Industrial Gases

SIC 2813

Companies in this industry

Industry report:

This industry classification contains establishments primarily involved in manufacturing industrial gases (organic as well as inorganic) that may be sold in compressed, liquid, or solid form. Industrial gases include acetylene, argon, carbon dioxide, helium, hydrogen, neon, nitrogen, nitrous oxide, and oxygen. Fluorocarbon gases are covered under SIC 2869: Industrial Organic Chemicals, Not Elsewhere Classified. Industrial gas distributors, including liquid oxygen shippers, are classified in SIC 5169: Chemicals and Allied Products, Not Elsewhere Classified.

Industry Snapshot

In the United States, industrial gases touch virtually every facet of life. The three major atmospheric gases, which are oxygen, nitrogen, and argon, are used in steel production. Oxygen enhances kiln firing to reduce brick-making costs. Liquid oxygen and liquid hydrogen fuel rockets. Nitrogen is used in brewing beer, recycling tires, and applying metallic finishes on toys. Ammonia is synthesized from nitrogen for use in fertilizers, nitric acid, hydrazine, amines, and urea. It is also important in the production of nitrous oxide (also known as laughing gas) that is used as an anesthetic in some types of surgery. Liquid nitrogen and liquid carbon dioxide are used to make plastic fittings for moldings, enhance oil recovery from wells, and enable solvent recycling. Argon contributes to stainless steel manufacturing and serves as a component in fluorescent lighting.

According to the U.S. Census Bureau, the industrial gases industry shipped products valued at nearly $9.5 billion in 2007, as compared to $7.3 billion in 2005 and $5.4 billion in 2000. Growth was expected to continue for manufacturers worldwide, as new global markets open and certain market sectors, especially petroleum, healthcare, and electronics, drive demand.

Organization and Structure

Production Methods
The industrial gas industry differs from many other types of manufacturing because its raw materials are primarily extracted from the atmosphere. The two principal gases produced by the industry are nitrogen and oxygen. Dry air is composed of 78.1 percent nitrogen, 20.9 percent oxygen, and just under 1 percent argon. All other atmospheric gases, often called rare gases, make up the remaining 0.1 percent. Additional industrial gases such as hydrogen, acetylene, and carbon dioxide are obtained as co-products or by-products of other operations. Production costs within the industry are divided among labor, energy, and distribution.

The industry uses three different techniques to separate gases from the atmosphere. Cryogenic methods are the oldest and most widely used. Cryogenic separation relies on cooling and pressurizing the air until it becomes liquid. Oxygen, when held at a pressure of 80 pounds per square inch, liquefies at minus 274 degrees Fahrenheit, while nitrogen liquefies at a colder temperature. As the atmospheric gases liquefy, they are extracted by means of a distillation process. Additional distillation steps are necessary to produce argon and other rare gases such as krypton and xenon. Helium liquefies only at temperatures approaching absolute zero. As a result, cryogenic production is not economically feasible for helium. Most commercially available helium is derived from natural gas rather than from the atmosphere.

Two noncryogenic gas production methods are membrane separation and pressure swing absorption (PSA). Membrane separation uses hollow fibers, most frequently made of organic polymers, to recover gases such as hydrogen from oil refineries or carbon dioxide from natural gas supplies. Pressure swing absorption (PSA) relies on a molecular sieve material that selectively absorbs atmospheric components at specific temperatures and pressures.

Market Segments
The industrial gas industry is divided into two major segments. The first, called the "tonnage" or "supply scheme" market, is composed of large-volume users who usually receive gas via a direct pipeline from an on-site production facility. Under typical on-site contracts, a gas supplier constructs a production plant at or adjacent to a gas user's facility. The gas supplier owns and operates the plant for the benefit of the gas customer. Long-term contracts dictate that the customer take a specified volume of gas, often the entire amount produced. Many contracts contain adjustment clauses to account for increasing energy prices, variances in productivity, or changes in labor costs. Within this market segment, gas sold is measured in terms of tons per day. Examples of customers who routinely purchase industrial gases on the tonnage market include chemical, petroleum, electronics, and steel manufacturers.

