global co2 2014

1 © Esprit Associates 2014

TS

Global Industrial Gas Consultants

Global Carbon Dioxide Market

August 2014

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REPORT CONTENTS

SECTION DESCRIPTION PAGE NO. 1.0 EXECUTIVE SUMMARY 3 1.1 Critical Success Factors 3 1.2 Structure of Supply 4

1.3 Size of Market 5 1.4 Cost & Pricing Structures 6 1.5 Capacity and Infrastructure 7

2.0 INTRODUCTION 8

2.1 General Background 8 2.2 Objectives 8 2.3 Basic Business Definitions 8 2.4 The Global Business 11

3.0 THE GLOBAL CARBON DIOXIDE BUSINESS 13

3.1 General 13 3.2 The Supply Structure 13 3.3 The Demand for Carbon Dioxide 14 3.4 The Supply/Demand Balance 15 3.5 The Cost and Price Structures 16

Appendix 1 Typical Production and Delivery Costs 18 Appendix 2 Properties and Applications of Carbon Dioxide 19 Appendix 3 ISTB Beverage Grade Specification 22


1.0 EXECUTIVE SUMMARY

The Industrial carbon dioxide market depends on low production and distribution cost for high specification products and a technical knowledge of applications

1.1 CRITICAL SUCCESS FACTORS

1.1.1 The Source of Carbon Dioxide – High carbon dioxide content, low impurities. The essential basis for a sound business is a source of carbon dioxide of suitable quality at a competitive cost. A good source of carbon dioxide is one which has feed gas stream of good purity, at least 90% carbon dioxide, by volume, and free from unacceptable impurities. The source should be available at high pressure, and with consistent available volumes. The price paid for the source must be economically better than the price and cost of treatment of a source of poorer quality.

1.1.2 Location of Plant – proximity to end-users High quality carbon dioxide sources are seldom located near the centre of the market for carbon dioxide. However, a high quality source somewhat further from end-user locations may more than justify the additional distribution costs.

1.1.3 Production Capacity –size matters Carbon dioxide plants are sized to meet peak demands which usually occur during the summer. World-scale carbon dioxide plants are generally in the range 200-300 mt/d but some much larger plants exist in developed regions like North America.

1.1.4 Quality – purity is the key More than 65% of merchant carbon dioxide is used in the food industry for food preparation and in the production of beverages. Rigorous national standards and tight quality control procedures are now common in nearly all regions to avoid product contamination.

1.1.5 Price of Carbon Dioxide – Ever Lower The use of carbon dioxide in carbonation of drinks has competition from the larger producers own production but has only market competition for smaller users. The use of carbon dioxide as a refrigerant is more price sensitive because there are many other competing technologies such as liquid nitrogen, which gives a better product, and mechanical refrigeration which has lower operating expenses. Since the major volumes are to large users this keeps prices in check.


1.2 STRUCTURE OF SUPPLY

1.2.1 Source of Carbon Dioxide

The most commonly developed source for carbon dioxide used to be from Ammonia plants, due to the easy availability of high purity crude carbon dioxide. There have been many closures of Ammonia plants in North America and Europe and other more reliable sources have gained market share. It will be interesting to see what impact frack-gas has on the ammonia market.

Industrial gas companies have developed high purity sources of carbon dioxide such as natural wells, chemical production by-products and off-gas from bio-ethanol. Steam reformer plants for hydrogen are a growing source since these are often owned by the industrial gas companies.

In remote or developing regions, carbon dioxide is often made from the combustion products of natural gas or other hydrocarbons, usually in small quantities.

Carbon dioxide used for EOR is mainly from wells or as part of inert gas, but liquid carbon dioxide is used for some remote, high value fields and gaseous carbon dioxide is pipelined from some gasification projects to fields up to 250 miles away

1.2.2 Carbon dioxide Suppliers to the Market

The carbon dioxide market was originally developed by companies outside of the usual industrial gas business, but gradually synergies with other gases have led to all of them entering the market in the last 35 years. Some, like Air Products have been in and out of the market but are now firmly in. Others, like Praxair, have started vertically integrating the business by buying hospitality suppliers. Figure 1.2.2 shows the market split by production volume.


1.3 SIZE OF MARKET

The worldwide demand for merchant carbon dioxide at the end of 2013 totalled 52000 mt/d, (19.1MM mt/y) and is growing at 3%-5% per year. This includes liquid carbon dioxide, compressed cylinders and Dry Ice). On-site supply schemes are very few (<1%) and Liquid carbon dioxide for EOR is also very small.

1.3.1 By Volume The North American market is the largest market for merchant carbon dioxide and reached 27550 mt/d in 2013, which is 53% of the global market.

