Oxygen is the second most widely used industrial gas, after nitrogen. It is commonly accepted to have been discovered by Joseph Priestley in 1774. It constitutes 21 percent of the Earth's atmosphere and over the past 100 years has grown to be consumed by a wide range of industries, including steel and non-ferrous metals, chemicals, petrochemicals, glass, ceramics, paper and healthcare.
The global oxygen market has maintained a steady 5-6 percent growth over the last ten years. Worldwide oxygen capacity rose from 0.75 to 1.2 million tpd from 1996 to 2006. The focus of this growth has, however, shifted, with marginal growth in some developed countries balanced by massive growth in developing economies. The oxygen supply in Western Europe, for example, has grown by 46 percent over the last ten years, but grew by less than 1 percent from 2005 to 2006.
Meanwhile, the North Pacific Rim is experiencing significant growth, with a capacity increase of 16 percent over the last year.
This demand for oxygen in such places as China is confirmed by the recent trend towards gas companies establishing ASU production facilities in the country together with the high output of plants and equipment by local manufacturers.
We believe it is important to cover two of the major consuming sectors and look at what trends are taking place that will impact on oxygen demand in the near future. We also address the swing towards huge
oxygen demand from the gas-to-liquids sector.
The steel industry
The largest end-user industry using oxygen is the $1 trillion global steel industry, which consumes 48 percent of global oxygen output - approximately 580,000 tpd. Of this usage, 60 percent is captive, that is produced and consumed solely by the end-user. The majority is provided by the industrial gas companies themselves under long-term (usually 15 year) supply contracts. With such high usage, steel demand is clearly the primary driver for oxygen market growth.
In steel production, oxygen is used to enrich air, increasing combustion temperatures in blast and open-hearth furnaces, and to replace coke with other combustible materials. However, technologies have changed over the years and the Electric Arc Furnace and mini-mills are gaining increasing popularity as a production method. At the real tonnage end of production, direct coal injection, direct reduction furnaces and other technologies are being used to improve efficiency and scale.
Common to all technologies is the fact that the consumption of oxygen per ton of crude steel produced has continued to rise. In the 1970s it was common to see oxygen demand running at 15 cubic metres per ton of steel produced. This rose on average to 25 m3/ton in the 1980s, and then further to 35m3/ton in the 1990s. Some technologies now being introduced across the world require in excess of 100 m3/ton produced.
In China, the industry is trying to modernise its steel production facilities in order to improve both efficiency and quality. Eastern Europe or, more appropriately, the former Soviet Union, is also an interesting market as there is a large amount of oxygen capacity linked to steel production but this has been under utilised since the break-up until recently. 98 percent of the installed capacity is captive but it appears that the trend is moving towards outsourcing to the gas companies - see recent Linde, Air Liquide and Cryogenmash
With the current rise in steel demand driven by construction and infrastructure projects around there will be a continuing trend towards higher oxygen demand from the steel sector for the next 5 years at least.
The second largest end-user industry for oxygen is the chemicals industry, which includes refined products, petrochemicals, agrochemicals, pharmaceuticals, polymers, pigments and oleochemicals. The industry 19 per cent of the worldwide oxygen demand. 40 percent of this is through on-site supply schemes. It manufactures a diverse range of materials and products. The largest sector by turnover is the pharmaceuticals industry, followed by three main groups: chemicals, specialist and products.
But how is the chemical industry performing? On a global level the industry is about a US$2 trillion-dollar business that has been enjoying an upward growth trend at about 3-4 percent annually, since 1994. Mature markets such as Europe, US and Japan remain the largest markets with Europe boasting $628 billion annual sales followed closely by the US with annual sales of $506 billion, Japan $225 billion and China $184 billion.
However, it is clear that the strongest growth in production capacity (which will impact on oxygen demand) derives once again from emerging regions such as Asia Pacific and Latin America where multinational companies are building production facilities in order to meet increased demand. China in particular is a good example of above average annual growth rates of up to 14 per cent due to economic growth and GDP, compared to Europe which is ticking along at three per cent per year growth.
Despite the overall positive upward trend, the European Chemical Industry Council is worried over the future of European global competitiveness. This concern is caused by high growth demand in Asia, increasing imports into Europe from Asia and Middle East, delocalisation of customer industries, high production cost and an increasingly regulated environment.