The other major market segment is known as the "merchant" or "bulk liquid" market. Customers within this market generally have fluctuating demand rates or operate multiple facilities in scattered locations. They often purchase gas products under short-term contracts of less than five years in duration. Suppliers deliver liquid gas in cryogenic tanker trucks or by rail. Gases are shipped and stored in liquid form because of volume constraints. For example, liquid oxygen takes up less than 1 percent of the space required to contain the same amount in a gaseous state. Examples of customers in this category include the metal, food processing, electronics, chemical, aerospace, plastics, medical, glass, and paper industries.

A third but much smaller market segment consists of cylinder gas deliveries. Cylinder gas shipments are generally limited to expensive specialty gases and mixtures. A typical tanker truck carries the equivalent of 1,600 large cylinders. A train of ten cars carries the equivalent of 57,000 cylinders.

Background and Development

The gases that make up the multibillion-dollar industrial gas industry were discovered by various researchers living in several different countries beginning in the second half of the eighteenth century. Nitrogen was isolated in 1772 by Daniel Rutherford (1749--1819), a British physician. In 1776, it was identified as an elemental gas by the great French chemist Antoine-Laurent Lavoisier (1743--1794). Oxygen was discovered by two chemists working independently in Europe around 1776. English scientist Joseph Priestley (1733--1804) and Swedish chemist Carl Wilhelm Scheele (1742--1786) share credit for the discovery. During the late 1800s, oxygen was used for medical purposes and put to commercial use in welding. Oxygen was also used to generate limelight for theaters and music halls.

Acetylene was discovered in 1863 and first produced commercially in 1892. In 1897, French researcher Georges Claude (1870--1960) discovered a method of dissolving acetylene in acetone at low pressures. Claude's process enabled the development of methods that allowed the movement of the gas via transportation cylinders. The first acetylene-burning torches were developed around 1900.

In 1877, two Swiss researchers, Louis-Paul Cailletet (1832--1913) in France and Raoul Pierre-Pictet (1846--1929) generated similar processes for the fractional distillation of liquid air. This procedure made it possible to produce large volumes of oxygen economically. In 1903 the Linde Air Products Company constructed the first commercial oxygen plant in the United States.

Events of the early twentieth century demanded increasing amounts of industrial gases. World War I required large amounts of oxygen and acetylene for welding. During World War II pilots of high-altitude aircraft needed oxygen for their flights. Following the wars, researchers used inert gases such as argon and helium in electric arc welding.

Growing industrialization in the Western world brought rapid expansion to the gas industry. Oxygen demand continued to increase through the 1950s as steel manufacturers turned to the gas to improve production methods. Maturing uses for nitrogen, previously considered a waste material, developed during the 1960s, along with advances in the uses of helium and argon. The 1970s brought large-scale expansion in the nation's capacity to produce industrial gases. The decade also experienced growth in the use of specialty gases by the electronics industry. By the mid-1980s, the electronics industry used an estimated 15 percent of the nation's nitrogen output.

Although demand for nitrogen in 1960 was practically nonexistent, by the early 1990s nitrogen sales surpassed the sales of all other industrial gases. Nitrogen and oxygen sales accounted for approximately 41 percent of the industry's sales in the late 1990s. Carbon dioxide and acetylene ranked third and fourth.

Because nitrogen does not readily react with other materials, several industries use it as a "blanketing agent," which is a compound able to prevent unwanted reactions. For example, when nitrogen is used as a blanketing agent with embers, it prevents them from igniting. Nitrogen is therefore used to ensure product quality and improve plant safety. Oil producers use nitrogen to stimulate and pressurize wells. The gas is also valuable in steel processing, food production, cooling, refrigeration and freezing systems, solvent recovery, chemical and glass production, and in the electronics and aerospace industries.

Measured in terms of sales volume, the second most significant industrial gas in the late 1990s was oxygen, which is used to intensify or control combustion in a variety of industries. Its other uses include speeding fermentation, providing life support, and controlling odors. Chemical manufacturers, brick makers, and metal fabricators all rely on oxygen. Innovative uses include processes aimed at restoring or maintaining environmental integrity. Oxygen is used in hazardous waste cleanup, wastewater treatment facilities, and coal gasification systems (a process designed to reduce the hazardous emissions associated with burning coal). One of the fastest growing areas of oxygen use in the late 1990s, however, was as a replacement for chlorine in bleaching, especially by pulp and paper manufacturers, because the oxygen process pollutes less.