In addition the North America used more than 100000 mt/d for EOR mainly directly from carbon dioxide wells by pipeline to the oilfields

The overall growth rate in north America is more than 5% per year if EOR is included and 2.5% per year for merchant carbon dioxide

The European market, the next largest is significantly lower and totalled 10850 mt/d in 2013 which is 21% of the global total

The market in the developing regions of Eastern Europe are still growing fast and this builds on the lower underlying growth in the more mature economies. We would expect to see growth of 2%-3% in the near future. EOR using carbon dioxide is not a major factor in the market, except possibly in Russia where information is scant.

The Market for carbon dioxide in the Rest of the World was 13600 mt/d (26% of the market)

This region has the smallest plants and also the poorest data so may be understated. Little information exists on on-purpose carbon dioxide generation for EOR and recent projects have tended to favour nitrogen injection.

Food and beverage end uses account for more than 70% of the world merchant carbon dioxide market by volume

1.3.2 By Value The world market for carbon dioxide is valued at about $2.9 billion

the US is $1280 million

Europe is $735 million

The ROW is $895 million


1.4 VALUE/PRICING STRUCTURE

Prices for Merchant carbon dioxide delivered to the end-user are shown below

1.4.1 Crude Source The cost of crude carbon dioxide source depends on the quality of the source, the process generating the source, utility and other costs, the reliability of the source and the carbon tax regime at the source. Since most sources are off-gases from other processes the reliability of the sources are constrained by the operating characteristics of the source. For good quality sources prices can vary by as much as $10 per ton for identical sources depending on the business strategy of the owner. Carbon dioxide sources typical costs are influenced by utility and other costs but also by how many competing sources are in the area. With an investor and political focus on sustainable manufacturing pricing has fallen in recent years and in some cases to a negative value. However, most companies want some contribution to their bottom line to justify the commitment that they have to give.

In Europe and North America , crude carbon dioxide price can range from $2 to $20 per ton , with $8-$10 being typical

In the ROW, with more ammonia plants, many of the crude source owners are wholesalers of liquid carbon dioxide to industrial gas companies or other end-users

1.4.2 Carbon Dioxide Pricing Structure The pricing structure is dependent on a number of variables which include crude carbon dioxide cost, capital cost, profit expectations, overhead costs, utility costs and delivery costs.

In the US, fuel and utility costs are generally lower than in Europe offset by a larger land area and potentially longer delivery distances. This gives an average delivered price for liquid carbon dioxide of around $125 per ton with significant regional variations.

In Greater Europe average delivered liquid prices are higher than the US, $185 per ton due to higher base costs for fuel, utilities and labour. Plants also tend to be smaller than in the US increasing the cost of capital.

In the ROW there are enormous price variations from region to region. The average is around $180 per ton for delivered liquid carbon dioxide, but this varies from as little as $75 per ton in low utility cost countries of like the middle east to more than $1000 per ton for regions with high power costs, very small plants and little competition.


Carbon dioxide suppliers also charge premium prices on supplies to food and beverage manufacturers for the higher specifications and the higher costs of maintaining the high quality supply chain.

1.5 CAPACITY AND INFRASTRUCTURE

1.5.1 Existing Capacity Structure Liquid carbon dioxide plants have a nominal life of 15 years but 30 or more years is not uncommon and the fully depreciated plant offers commercial advantage. New plant investment is usually to meet market growth rather than replacing old plant except where the source is unreliable. There appears to be sufficient capacity in most of the developed carbon dioxide consuming countries to meet demand through to 2015. Since 2003 more than 16000tpd of new capacity has been built with almost no closures. There appear to be abundant good quality sources available to sustain the market growth for the foreseeable future. Carbon capture projects are generally far too large for a merchant carbon dioxide plant to add any real value.


2.0 INTRODUCTION

2.1 BACKGROUND

Esprit Associates is the leading management and business consultancy in the industrial gases business. We are one of the few consultancies which focus totally on the industrial gases business. Our associates have been actively consulting in the industrial gases business since 2000 and we have undertaken work for all the major international gas companies since that time. In recent years, our consultants have provided a number of carbon dioxide studies to global petrochemical companies and government. Our consultants have exceptional experience (averaging more 25 years each) of the industrial gases business. Our involvement in the industrial gases business and contacts with the industrial gas companies and their clients affords opportunities to gain valuable in-sight into various aspects of gases business. This report provides an overview of the world-wide carbon dioxide business. This report is based on our proprietary plant and database models which are based on more than 13 years of researched entirely public data.

2.2 OBJECTIVES

The aim of this report is to provide a good overview of the global carbon dioxide business.

