, in packaged gases they only have 60 per cent with Praxair being the largest
with 17 per cent and Airgas with 15 per cent. Unlike the more structured European market, independent companies have approximately 40 per cent of the total US packaged gas business and there are more than 800 companies in this sector, many of whom were established at the end of the second world war by GI\\$quot;s
returning from action.
Certainly packaged gases have seen some major changes over the past three years as a result of consolidation and divestment \\$quot;“ changes which have seen Airgas rise to the 7th largest gas company in the world with revenues of more than $2.6bn from only $3m, 25 years ago. Interestingly, despite being such a huge company Airgas has virtually no air separation capacity and is essentially a \\$quot;˜super distributor\\$quot;.
Divestment has come from both Air Products and BOC selling their entire US based packaged gas businesses in 2002 and 2004 respectively to Airgas \\$quot;“ a move which, alone, added approximately $500m to Airgas\\$quot;s revenues.
Similarly, Air Liquide\\$quot;s acquisition of the Messer Group in 2004 resulted in divestment of parts of Messer\\$quot;s packaged business to management buyout company GTS as well as some plants to Matheson- Trigas making Matheson a stronger force within the industrial gas market instead of a more specialised company and adding GTS to the list of major distributors in the US.
While nothing much changed in the bulk business over the past 10 years there are likely to be some small changes and evolutions in this area in the future. While larger companies focus on improving their efficiencies, improvements in technology mean that air separation units producing liquid are facing competition from gas based plants including air gases and even hydrogen. Medium and large distributors who were previously only present in the packaged gas
business are looking at moving further up the supply chain into smaller bulk as the industry demands it, and eventually this could lead to them into larger volumes.
Over the past five years there has been tremendous M&A activity with smaller distributors being incorporated into the larger ones with, again, Airgas being the most aggressive in its acquisition strategy. It is likely that these consolidations will remain at the same level or possibly even increase as smaller distributors find it more difficult to compete with the likes of Praxair and Airgas. The only possible break may be interest of the US Federal Trade Commission (FTC) in the event that competition is perceived to be affected by further consolidation and, certainly, any more high level consolidation
is likely to be met with opposition.
Naturally, like the rest of the gas world the US is impatiently waiting for the outcome of the protracted takeover of BOC by Linde.
In the US, the combined company would have a total market share of approximately 15 per cent putting it on roughly the same level as Air Products and Air Liquide, which means that major disposal of assets is unlikely. However, there are still anticipated divestments that either company may have to make which would be eagerly snapped up by competitors.
Downturns through nature
Hurricanes Katrina and Rita in 2005 had a substantial impact on the entire industry with many production and customer plants suffering damage including Air
Products\\$quot; liquid hydrogen plant in New Orleans which supplied more than 25 per cent of the total USA liquid hydrogen. Despite having to declare force majeur Air Products managed to maintain admirably high supply levels to its major customers via a combination of increased supply from its Sarnia plant and sourcing from refineries in the South. Nonetheless, revenues were negatively affected by four per cent during this period for Air Products but improved for Praxair and Air Liquide, the only other major players in the hydrogen economy.
In terms of future growth in the North American market, maintaining supply to key hydrogen customers was an important achievement for Air Products since this sector is expected to be a major driver for growth over the coming five years. Specifically, on-site business to refineries is expected to grow substantially
as tighter controls on sulphur emissions lead to increased demand for hydrogen.
In spite of a shift in manufacturing to other countries such as Mexico and the Far East, compound annual growth rate over the entire gases business is forecast
to be six per cent over the next fi ve years. Other growth drivers for North America include continued diversification into the home healthcare market via
acquisition of existing companies supplying that sector and continued expansion into the expanding oil and gas markets in Mexico.
This latter area is of particular interest given the continuing high price of oil. Although CO2 is the traditional product in North America for enhancing oil
recovery there is either insufficient CO2 or it is poorly located to be used in this application. As a result there has been signifi cant demand for nitrogen plants, and BOC, Air Products and Praxair have all been awarded contracts recently in Mexico and Canada in enhanced oil recovery applications.
There is expected to be signifi cant expansion by the major gas companies into all aspects of the homecare market including non packaged gas business such as
respirators. Since much of this sector of the market has previously been out of the scope of traditional supply expect to see major acquisitions over the next
three to five years as the industrial gases industry seeks to position itself in this rapidly expanding market sector.
Generally, the outlook for the industrial gas business remains bright in North America over the next five years with an estimate that total revenues will exceed
$20bn by 2010.
Hurricanes Katrina and Rita
The Gulf Coast\\$quot;s hurricanes Katrina and Rita had a substantial effect on the
entire industrial gases industry in the US last year.
Out of the three major gas companies - Air Liquide, Praxair and Air Products
- in the area, Air Products suffered the most extensive damage including its liquid hydrogen plant in New Orleans. The company\\$quot;s revenues were negatively
affected by four per cent whilst Praxair and Air Liquide\\$quot;s revenues improved.
All the three, who are major players in the hydrogen economy, and the British
BOC made signifi cant amount of donations to the American Red Cross to relief
efforts related to the devastation.