Demand for specialty gases such as krypton, xenon, and neon was also growing. Low-power lamps rely on krypton, high-intensity filament lamps and CAT scanners depend on xenon, and neon is necessary for lasers, display lighting, and bar-code scanners. All three rare gases were used for radial keratotomy, a form of laser surgery for eyes.

The industrial gas industry was affected by Hurricanes Katrina and Rita in 2005. Air Products & Chemicals, which produced about 70 percent of the hydrogen used in the United States, reported damage to its New Orleans plant, where 70 percent of the company's production took place, and Praxair's sales were reduced by $22 million, according to an article in Chemical Market Reporter. Despite the effects of the hurricanes, the major industrial gas companies continued to post increased sales and profits.

Because distribution of industrial gases is difficult, and therefore expensive, manufacturers often enter new markets by purchasing strategically located companies. In 2006, the German giant Linde AG paid $15 billion to acquire U.K.-based The BOC Group. This transaction propelled the resulting company, named The Linde Group, past L'Air Liquide SA as the world's largest industrial gas maker. It also trimmed the industry's leaders to four companies--The Linde Group, L'Air Liquide, Air Products and Chemicals, and Taiyo Nippon Sanso Corp.--that together controlled nearly 65 percent of the world's market.

Prospects were high for the U.S. industrial gas industry in the mid-2000s. "Gases are by far the strongest performing sector of the chemical industry," said Mark Gulley, analyst at Soleil Securities, in Chemical Week. "It is tough to find any chinks in the armor right now." Developing markets, particularly Asia, provided ripe opportunities for manufacturers. Sector growth in Asia was 17 percent in 2006. That year, the United States exported the most industrial gas shipments to Japan, which accounted for 18.8 percent of such exports.

Current Conditions

Industrial gas shipments increased significantly throughout the first decade of the twenty-first century. According to the U.S. Census Bureau in 2007, the value of total shipments was $9.5 billion, up from $7.3 billion in 2005 and $5.4 billion in 2000.

Of the various types of industrial gases, hydrogen was predicted to experience the greatest growth throughout the mid-2010s. Demand was expected to remain high for refiners seeking to comply with Environmental Protection Agency (EPA) regulations mandating lower sulfur content in fuels. In 2009, industry leader Air Products and Chemicals announced plans to build two new hydrogen production plants, one in Baton Rouge, Louisiana, and the other in Baytown, Texas. In September of that year, Air Liquide brought online its twelfth and one of nation's largest hydrogen production units in the San Francisco Bay, California, area. According to Gas World, Air Liquide more than doubled its hydrogen capacity between 2004 and 2009, reaching 592,000 Nm3/h.

Increased production of sour crude oil, which requires more hydrogen to remove sulfur impurities than sweet crude oil does, was also expected to drive demand. Opportunities for other industrial gases were expected to increase as well, particularly in the health care and electronics industries.

Industry Leaders

Air Products and Chemicals Inc., founded in 1940, pioneered on-site industrial gas manufacturing. The company, which is based in Allentown, Pennsylvania, provides argon, hydrogen, nitrogen, and oxygen to health care facilities and manufacturers, among other industries. It also produces gas containers and equipment. In 2008 Air Products employed some 21,100 workers, and its global sales exceeded $8.2 billion.

Praxair Inc. produces such atmospheric gases as oxygen, nitrogen, and argon, as well as process and specialty gases, including carbon dioxide, helium, hydrogen, and acetylene. Praxair, headquartered in Danbury, Connecticut, derives is name from praxis, the Greek word for "practical application," and air, the company's primary raw material. In addition to gas production, Praxair designs, engineers, and constructs cryogenic and noncryogenic supply systems. The company also provides coatings and related chemical services. In 2008, Praxair had consolidated revenue of $10.7 billion and almost 27,000 employees in 30 countries.