1. The supply structure of the carbon dioxide business, the sources of the crude carbon dioxide and future source trends;

2. The suppliers currently involved in the carbon dioxide business and consolidation and acquisition trends;

3. The demand for carbon dioxide including the main end-use sectors and anticipated

growth rates;

4. Insight in to the key success factors for successful entry and penetration of the merchant carbon dioxide business.

2.3 BASIC BUSINESS DEFINITIONS

2.3.1 The Carbon Dioxide Market The carbon dioxide market includes the sale by industrial gas companies of the carbon dioxide product, in any form, and of related services, to end-users. Equipment and plant, which is used to produce carbon dioxide owned by an end-user is excluded from market analysis except any portion that is wholesaled to an industrial gas company.


i) On-site Supply Onsite supply is defined as the supply of carbon dioxide to an end-user from a plant that produces the carbon dioxide of appropriate quality on or near the end-users site or through a pipeline from such a plant or plants. Contracts for onsite supply are generally long, 10-20 years with 15 years the norm. This offers a lower price to the end-user than liquid carbon dioxide because the security of the agreement allows the producer to use more debt in the funding of the CAPEX and hence a lower weighted average cost of capital (WACC) for the project. This in turn leads to a lower hurdle rate for the internal rate of return (IRR) required by the supplier and hence lower prices. It is also free from transportation and storage costs although the actual price will depend on the energy used to achieve the end use pressure. We have generally excluded carbon dioxide that is recovered by an end-user for chemical processes such as Urea or syngas production by reforming, because this never leaves the production site. We have also excluded, in any detail, the carbon dioxide recovered from natural wells and supplied for EOR. In the US this is as much or more than the global merchant capacity of more than 100kton/day. We have included some capacity where liquid carbon dioxide is shipped to remote wells for EOR, but this is currently a special case.

ii) Merchant Supply Merchant supply is defined as the “bulk” supply of carbon dioxide as a liquid, by tanker, the “packaged gas” supply in cylinders or the supply of solid carbon dioxide as “dry ice”, by truck, to end-users. Liquid carbon dioxide is produced by low temperature purification and liquefaction plants generally at or very near a source of carbon dioxide. It is produced into specialised storage on the site for subsequent delivery, usually by road-tanker to storage at the end-user’s site. The production facilities are generally owned by an industrial gas company but some are owned by the owner of the source of carbon dioxide producer and sold at wholesale to the industrial gas companies. Depending on regional practice, the storage at the end-user site is generally leased to the end-user by an industrial gas company. Contracts for the delivery of liquid carbon dioxide are usually for at least 3 years and where legal for up to 7 years. The price of liquid carbon dioxide depends on the size of the production plant, the size of the delivery tankers, the distance from the plant and the volume required as well as crude carbon dioxide price and utility costs. This means that there is no such thing as a market price for liquid carbon dioxide, although because industrial gas companies often trade with each other on a wholesale or swap basis there is often a local regional ex-plant price. Carbon dioxide is also delivered in cylinders, usually produced from liquid carbon dioxide storage at a cylinder filling depot. Cylinder contracts are generally on an annual renewable basis at best, with the end-user, and the price is much higher than liquid because it includes the cylinder rental and much higher transport costs. Dry ice is usually made in plants at the liquid carbon dioxide plant and sometimes at a dry ice facility using trucked in liquid carbon dioxide. Dry ice pricing is similar to cylinder pricing.


2.3.2 Feedstock for Carbon Dioxide Production Most commonly feedstock is an off-gas stream from an industrial or other process containing an adequate proportion of carbon dioxide, typically greater than 90% but as low as 20% and as high as 99% carbon dioxide by volume and always free from contaminants that are difficult to remove such as heavy metals

i) “Raw” carbon dioxide “Raw” carbon dioxide is a stream of carbon dioxide-rich gas that is supplied by a producer company to a third party liquefaction plant without significant pre-treatment. The suppliers of such “raw” carbon dioxide charge owner of the liquid for its “perceived” value. When carbon is taxed or the producer is “environmentally sensitive” the owner of the liquid plant may argue that it has negative value to the producer and should be supplied for nothing.

ii) “Crude” carbon dioxide “Crude” carbon dioxide is a stream of carbon dioxide-rich gas which has had additional treatment or conditioning or has had additional production costs such as compression before or during its supply to the pressure required by a liquid carbon dioxide plant. “Crude” carbon dioxide is thus of better quality and purity than “raw” carbon dioxide and as such commands a supplier premium.

2.3.3 Carbon Dioxide Purity There are three main grades for carbon dioxide

i) Industrial Quality – the cheapest Carbon dioxide with a quality lower than the specification for food grade carbon dioxide. It is generally used in industrial applications such as welding, and metallurgical atmospheres.

ii) Food Grade – the norm Carbon dioxide which meets international, national or corporate standards for the use in the food and beverage industry. Although national specifications vary, most companies which supply carbon dioxide adhere to the ISTB standard for food and beverage applications (see Appendix 3).

iii) Ultra High Purity – the most expensive Carbon dioxide which has a more severe specification than food grade and is for used in the nuclear industry and in the electronics industry. Impurities would cause significant problems such as long half-life by-products in the nuclear industry and functional problems in the electronics industry.