According to the Council, China is taking an increasing share of global chemicals production. A spokesman stated: $quot;The region's rate of industrial production exceeds that of the rest of the world. In addition, given its focus on agriculture, manufacturing and durable goods, there is a higher demand for chemicals than in developed economies. A third factor is the dynamism in the emerging countries of industries such as electronics/electrical, textiles, construction, leather, and plastics processing. These sectors are very important end-users of chemicals.$quot;
According to the spokesman, the mature markets are concerned that manufacturers are moving to other regions of the world, such as the Middle East, which offers producers both large-scale and low-cost production due to easy access to raw materials and cheaper labour. Producers also want to get closer to their customer base and the Middle East offers all the advantages to fulfil these requirements.
As a consequence, Europe's exports have dried up and it has become a major importer of chemicals over the past two decades. This has lead to major mergers among the European players to maintain competitiveness and a global presence. The situation hasn't been helped either by the high energy prices in Europe or sudden high gas prices in the States.
Just five years ago, the chemical industry in Europe thought they would stay in business by becoming a specialised chemical producer rather than remain a commodity supplier. The Council, however, think the chemicals industry has turned a full circle. Special chemicals can be produced and supplied cheaply from India and China, and fine chemical manufacturers have realised that price is not everything. They have started to value other things like quality and environmental issues. Their challenge is now to create tighter relationships with their customers, generating loyalty and uneasiness to change suppliers.
What future does this have for oxygen demand for chemicals
Commodity chemicals needed for consumer materials will be produced where the cost base is low - hence the huge project activity in the Middle East. Ethylene crackers in excess of 1 million tons are being built, together with the associated downstream derivatives, some of which will need oxygen in their processes, for example EDC/VCM and ethylene glycol. Just look at the increase in oxygen capacity that has occurred over the past decade in Saudi Arabia alone - over 8,000 tpd of oxygen is consumed in the petrochemicals sector.
Oxygen demand is growing even faster than that as the abundance of low cost natural gas and ethane is leading to other major petrochemical production investments - such as methanol. Mega-methanol technology can follow one of two routes - one is oxygen intensive and we have seen some major plants installed in Iran in the past 5-6 years with associated large oxygen capacity.
It will be interesting to see the development of chemicals production elsewhere around the world. For example Russia has huge natural gas reserves but much of the gas fields are land-locked and far from the demand centres such as China, Europe and the US. Development of these reserves to chemicals output will occur but at a slower rate than the Middle East - with one possible exception in Sakhalin Island.
Gas to Liquids (GTL)
GTL offers potentially huge demand for oxygen in coming years, but will the industrial gas companies really benefit? It is important to understand what is happening and the drivers behind this increase in project activity.
The Fischer Tropsch process is not new, but this application is. The largest oxygen consuming site in the world is that at Sasol's coal to liquid facility in Secunda in South Africa. Sasol operates over 35,000 tpd of oxygen capacity to gasify coal and react out the constituents to make clean transport fuels. It has adopted this technology and process to apply it to natural gas; methane is gasified into its raw chemical components, which are then reacted back into transport fuels.
Sasol is completing its first GTL project in Qatar, a country with a huge natural gas reserve in the Arabian Gulf - the Oryx GTL project, built in conjunction with Qatar Gas. It will consume about 7,000 tpd of oxygen when commissioned.
This is the start of a potential demand within Qatar that could rise to over 100,000 tpd of oxygen by 2015. Shell and Qatar Gas have already committed to building a larger GTL refinery, which will have 27,000 tpd of oxygen capacity associated with it. We are aware of other projects of similar size being considered. The goal is clean transport fuels for the European market. In addition, the Qatar Government is trying to realise greater value from its natural resources.
At present all the major GTL projects have been $quot;sale of plant$quot;. Air Products and Linde have shared success among the ASU manufacturers. No GTL projects to date have on-site supply schemes. What is certain is that oxygen demand is going to rise
substantially over the next decade.
gasworld will be developing further articles on gas products. For oxygen, we intend to cover coal
gasification as another potential opportunity for increasing oxygen demand and growing the industrial gas business.