In the presentation that John Raquet, founder and CEO of gasworld, gave at the IG China 2015 Forum last year in Chengdu, China, he estimated that the cylinder gas business accounts for 32% of the total China industrial gas market, comparatively smaller than in other developed gas markets.
Even so, the cylinder business still plays a major role in the China market.
In order to investigate the recent development and the related issues of the cylinder gas business, gasworld Greater China has talked to various different parties in this business, including Jinhong Gas, Beijing Tianhai Industry Corporation (BTIC), and Feng, an independent and experienced person in this area.
Back in the 1990s, when the merchant industrial gas business was still in the starting stage in China, like other gas markets in the early stage, cylinders were the main ways to deliver gases to customers and points of use. In China, due to the history of the market and the operational practice, most of the cylinders were owned by the customers. However, what the customers mostly cared about was the availability of gas for their applications and only the ‘number’ of cylinders they owned as recorded in the books – and were not so mindful about the detailed management of the cylinders.
On the other hand, cylinder filling stations did not have the proper management of cylinders that were not their own property, leading to a free circulation of cylinders. That meant all the cylinders were ‘shared’ among all customers, on a national level. The cylinders used by one company today may be used by another company miles away after refilled, or had even gone a national trip in months. New cylinders invested by one company might soon appear in other companies. This inevitably had become one of the root causes of a complicated ownership issue, and frequent cylinder accidents.
The author has personally worked on and been to many cylinder filling operations and would describe many of the sites visited as ‘way below acceptable standards’ and even horrifying. When the majors started to enter the China market in the 1990s, usually they did not want to get themselves into the cylinder filling business and the operation of general industrial gases unless their joint venture partner already had, or demanded such operations; they would rather have filling operations of specialty gases that allow them to have a better control of the cylinders and the contents.
With a view to alleviating the potential hazards associated with the cylinder gas business, the country reinforced the Cylinder Safety and Supervision Regulations in 2000 and a latest version was promulgated in 2015. The regulations require cylinder filling stations to fill only cylinders that they own and they are not allowed to fill cylinders that they do not possess the respective technical files for. This is set up in the hope to solve the ownership issue so that the filling stations or gas companies will take good care of the cylinders which are their own property, including carrying out regular inspection, maintenance and statutory periodic hydraulic tests.
With the reinforcement of the regulations that suppressed the free circulation in general, the majors have started to look into this business again and penetrate the market with their expertise. Moreover, implementation of the regulations implies that the cylinders that used to be owned by the end-users had to be transferred to the filling stations or simply written off.
However, since most of the cylinders were not really physically kept in the hands of the owners because of the free circulation, the real asset value of the cylinders to be settled between the owners and the filling stations is always a big argument. Further, the filling stations might not have enough capital to acquire so many cylinders from their customers. According to the independent expert Feng, this problem has not been completely solved to date after so many years and many cylinders are still owned by end-users. In addition, the latest version of the regulations only states that ‘Cylinder manufacturers are encouraged to sell the cylinders directly to cylinder filling companies that have the permit to fill cylinders’.
There are some end-users who still have the thinking that they want to have their control and flexibility of gas supply and so, possessing their own cylinders would give them an upper hand. Li Ping, Deputy Secretary of GDIGOA, admits that filling stations are still filling cylinders that they do not possess; he says that it is the responsibility of the filling stations to strictly follow the regulations and register the cylinders in their books. Also, according to Feng, when the economy of China was booming in the last few years, because of the high demand of gas cylinders many new cylinder manufacturers emerged but their product quality was questionable. He has personally visited these new manufacturers and has
found out that they mainly use old production lines and outdated process technology, and spotted many shortcomings in the manufacturing and quality control process.
As explained by Li, there are some clauses in the regulations that are not really helpful or reasonable. For example, the regulations require cylinders to be discarded after a definitive number of service years with no consideration of the frequency of use and not based on the hydraulic test results. This surely is not a scientific approach to determine the operability of the cylinders, especially for expensive specialty gas cylinders. Li further points out that hydraulic testing at present is the only method for requalification of cylinders, but for specialty gas cylinders this would be inconvenient as a lot of treatment will be required to restore the conditions suitable for containment of these products. He suggests the authorities put forward and allow more standards for testing of cylinders, such as ultrasonic inspection.