2.4 THE GLOBAL BUSINESS

2.4.1 How to Succeed in the Carbon Dioxide Business i) The Source of Carbon Dioxide. An appropriate source of carbon dioxide is a essential. Ideally, this is a relatively pure feedstock of better than 90% carbon dioxide with few impurities and certainly no inappropriate impurities like heavy metals. The feedstock should be available at a reasonable pressure and must offer good availability of the volumes needed for the market to be served. Most merchant carbon dioxide suppliers buy their feedstock from another company and so the operating and financial competences of the supplier are essential to a successful business. Many of the existing plants have lower on-stream availability than design, simply because the supplier plant fails to operate for operational or business reasons or their plant has low availability.

ii) The Location of the Plant The cost of distribution is a major part of the end-user’s price for merchant carbon dioxide, whatever the delivery mechanism. Locations near to a centre of population and to a cluster user industries therefore offer significant competitive advantage over more remote sources.

iii CAPEX The CAPEX (capital investment) in a carbon dioxide plant is significant and for a typical new plant in the developed economies will represent about 25%-35% of the delivered cost of liquid carbon dioxide. Capital is also required for the tankers and distribution equipment and for trucks, cylinders and production equipment for packaged gases.

iv) Seasonal Demand The beverage, brewing and hospitality industries are very seasonally dependent with the greatest demand usually in the summer months, depending on the summer weather conditions. In most countries, the demand for carbon dioxide in high summer is at least double the average demand. A similar but smaller effect is also seen in the food processing (freezing & chilling) industries where there are peaks in demand, mainly at harvest time. Much of the summer increase in demand corresponds to the time when fertiliser demand is at its lowest and therefore there are normally ammonia plant turnarounds or shutdowns in the peak demand months. This means that the apparent over capacity for supply does not exist in most markets.

v) Production Capacity Since much of the demand for liquid carbon dioxide is seasonal with summer volumes almost double those of winter in any region there has to be spare capacity. There is, of


course, some cross-border trading in regions like Europe which can ameliorate this and even some shipping of bulk supplies of liquid carbon dioxide, internationally, to Asia, but not in significant quantities. Generally, plants must allow for seasonality, availability of feedstock and storage limits and so they often have nameplate capacities that are double the average expected supply needs. This of course drives up product costs and hence prices.

vi) Quality The quality of carbon dioxide is major issue for the industry because more than 70% is used in food or other high quality uses. Modern plants produce all of their product at food grade to allow for greatest flexibility. In some valuable sectors, such as electronics and pharmaceuticals there is a need of ultra-high purity, mainly specified by the end-user, which is produced by further treatment of food grade liquid, often at the end-user site. The market for industrial grade carbon dioxide is less than 30% and shrinking continuously.

vii) Product substitution Carbon dioxide has many uses (see Appendix 2) but few rely on carbon dioxide for its intrinsic properties such as chemical, solvent, carbonation or refrigerant. In many cases carbon dioxide could be substituted by other gases or by physical means. The use of carbon dioxide as a refrigerant for food chilling and freezing can be easily substituted by liquid nitrogen, which is colder (-196oC) and easier to handle or by mechanical refrigeration processes. Its solvent properties are valuable for delicate extractions, such as flavourings and essences, but in many cases can be substituted by other cheaper solvents or, for example, freeze drying or vacuum distillation, particularly if the price of carbon dioxide is too high. Even carbonation can be partially substituted in some case with nitrogen. In fact somewhere between 30% and 40% of carbon dioxide applications are very price sensitive in developed markets. This is seen in the different margins between liquid nitrogen and liquid carbon dioxide in North America and Europe which have resulted in size of the North American carbon dioxide market being more than twice that of Europe for a similar need. Any drive to increase profitability in the carbon dioxide business leads to a slowdown in growth because other methods become more attractive

3.0 THE GLOBAL CARBON DIOXIDE BUSINESS

The worldwide demand for merchant carbon dioxide totalled 52000 mt/d (19.1 MM mt/y) in 2013 and is growing at 2.5%-3.5% per year. This includes liquid carbon dioxide, compressed cylinders and solid carbon dioxide (Dry Ice). On-site supply schemes are very few (<1% of the market volume) and liquid carbon dioxide for EOR is also very small, however its application for fracking may offer significant opportunities in high value locations where water based fracking is inhibited by either geological or environmentalist pressures. North America and Europe represented 74% of global production but are growing at less than 2% per year.

3.1 GENERAL

More than 16000 mt/d of carbon dioxide production capacity has been added in the last 10 years around the world, with an average expected life span of 30 or more years. This section provides an overview of the global carbon dioxide business, both its size and its growth dynamics. It also identifies trends in the supply of carbon dioxide and trends in the trends in demand for carbon dioxide in each region .

