the rare gases market report -...

W illiams Ramsay and Travers Morrisdiscovered the three gases —krypton (Kr), xenon (Xe), and

neon (Ne) — more than 120 years ago. Thesegases are part of a family of gases most com-monly referred to as rare or noble. Com-pletely inert and chemically stable, rare gasesare produced from specially designed largeair separation plants (ASU). Today there areabout 85 plants worldwide designed toextract a crude mixture of Kr and Xe. In thismarket update, we focus on the supply anddemand for krypton and xenon.

The current world production of crudegas mixture (approximately 90 percent Kr,eight percent Xe, and two percent impuri-ties) is around 111,000,000 liters. Of this,krypton is approximately 100,000,000 litersand xenon is about 11,000,000 liters. Notethat Xe is 11 percent of the total, not theeight percent you would expect given theratio of xenon in the crude mixture. This isbecause some xenon production is attachedto the hydrocarbon waste streams of someoxygen plants, instead of having these O2

plants be equipped with internal trays. Someof the krypton is not recovered in thisprocess, but most of the xenon is, causing a

higher percentage of Xe to be produced thanyou would expect.

The world’s production of crude mixture isstill controlled by the three largest industrialgas companies — Air Liquide, Praxair, andLinde — plus Iceblick. Together, these fourcompanies control more than 80 percent of allKr and Xe produced. Iceblick, founded in1992 with the collaboration of companiesfrom Russia, Ukraine, and Kazakhstan, is themajor purifier of crude in Eastern Europe.Iceblick controls most of the former SovietUnion’s supply of Kr and Xe, which is almosta third of the world total.

Figure 1 shows the sourcing of crude gasmixture by geographic region. Over the lastfew years most of the new production hasbeen attached to the large oxygen plants builtin China for the steel and chemical industries.Unlike other industrial gases, rare gas sup-plies are not based on local production. Raregases are, in fact, global commodities wherethe balance of demand, supply, and specula-tion determines price, which makes trackingthese markets very interesting.

As the world economy turned positive inearly 2010, demand for rare gases began togrow but supply remained fairly flat. Asreported last July (see “Rare Gases MarketUpdate,” CGI, July 2009, p. 36), xenondemand was down almost 40 percent andkrypton was down almost 30 percent from theprevious year (2008). As it turns out, demandfor both Xe and Kr were near the bottom of adownward trend at that time. During the last12 months demand for xenon has regainedsome strength, increasing by about 5–10 per-cent, but demand remains well below thepeak seen in summer of 2008. Krypton isdoing better with demand up 10–20 percent,driven by increased demand from insulatedwindow manufacturers.

The most interesting part of the current

rare gas supply-and-demand scenario is thatanticipated new plant capacity has come onmuch slower than expected. Some projectshave put their crude gas columns, fromwhich Xe and Kr are derived, on hold butequipped their ASUs with trays and taps forfuture rare gas production. Also of interest isthe fact that some major players shut off theirolder, less efficient crude columns whendeclining prices for rare gases moved Kr andXe to low-profit margin levels. These factors,coupled with the slow recovery in the steelindustry, have brought supply and demandcloser to balance. This new restraint in sup-ply indicates the industry has gotten smarterabout managing the rare gas businesses. Asreaders of past rare gases reports will recall,this market has been typified by wild swingsin supply and demand, with the two rarely inbalance. In this recession, it appears gascompanies have been able to manage supplyand prevent prices from crashing back to theunprofitable levels of 2006. Due to this bal-ancing, pricing for Kr and Xe have stabi-lized. We could begin to see prices rise in late2010 into 2011 if the world economy contin-ues to grow.

The world krypton market declined almost30 percent in 2009, hitting the bottom in 2Qof 2009. As pricing lags demand in this mar-ket, prices did not stabilize until 1Q of 2010.