Moving from regulatory issues to operational and management problems, JIN Shanghua, the Managing Director of Suzhou Jinhong Gas, says the main problem with the development of the cylinder gas business that he sees is the difference in the level of management.
“China is such a big country that the level of management varies from region to region. Often there is a big gap between their practice and the national standard. This will lead to some hidden safety issues. Also the industry is so fragmented, there are thousands of filling stations, including some stations without permits or license.”
JIN reckons that since the economic growth in China has slowed, the revenues of the cylinder gas business has slipped and people in the business are struggling and do not want to invest in improving or standardising the management, not to mention safety measures. The gas companies are cutting costs – or even cutting corners – to keep their businesses running, he says. He believes that this situation is bringing hidden dangers to the gas industry and sees no positive trend in the development at the moment; he thinks this could only last for a few years.
JIN further told gasworld Greater China that the authorities have been raising the safety standards and environmental requirements to try to improve the situation, which is good for the industry on one hand. However, on the other hand, this has made it very difficult now to apply for new and high end projects as the authorities will not necessarily approve them to avoid risks.
Raquet also remarked in his presentation at IG China that the package gas business in China is fragmented and a restructuring is key to the profitability in China. JIN shares this opinion and points out that in order for the package gas industry to move forward in the right direction, it would require a company – or companies – to acquire the filling stations, consolidate them, and raise the overall technical and safety standards afterwards.
”Medical gases could be a sector that will see more development. For example, integrated valves for medical oxygen cylinders that have already been widely accepted in other developed gas markets are seeking their way into the China market…”
With these issues of the cylinder business and the slowdown of China’s economic development in the last few years, and perhaps in the coming years too, will the country’s cylinder gas business continue to develop?
We have noticed that the operating pressures of the gas cylinders in other developed gas markets have been increased to improve the efficiency of delivery, and as the operating costs in China are also increasing, gas companies also would like to see the operational pressure of their cylinders increase from the current 150 bar to, say, 200 bar. Li Ping of GDIGOA also shares this idea.
BTIC, the largest gas cylinder manufacturer in China, echoes that there is a general request to upgrade the cylinder pressure and, in fact, has also made proposals to the authorities to this effect. However, the authorities still have many safety concerns, from manufacturing to operational safety, and even economic considerations. In the opinion of the author, the Chinese cylinder gas business could make use of an upgrade to revolutionise the entire market operation and improve the overall safety.
With dewars and microbulk replacing more and more of the cylinder supply in the industrial gas market, the efficiency and of the entire cylinder gas operation have to be improved to stay competitive. There are many issues – technical, commercial and regulatory – to solve to remarkably improve the operation and to lift the packaged gases business to a new level. So what about the development of other aspects of the packaged gases business? What developments could we see in the near future?
Medical gases could be a sector that will see more development. For example, integrated valves for medical oxygen cylinders that have already been widely accepted in other developed gas markets are seeking their way into the China market. Several valve manufacturers are already promoting their version of the integrated valves and getting satisfactory results. And the homecare business using cylinders has literally not started in China; if this takes off in the near future, this would present a great opportunity to the medical gases business.
Electronic cylinder management systems could be another area that will contribute to the development of the packaged gases business. As the author understands, not all of the gas companies with filling stations have bar code or RFID type electronic cylinder management systems. Only major gas companies will use such systems to help with their management of their asset and operation. Many systems have already been developed in China, but none has become a dominant one. Therefore, there are still plenty of business opportunities in this area. Li of GDIGOA comments that harmonization and interconnection of these different systems would be necessary in the future – he suggests government issues guidelines in this area.
Liu Weiwei, Managing Director of Excellent Gas Network, believes electronic cylinder management systems will be just one part of the application of the internet in the entire gases business, following the ‘Internet+’ concept that is quickly spreading out to all industries in China.