3.2 SUPPLY STRUCTURE

Section 2.4 described the critical success parameters for a carbon dioxide business. The key parameter is the ability to find a good quality feedstock of carbon dioxide near a demand centre for the product. Typical of sources of feedstock carbon dioxide are:

o By-product streams from Ammonia o By-product streams from Chemical processes (Ethylene Oxide) o By-product streams from Hydrogen production o Refinery off-gas streams o Natural wells o Ethanol fermentation plants o Combustion flue gases

A concentration of at least 90% carbon dioxide by volume is essential for good economics. In developing countries, with little industrial base and no by-product from Ammonia synthesis or chemical processes, there is little alternative but to build an on-purpose plant, based on fuel burning, to produce carbon dioxide. Typical technology uses diesel, kerosene or LPG as a fuel and produces around 10-12 mt/d. This results in a higher cost than carbon dioxide from quality feedstock source. Our analysis of the global structure of carbon dioxide shows that there are potential opportunities in many of the developing regions to expand and substitute carbon dioxide production.

© Esprit Associates 2014 14

3.3 GLOBAL DEMAND FOR CARBON DIOXIDE

The global carbon dioxide business is estimated to have reached 52000 mt/d (19.1MM mt/y) in 2013. This values the business at about US$2.9 billion in 2013, based on an average price of $156 per metric ton. It should be realised that pricing for carbon dioxide reduces with volume so that packaged gases are much more expensive and the few onsites are much less. Figure 3.3.1 shows the regional breakdown of the volume of carbon dioxide showing that North America dominates the regional split and accounts for 52% of the worldwide market for carbon dioxide. In all regions the relation between production and demand is similar. The European market accounts for 21% of the total worldwide market.

FIGURE 3.3.1 WORLD-WIDE MARKET FOR carbon dioxide IN 2002, BY REGION

© Esprit 2014

3.3.1 North Pacific Rim After North America and Europe, the North Pacific Rim which includes Japan and China is the next largest consuming region. It had an estimated consumption of carbon dioxide totalling 5350 mt/d in 2013. Japan and China appear to be equally sized markets and currently dominate this region and together account for 10% of the worldwide business. They have very different characteristics, with the Chinese market having grown at 7%-8% per year, whilst Japanese demand has remained flat.

3.3.2 South Pacific Rim


This region stretches from Thailand through to New Zealand and includes the region of South East Asia and Australasia. Total demand for carbon dioxide reached 2 710 mt/d in 2013. This region is relatively under developed and is growing fast, mainly in the beverage sector. The largest market is in Thailand which had a demand for 1 450 mt/d in 2013 which is very large for its population, probably due to its prawn production businesses.

3.3.3 South America Demand for carbon dioxide in this region amounted to 2300 mt/d in 2013, accounting for 5.2% of the world-wide total. For the purposes of the study we have included Mexico in North America. This market is still growing strongly but has in fact been well developed early in the larger countries by Praxair but other countries such as the Caribbean Islands, Peru, Colombia and Venezuela offer opportunities for market development.

3.3.4 Rest of the World (ROW) This includes the regions of Africa, the Middle East and the Indian sub-continent. The total consumption was 3000 mt/d in 2013. Such a low per capita use shows that the region is essentially un-developed in terms of most carbon dioxide applications and so it is not surprising that demand for carbon dioxide is mainly beverage driven. Turkey, South Africa, India and Egypt and Saudi Arabia show a higher level of industrial activity. This is a high growth region with 5%-7% annual volume demand growth. Demand is growing at between 6-8 percent for the regions as a whole, but from a low base. The largest carbon dioxide market is South Africa with over 770 mt/d of demand. The next largest is India at 525 mt/d

3.4 SUPPLY/DEMAND BALANCE AND ECONOMICS

The supply/demand balance show nominal oversupply on an average basis in North America and Greater Europe and acceptable in most other regions. There are local imbalances or lack of quality, particularly in the rapid growth countries like China, South America and most of the ROW countries. Even in Greater Europe, Russia and the former Eastern Europe countries import significant quantities.he key to understanding of the opportunities for new plant as well as the supply demand balance is the economics generated by the average size of plant. As the table shows, the most developed regions have larger

Region

Average

mt/d

Small

Plants

NoAM 250 11

Europe 150 40

NPAC 100 15

SPAC 75 30

SOAM 90 45

AFR 60 25

ASIA 30 25

ME 35 60


plants on average than the developing regions. It is interesting that the range of plant sizes is much narrower in these regions with few very small plants. Whilst in North America there are only 11 plants of less than 25 mt/d, mostly for integrated dry ice, in other regions they are clearly predominant. The exception is the North Pacific where Japan and the former command economy of China built bigger plants for different reasons. The Industrial gas companies are currently consolidating their positions in North America by acquisitions but opportunities clearly exist in other regions for new plants or new players. Praxair’s recent acquisition of Nuco2 Inc also shows a major attempt to consolidate vertical integration in the restaurant and hospitality industries.

3.5 COST/PRICE STRUCTURES

There is a great variation in production costs and product pricing across the globe. Bulk Liquid carbon dioxide has a wide range of prices and some typical information for 2013 is shown in Table 3.5.1. It should be noted that actual prices will depend on the users location and other variables such as load and delivery distance.