Of the two gases discussed in this report,krypton demand seems to be the most in bal-ance with supply. Pricing for Kr dropped justover 50 percent from its peak in 2008, mov-ing from $1.60–$2.25 per liter in 2008 to$0.75– $1.10 per liter in 2010, for largeusers. The decline in price was directlyrelated to the world economic recession, andspecifically to the collapse of the construc-tion industry. Krypton used for insulation inglass windows had accounted for between40–50 percent of all Kr produced. (See

46 August/September 2010 — CryoGas International

The Rare Gases Market ReportRestraint in Supply Makes for a Better Managed Business

By Richard Betzendahl

The Rare Gases Market Report

Kr Xe Crude ProductionPercent of World Total

By Region — 2009

Figure 1 Source: Betzendahl Gas Consultants LLC

China, Pac Rim20%

USA18%

WesternEurope

19%

Middle East,India, Africa

16%

Eastern Europe

30%

Today there are about 85 plants worldwide designed to extract a crude mixture

of Kr and Xe. In this market update, we focus on the supply and demand

for krypton and xenon.

“Rare Gases,” CGI, June 2007, p. 22.) InEurope, environmental regulations requireenergy efficient windows, and Kr is widelyused in the manufacture of insulated win-dows. With construction being one of theindustries hardest hit by the recession, rapidlydecreasing demand for windows drove downdemand for Kr. This drop in demand was feltto a lesser extent in the US where the marketfor insulated windows is smaller. Exacerbat-ing the drop in demand was the effect of thelarge inventories of Kr that European insu-lated window manufacturers had built upprior to the recession in late 2008. Thesemanufacturers were able to draw on theirinventories for three to nine months.

Other applications for krypton also declinedduring the economic downturn. The exceptionto this was in medical markets, which are rela-tively recession resistant. Demand for kryptonused in medical laser applications actuallygrew slightly during this period.

In the first quarter of 2010 demand for Krbegan to pick up as European window manu-facturers ran out of Kr inventory and ordersfor window products resumed. In the US, thestrengthening green movement and new gov-ernment tax credits for energy efficientreplacement windows have boosted demandfor Kr. The US Department of Energy’s(DOE) Building Technologies Program isnow coordinating a volume purchase of R-5windows and low-e storm windows, toexpand the market of these high efficiencyproducts(www1.eere.energy.gov/buildings/windowsvolumepurchase/). As price is theprincipal barrier to more widespread marketcommercialization, the aim of this volumepurchase initiative is to work with industryand potential buyers to make highly insulatedwindows more affordable. The R-value meas-ures a product’s resistance to heat loss — thehigher the R-value the more energy efficient.The new DOE program qualifies windowsuppliers for R-5 insulating factor or betterand also requires them to offer volume dis-count prices. The program’s goal is to allowgovernment bodies and individuals to buyenergy efficient windows for new construc-tion or replacement at attractive prices. Manyof the windows that meet this insulating fac-tor are argon-filled triple pane, and some aredouble pane Kr-filled. The new DOE pro-gram will impact both the argon and kryptonmarkets. If construction picks up and the pro-gram is successful, supply of Kr could tightenand prices could rise.

World demand for xenon fell by about 40percent in 2009 and, like krypton, xenondemand bottomed out in 2Q’09. Pricing forXe dropped nearly 75 percent from its peakof $20.00–$30.00 per liter in 2008 to$6.00–$8.00 per liter in 2010, for largeusers. As in the krypton market, this declinewas driven by the global recession, most sig-nificantly by losses in demand in electron-ics, satellite, and plasma display panel(PDP) markets.

Between 2008 and the end of 2009,xenon consumption in electronics went fromabout three million liters down to one mil-lion liters annually, due to the recession.Demand was also constrained by conserva-tion efforts. (See “Recovering Xenon andCosts,” CGI, July 2009.)

PDP manufacturers went from an annualconsumption of about three million liters of Xe

in 2008 to about one million in 2009. Thisdecline is attributed primarily to the cost-cut-ting initiatives within the PDP industry. Whilethe percent of Xe in a PDP panel has increased,manufacturers have dramatically decreased theannular space in the screen. This space reduc-tion has reduced the consumption of Xe in thePDP market by over 50 percent.

Another blow to Xe demand was Russia’sdelay of its low level GPS satellite program,the Glonass system. The Russians planned onusing almost one million liters of Xe per yearfor Glonass. This system was scheduled to beoperational by mid-2009 but was delayed dueto the world recession.