Airgas Inc., based in Radnor, Pennsylvania, propelled itself to the top ranks in the industrial gas industry by acquiring more than 400 companies after it was founded in 1982. By 2007, the company was the largest U.S. producer of nitrous oxide and dry ice. In addition, Airgas manufactures such industrial gases as argon, carbon dioxide, helium, hydrogen, oxygen, nitrogen, acetylene, propylene, and propane. The company also produces specialty gases and specialty gas equipment. Airgas continued its acquisition pattern into 2007, when it completed its largest purchase in the packaged gas market, paying $310 million for the U.S. packaged gas business of Linde AG. In 2009 the company had total sales of $4.2 billion and 14,500 employees.

In 1902, the French company L'Air Liquide SA created the first viable process for the liquefaction of gases found in air. Headquartered in Paris, L'Air Liquide entered the U.S. market in 1968. Its American Air Liquide Holdings Inc. subsidiary, based in Houston, Texas, grew significantly with the 2004 acquisition of Messer Grieshiem's North American business. In 2008, Air Liquide SA employed more than 36,900 workers worldwide and posted revenues of $18.4 billion.

Workforce

The U.S. Census Bureau reported that in 2007 about 576 establishments in the industrial gases industry in the United States employed 11,446 workers. These figures showed an increase from 558 and 10,463, respectively, in 2005. About 60 percent of employees were production workers. In 2008 the three leading states by employment were Pennsylvania, Texas, and New Jersey, according to Dun and Bradstreet. Production workers involved in basic chemical manufacturing received an average hourly wage of $22.71 in 2008, according to the Bureau of Labor Statistics.

America and the World

The global industrial gas industry was a $59 billion business in 2009, according to BCC Research. This figure was down somewhat from $63 billion in 2008, but BCC predicted a 5.2 percent annual growth rate in the industry through the early 2010s, reaching $76 billion in 2014. Part of the reason for the increase was the fact that industrial gases play a crucial role in virtually all markets, including agriculture, mining, oil and gas, motor vehicles, and food and chemical products. These markets all rely on industrial gases to produce their final products or services, and they account for more than $9 trillion of total global gross domestic product. In other words, more than 50 percent of the entire global economy is serviced in one way or another by industrial gases and related systems and technologies.

Because of problems related to the transportation and storage of gas products, most production occurred close to its point of use. There was, therefore, very little international trade in industrial gases. Instead of transporting products, large international corporations functioned by operating production facilities in many countries.

The types and volumes of gases provided in an area depended on the development of the region's economy. Regions with emerging economies typically required high volumes of oxygen, whereas countries with economies based on high technology and service needed greater amounts of nitrogen. According to the BOC Group, the ratio of nitrogen sales to oxygen sales could be used as a measurement of a nation's industrial development.

Research and Technology

In the late twentieth and early twenty-first centuries, pollution abatement was one of the most important areas of study within the industrial gases industry. Wastewater treatment has successfully been improved by oxygen injection, and oxygen is also used in hazardous waste incineration. Large quantities of oxygen and hydrogen are consumed used in the production of directly reduced iron, which replaces scrap metal resources in producing steel for electric-arc furnaces. Recovery systems using nitrogen to condense and recapture solvents and chemical vapors helped manufacturers come into compliance with the Clean Air Act Amendments of 1990. An innovative technology based on carbon dioxide offered promise for reducing the environmental impact of solvent use within the paint and coatings industry, as well as in other applications. For example, in mid-2009 a dry cleaner in Beverly Hills, California, became one of the first to use a nonpolluting dry cleaning system. According to PR Newswire, "This state-of-the-art technology utilizes liquefied and pressurized, natural CO2 (carbon dioxide) and replaces the solvent and petrochemical-based dry cleaning processes of the past." Additionally, carbon dioxide-based refrigeration systems were introduced to replace systems that relied on chlorofluorocarbons (CFCs).

Research into new or refined uses for industrial gases also continued. Liquid nitrogen was considered as a possible aid in reducing problems associated with cracking in structural concrete. Xenon provided sun-like brightness to meet the special lighting needs of airports, stadiums, the motion picture industry, and copying machine manufacturers. Other rare gases were also being developed for use in diagnostic technologies and pharmaceutical applications.

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