TABLE 3.5.1 LIQUID CARBON DIOXIDE PRICING USD per metric ton

Region Country Average Price

NoAm US 100-140

SoAm Brazil 250-450

Indian Sub. India 80-90

South Pac Rim Thailand 120

Malaysia 140

Indonesia 90-180

North Pac Rim China 140-180

W Europe UK 150

Netherlands 120

Sweden 180

Spain 175

E Europe Hungary 90

Czech Rep. 100

Bulgaria 200

© Esprit 2014


APPENDIX 1

PRODUCTION & DISTRIBUTION CHARGES

The tables show the fully costed price for Liquid carbon dioxide form plants of various sizes based on US costs. They are based on a build date of 2005 with an IRR of 14% and a tax rate of 39%. It is assumed that they are Greenfield and fully manned. The capital includes all necessary connections to utilities and services and the provision of the necessary tanker handling systems, storage and fill-points. The Delivery cost table assumes 2013 fuel and labour costs and allows for capital return on the tankers and maintenance. The round-trip is assumed to be twice the delivery distance. Plants that are significantly smaller than 10 tons per day will have even worse economics and are generally found in developing countries.

Prices to the end-user will often include tank and vaporiser rental which may be several thousand dollars per month. The delivered price will, of course, also depend on other factors like the competitive situation.

Delivery Distance Miles

Tanker

Size

Tonnes 50 100 150 200 250 300 250 400 450 500

5 $62 $123 $185 $247 $309 $371 $433 $495 $557 $619

10 $31 $62 $93 $147 $123 $154 $185 $216 $247 $278

15 $21 $41 $62 $82 $103 $124 $145 $166 $187 $208

20 $15 $31 $46 $62 $77 $92 $107 $122 $137 $152

25 $12 $25 $37 $49 $61 $73 $85 $97 $109 $121

30 $10 $21 $31 $41 $51 $61 $71 $81 $91 $101

35 $9 $18 $26 $35 $44 $53 $62 $71 $80 $89

40 $8 $15 $23 $31 $39 $47 $55 $63 $71 $79

Ex-Plant Liquid Cost in USD/Tonne

Plant

Size tpd

Power

USD

45/MWh

Power

USD

65/MWh

Power

USD

85/MWh

10 200 204 208

25 127 131 135

50 98 102 106

100 79 83 87

150 72 76 80

200 68 72 76

250 65 69 73

300 63 67 71

350 62 66 70

400 61 65 69


Production and Distribution Costs

APPENDIX 2

CARBON DIOXIDE – THE PRODUCT AND USES

This section highlights the various uses and the physical/chemical properties of carbon dioxide.

A4.1 PHYSICAL CHARACTERISTICS

Molecular Weight: 44.1

Density: Gas 1.977 kg/M3 (STP) Specific 1.5291 (compared with air) Nature: Colourless, odourless (slightly pungent), non-flammable gas Stability: Stable

Critical Point: 31.04oC

Triple Point: -56.57 oC, 518 kPa Existence: Liquid, solid and a gas

Cylinders: Normally filled at 69 bar pressure (at 18oC)

Liquid: Stored under pressure at 21 Bar and -18oC - colourless liquid

Solid: Temp. - 79oC - white appearance

A4.2 CARBON DIOXIDE APPLICATIONS

Due to its physical characteristics, many applications for using carbon dioxide have been developed over the years. Some uses go back centuries when fermentation of food stuffs (malt, wheat, grapes etc.) led to the production of alcohol, wines, or beers in which carbon dioxide was partly re-used in the process, particularly to exclude air.


Other applications are developing all the time - partly as a result of the trend or swing to use more environmentally friendly products - like carbon dioxide's use as a solvent compared with chlorinated or aromatic based solvents. We have listed several of the key applications and provide a description of use, other applications are new and are developing and this will have little impact on overall carbon dioxide demand because they are starting from virtually a zero base. We have not covered one of the effectively major uses of carbon dioxide - in Urea production as this is associated with major fertiliser plants and is essentially classified as captive. In general the major uses of carbon dioxide involve the delivery in the liquid form and using its "cold" for chilling and freezing applications. However, many other applications require the carbon dioxide in its gaseous form - delivered in the form of cylinders or bulk liquid, which is then vaporised. A smaller use of carbon dioxide is in its solid (dry ice) form - again using its cooling/refrigeration properties. a) The Beverage/Brewing Industry This is generally one of the largest applications for carbon dioxide in most regions of the world. The carbon dioxide is used for carbonation of drinks (soft drinks, sparkling wines and mineral water) and beers (bottling and canning applications). This sector continues to grow as more beverages are consumed by growing populations. However, this sector is susceptible to seasonal conditions and in the case of soft drinks - the consumption of carbon dioxide could be as much as double in the summer months as that of the winter months. b) The Food Industry carbon dioxide has a variety of uses in the food industry. These include:

Freezing/Cooling Although carbon dioxide does not contain as much cold as liquid nitrogen, it is an effective refrigerant (less volatile than nitrogen) for food freezing and chilling applications. One advantage is its non-toxic nature - therefore it is safe to use on most food products. In certain freezing applications the carbon dioxide - which is deposited as a fine snow (dry ice) once the pressure of the liquid is released when spraying food - can have slower but more effective cooling capacity in the freezing or chilling of, for example, chicken pieces. In many meat processing plants - carbon dioxide is used in the mincing stage to prevent the meat shearing whilst being ground.