Xenon is also used in the lighting industry,another sector that was hit hard by the reces-sion. The faltering US auto industry, wherexenon is used in headlights, caused the largestdrop in demand. As with krypton, xenon

August/September 2010 — CryoGas International 47


Krypton Supply and Demand

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applications for medical lasers continued togrow despite the recession.

Xenon pricing stabilized during 2Q’10and demand picked up slightly. We see thisgrowth accelerating in the second half of2010 and continuing into 2011 as lighting andsatellite markets improve. Going forward,xenon demand in the lighting market will bedriven by European Union (EU) and US reg-ulations, which are phasing out incandescentlight bulbs. In September of 2009, the first ina series of incandescent bulb bans went intoeffect in the EU. By 2012 all frosted incan-descent bulbs will be banned. The US phase-out of 100 watt incandescent bulbs is set tobegin January 1, 2012, with all incandescentbulbs banned by January 1, 2014. Many othercountries plan similar actions.

Replacements for incandescent bulbsinclude compact florescent light (CFL),Light Emitting Diodes (LED) or halogenincandescent.

Compact fluorescent bulbs use 75 percentless energy than incandescent bulbs andinclude the rather odd looking bulbs availablein our markets today. Fluorescent lightinginvolves lots of industrial and rare gasesincluding Kr and Xe.

LEDs are compound semiconductordevices whose benefits include up to 90 per-cent energy cost savings over incandescentbulbs. The production of LEDs involves lotsof gases but not Kr and Xe. However, LEDsare very expensive and probably five yearsaway from being a realistic alternative formost lighting applications.

Halogen bulbs use a xenon mixture with ahalogen gas (hydrogen bromide, methylenebromide etc.). They offer energy savingswith better light qualities than compact fluo-rescent bulbs and at a cost only slightlyhigher. Two key advantages of the halogenbulb are that it looks like the familiar incan-descent bulb and the light is similar — fac-tors that could drive the growth of halogenbulbs over other options.

The future demand picture for xenon isencouraging. As the world moves from incan-descent to more energy efficient forms oflighting, it is expected that the use of xenonwill increase significantly. The amount ofgrowth will depend on the consumer prefer-ence and cost. Over the next 12 months thiscould add from one million to two millionliters of Xe demand. The satellite programs inRussia, the EU, and China are also beginningto start again. Russia has already discussed



needing almost one-half million liters of Xeover the next six to nine months. Satellitescould add an additional one million liters ofdemand for Xe over the next 12 months.

Helium-3The rarest gas today is helium-3 (He-3), withproduct demand being about five times thatof supply. The demand for He-3 is driven byits rapidly increasing use in bomb detectors.(See full story on page 52.) Unlike helium,which is most economically sourced fromnatural gas wells, He-3 is sourced as abyproduct of decaying radioactive tritium, asubstance used to enhance the yield ofnuclear weapons. The US stopped tritiumproduction in 1988. Today there are only afew sources of helium-3 worldwide andprices are approaching $3,000 per gaseousliter. New capacity is very difficult todevelop. While helium occurs in the atmos-phere, it represents only 0.0002 percent ofthe air we breathe. Only one company Iknow of extracts He-3 from the air and thissmall supply is not commercially viable. InCryoGas International’s upcoming Novem-ber Helium Issue, we will focus on this raregas in more detail.

Rare Gases OutlookLast year’s rare gases report correctly pro-jected the stabilization of Kr demand in thesummer of 2009 and Xe demand in early2010. I kept my xenon pricing range broad,projecting declines of between 20–50 per-cent. Unfortunately, pricing did make it tothat outside number, declining by nearly 50percent in the last 12 months. For kryptonpricing, the drop was more than anticipated,with prices falling by 30 percent rather thanthe projected 10–20 percent.