One of the largest applications is in the transport of food. In the US this is a large market where as in Europe, the application or technology has not taken off. carbon dioxide is preferred to in the US to liquid nitrogen as it is more user friendly as well as being cheaper. In airline catering, solid carbon dioxide is used to keep the food at correct temperatures for in-flight catering whilst in storage.

Atmospheric Packaging carbon dioxide is useful for preventing oxidation of food stuffs and growth of bacteria in food packaging applications. It is mainly used as a protective atmosphere in order to lengthen shelf-life of perishable foodstuffs (e.g. fresh and cooked meats and fish). Again this is an area of competition from nitrogen gas and basically comes down to the price of the gas at the end of the day. c) Welding Applications Some years ago gas companies researching welding and cutting techniques discovered that welds became stronger if undertaken under a non-oxidative atmosphere. In the US this was developed using carbon dioxide because of its low cost compared with nitrogen and argon. As welding techniques developed the quality of the weld is effected by the shielding atmosphere but in most general applications either gas mixtures containing carbon dioxide are used or full carbon dioxide is used (although the latter is declining). d) Fire-Fighting carbon dioxide has been found as an effective fire-fighting product because it can be stored safely in cylinders and when used on flames, the gas does not sustain combustion. It is therefore a useful fire extinguisher - especially when alternative "wet" products may affect furniture/electronics etc. As it is heavier than air it is also effective in reducing the oxygen concentration at ground level - therefore reducing combustion possibilities. e) Foundry Applications carbon dioxide has a number of functions in this sector, including use as a shielding or blanketing gas to prevent oxidation by air and also as a coolant for moulds and dies. f) Aerosol Gases With the environmental pressure put on CFC's and its near replacements carbon dioxide has been one gas used for use as the propellant gas in aerosols. However, the favoured gases used to date include propane and butanes. The quantity of carbon dioxide used in aerosols is growing but is still relatively slow.


g) Chemical Manufacture Apart from Urea, which is produced via large production plants of carbon dioxide, there are a number of chemicals which are produced from merchant quantities of carbon dioxide - including inorganic pigments, pharmaceuticals, rubber products etc. h) Waste Water Treatment carbon dioxide is an effective product in waste-water treatment and is considered a more environmentally friendly chemical to use. In areas of alkaline water conditions, the carbon dioxide is used to lower the pH level towards neutral. carbon dioxide can also be used in the hardening of water in areas of extremely soft water. i) Solvent Extraction carbon dioxide has an important use in super-critical extraction. Some substances dissolve at a much higher rate than would usually be expected in super critical gases in view of the vapour pressure. carbon dioxide is used for high pressure extraction of natural products and is used as a solvent to extract particular flavours and fragrances. carbon dioxide can also be used in the textile dyeing business as a solvent. Another new application is the use of liquid carbon dioxide to be used in the dry-cleaning business to replace chlorinated solvents. j) Tobacco Processing Tobacco which is soaked in liquid carbon dioxide and then allowed to vaporise quickly results in a dramatic increase in tobacco volume, reducing the amount needed to fill a cigarette. The carbon dioxide has a secondary action of reducing the tar content through its solvent properties. k) Entertainment Most fog generation effects in night-clubs and theatres use solid carbon dioxide to produce vapour trails. l) Horticulture carbon dioxide is increasingly being used to enhance growth of protected vegetation in greenhouses (especially tomatoes, cucumbers etc. Productivity can be increased by 15-30 % through carbon dioxide enrichment of the greenhouse atmospheres. This is encouraged as “sustainable” agriculture. There are many other smaller uses of carbon dioxide which include laser technology, farming which account for a small fraction of the total demand for the gas.


APPENDIX 3

ISBT PRODUCT SPECIFICATION

Below is outlined a recommended specification for carbon dioxide use in the beverage industry which would apply to supplies, for example, to leading Cola producers.

INTERNATIONAL SOCIETY OF BEVERAGE

TECHNOLOGISTS


ESPRIT ASSOCIATES OVERVIEW

Esprit Associates specialises in the industrial gas business. We provide insight on the production and use of industrial gases to suppliers, users and other interested parties. Our goal is to assist them their decision making processes for all industrial gas business or technology issues such as the gases, related equipment, services and financial performance.

Esprit Associates gives unique advice based on in depth knowledge and experience of the industrial gas industry. Esprit Associates has a database of industrial gas production facilities, techno-economic and forecasting models and other regional data that are without equal in the industry. Esprit Associates consultants have spent at least 25 years at senior levels in the business and have outstanding analytical skills that allow them to provide the right answer for any client. Esprit Associates provides a wide range of services to its clients in support of their business and technology needs. These include:

Techno-economic analysis

Interim Management and targeted Management Recruitment

Business development and Strategic planning

Technical, Economic and Supply Chain Audits

M & A activity and Industry Analysis

Resources

Database Esprit Associates maintains a database of more than 10000 industrial gas facilities. This is continually updated by reference to gas providers’ and their customers’ press releases, reference lists from the principal equipment providers and feedback from regional and other sources. The database affords the opportunity to establish the supply chain for industrial gas services and through this to provide benchmarking and other market data to both users and providers of industrial gases. The database records the type of facility, contracts, location – city, country region and postcode – production capacities, build year and status. It also records the source of data, comments and production technology details when appropriate. All entries are identified by a unique reference number and a facility classification. The 2000 largest facilities have been plotted on Google Earth™ which enables delivery logistics and plant conditions to be established. This is an ongoing activity.


Techno-economic models Esprit has a number of techno-economic models for industrial gas production and distribution based on data gathered over many years. We have used the deep experience of our consultants to perform parametric analysis of the data and this enables us to produce detailed cost and pricing information for past, present and future investments in industrial gas facilities. These models take into account location, date, and owner, technology and product delivery requirements. They also allow issues such as cross-subsidies to be evaluated and to define accurate escalation equations to benchmark existing contracts and current bids. The models include:

ASU and Liquefier with choice of add-ons such as back-up storage, argon, multiple train and steam turbine drives

Steam Methane Reformer (SMR) with options for Hydrogen, Syngas or CO production and the use of RFG or other alternative feedstocks. The model also deals with steam credits and CO2 capture or taxation.

Partial Oxidation facilities (Gasifiers) which deals with the same options as the SMR Model but allows for various technologies and a choice of feedstocks. It can also incorporate ASU CAPEX and OPEX for the oxygen requirements.

Non-Cryogenic models for Nitrogen or Oxygen production and Hydrogen purification. These cover both adsorption and membranes.

Liquid Hydrogen

Liquid CO2

Bulk Liquid and Bulk Gas distribution and Packaged gas production and distribution models. These reflect changes in the cost of both production and transport and the various contracts for different customer sizes.

CAPEX models which identify the level of capital spending required for an industrial gas company to maintain market share for various growth scenarios

Valuation models that identify the potential value of a business from the known production and distribution facilities by applying the techno-economic models to each.

Forecasting Models Esprit Associates has developed a forecasting model which predicts the growth in the industrial gas business and captive industrial gas production for more than 80 countries. It also consolidates the information by region and globally. The model is based on the analysis of industrial gas use by 14 industry sector groupings, such as pulp & paper, against Industrial Production over the past ten years. The model then predicts forward for up to ten years against forecast changes in IP indices from a macroeconomic specialist company.


The model breaks historical and forecast revenues into the basic delivery mechanisms - onsite & pipeline, bulk and packaged gases - for the major (Tier 1) suppliers. It also takes into account captive capacity when looking at both historical sector intensity and growth. The model uses historical and forecast changes in currency rates to deliver headline growth and changes in power and natural gas prices to deliver underlying growth. Generally the model has underestimated growth on a global basis by about ½ % to 1% because of expansion of offerings and captive-to-onsite conversion. There are a number of correction factors that can be applied to offset this. Specific forecasting models also exist for industrial gases such as Hydrogen. These look at the growth in the gas volumes by industry, delivery mechanism and region. They provide a more focused view of potential for the gas. We also have a number of standard templates which enable a breakdown of the sectors into delivery mode and gases used. They are often used to define the expected growth in particular gases or gas mixtures in a particular territory and by delivery mechanism.

Other Models We have many models that have been developed for specific projects that can be generally applied to new challenges. These include Monte Carlo analyses for reliability of supply on pipeline systems, price trends in bulk deliveries and net present value for termination of contracts.

Other Data We have a significant archive of press releases, earnings presentations and other public documents for the industrial gas industry which enable us to cross-check and update our various models. We also publish a quick quarterly analysis of the largest companies and an annual report in more detail for subscribers. We regularly use this archive to identify changes of strategy and roduct lines for the companies


Esprit Associates

Global reach but local service – our consultants are world-wide.

Head Office Clevedon, Windsor Road, Medstead, Alton Hants GU34 5EF UK Tel +44 1420 562802 Fax +44 1420 561634 Mobile +44 7802 223000 Email: [email protected] Austria Tel: + 43 1 729 17 05 Fax: + 43 1 729 17 05 / 55 Mobile: + 43 (0) 699 11 54 54 58 email:[email protected] Esprit Associates Inc 2150 Ardis Drive San Jose CA 95125 UNITED STATES Tel: +1 208 292 1304 Fax: +1 208 273 6406 Email:[email protected] We also have relationships with other consultancies in Asia and North America

More details of the company can be found on our website www.espritassociates.com

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