The next 12 months are difficult to predictas economic outlooks for 2011 are mixed atthis time. Some economists believe the worldeconomy will grow two to three percent aswe come out of the “great recession” andexperience a period of moderate growth. Oth-ers warn that we may be headed for a “doubledip recession.” Obviously, each scenario willyield a different outcome in the rare gasesmarket. I like the moderate growth scenario(having a personal bias toward the opti-mistic). Under the moderate growth scenario,I expect the demand for Kr to increase andsupply to tighten. I believe prices for Kr willincrease slightly, in the 5–10 percent rangeover the next 12 months. This growth will

push new supply schemes, making some startups likely over the course of the upcomingyear. With xenon I am less confident. I seeprices continuing to be about the same as theyare today. Demand will increase but notenough to tighten supply. The major produc-ers still have some inventory, which must beconsumed before supply and demand can bein balance. If significant new rare gas capac-ity were to be brought on to meet the increasein Kr demand, this would add supply to Xe aswell and put pressure on Xe prices. This is atough balancing act for suppliers. If you makeKr, you make Xe: profits are based on sellingboth products, not selling one and inventory-ing the other.

If we experience a “double dip recession”then all bets are off. Demand for rare gaseswill slow and prices will decline further.

Perhaps the most important thing tokeep in mind when analyzing the rare gasesmarket is that just four short years ago(2006) krypton was more than 60 percentlower in cost than it is at today’s “greatrecession” prices. And xenon prices wereabout 50 percent lower in 2006 that theyare today. As I stated in last year’s article, Ido not believe that we will ever see prices



as low as we did then. Why? Suppliers havefound ways to bring stability to a rollercoaster market by carefully controllingcapacity when demand is down and not

dumping inventory at a loss. While currentprices are still below acceptable returns onnew plant capacity, I remain bullish on Kr andXe in the coming year. ■



Key Helium Isotope Supply CrisisBy Rebecca Renner

A severe and growing globalshortage of helium-3 is threaten-ing scientific research and nuclearsecurity, members of the US Con-gress heard on 22 April [2010].

Helium-3 fulfils a critical rolein cryogenics, neutron scatteringfacilities, medical imagingresearch, and radiation detectiondevices as well as a host of otherapplications. For decades the gashas been in adequate supply, butnow stocks have dwindled whiledemand has risen dramatically.

The shortage, driven by increased demand for radioactivity detectors following the ter-rorist attacks of 11 September 2001, and decreasing production, was foreseeable, accordingto Congressman Brad Miller. As the key supplier and user of helium-3 for both security andscientific applications, the US Department of Energy (DOE) was in a key position to antic-ipate the impending shortage. However, the DOE failed to see it coming, Miller said atApril’s hearing, held by the House Committee on Science and Technology’s subcommitteeon investigations and oversight.

Helium-3 is the stable, inert byproduct of the radioactive decay of tritium, the radioactiveheavy-hydrogen used in nuclear weapons. After the cold war, the US had tens of thousandsof nuclear weapons and throughout the 1990s the supply of helium-3 exceeded demand. UStritium production ended in 1988, but the stockpile continued to grow. By 2000 the US hadaccumulated over 200,000 liters of helium-3.

Currently 80 per cent of helium-3 is used for radiation detectors, and while there are alter-natives for this application, there are no substitutes that can be used in low-temperatureresearch, William Halperin, a physicist at Northwestern University, Illinois, told Congress.

The supply situation is desperately uncertain, Halperin says: “The DOE is planning torelease about 11,700 liters in 2010 but it is not clear where it is going and it is not well estab-lished how or when you might get delivery, even if helium-3 is allocated to you.”

“Our customers are desperate,” says Zuyu Zhao, principle scientist at Janis Research Com-pany, a manufacturer of cryogenic research equipment. Despite submitting applications forhelium-3 four months ago, he has not received any gas and has not been informed about thestatus of some applications. “This problem affects everyone on a global scale,” says Zhao.

In February 2009, a governmental interagency team composed of the DOE, the Depart-ment of Homeland Security, the Department of Defense, and other government agencieswas formed to address the decreasing helium-3 supply. Halperin hopes that the recent Con-gressional hearing will improve communications between the governmental team and thescientific community.

This article was reprinted with permission of Chemistry World (www.rsc.org/chemistryworld) ©The Royal Society of Chemistry.

Richard Betzendahl is President and CEO of Betzendahl Gas Consultants LLC (Unionville,PA) a consulting firm founded in 2004 specializing in US and International Specialty Gases;marketing, sales, training, sourcing, as well as import and export. He can be reached at 610-420-8006; Email: [email protected] or [email protected]

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