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Industrial gases in Australia

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Production of gases in Australia consists of;
bulletair separation - oxygen, nitrogen, argon;
bulletby-products - carbon dioxide, hydrogen and sulfur dioxide;
bulletspecifically synthesised - acetylene and nitrous oxide; and
bulletmixing of specialty gases, some of which are imported.

Other gases are imported with the most important being helium.

The gas manufacturing sector is an engineering industry and excepting acetylene gas and nitrous oxide, provides gases extracted from air or by-products from other activities. Some gases, like helium, are imported.

Gases are primarily used in the industrial, mining and food processing sectors. The retail gases such as oxygen are produced at the back of dedicated gas plants for industry (eg. titanium dioxide plants).

In the retail sector, as gases are expensive to transport relative to their value, competition is most significant near markets. To differentiate indistinguishable products, the companies provide services which though often unprofitable are necessary to attract and retain customers. BOC Gases Australia has developed a virtual monopoly in the medical gases sector by this strategy. The outlook for the gas industry in the retail sector is therefore influenced by ability to differentiate in providing services. In the commercial sector, costs of dedicated plants is the dominant factor.


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The industry

The first gas plants in Australia began in 1908 producing acetylene by Gardener Waern using imported calcium carbide. In 1910, oxygen and liquid air were produced by the Australian Oxygen company in Melbourne, and the Commonwealth Oxygen Company in Sydney.

The industry today has a turnover (1998) of about $550 million per year gas production only and directly employs about 1112 people (around 4000 including sales).


There are four commercial scale gas manufacturers represented in Australia - in order of size these are
bulletBOC Gases Australia (formerly Commonwealth Industrial Gases Ltd CIG), since 2006 part of the Linde group. supplying about 70 per cent of the market for industrial gases with sales of about 400 000 tonnes per year. BOC Gases Australia has an annual turnover of more than A$1 billion and been in Australia since 1935, and during the past few years has invested more than $400 million in projects at Bulwer Island, Port Kembla and Elgas Cavern in NSW, Whyalla in South Australia and two projects in Townsville, Queensland;
bulletAir Liquide Australia owned by the French L'Air Liquide group with about 20 per cent of the gas market;
bulletLinde Gas Pty Ltd small Austrian subsidiary with about 10 per cent of the market; and
bulletAir Liquide W.A. operating in Western Australia with Wesfarmers Limited with a 40 per cent interest.


Over the last five years including 1996, Australia's largest firms (with public disclosure) achieved only 5.1% weighted return on shareholders funds. BOC achieved five-times that return at 24.5 per cent with total revenue of A$760 million. (Source IBIS Business Information "Secrets of Spectacular Success", Business Review Weekly Feb 17, 1997). Sales of gas by BOC is estimated by ACTED at around 60 per cent of total turnover - the balance in equipment and services.


Industrial gas production has been the fastest growing sector of the chemical industry and with the greatest improvement in efficiency.

Gas categories

There are three categories of gases manufactured or sold;
bullet Industrial gases

This group is broadly divided into gases;
bulletextracted (separated) from air, e.g. oxygen, nitrogen, helium, xenon, krypton and argon and
bulletsynthesised or byproducts of chemical operations, e.g. acetylene, carbon dioxide, hydrogen and nitrous oxide.
bullet Medical gases Includes in particular the
bulletpurified forms of oxygen and nitrous oxide and
bulletimported gases such as cyclopropane.
bullet Specialised gas mixtures
Mixtures of gases for special applications in generally small markets (e.g. for underwater diving, welding and research).

1. Industrial gases Industrial gases may be broadly described as either extracted from air by a process of separation or chemical synthesis either specifically or as byproducts of other activities. Gases are separated from air by a process known as cryogenics which involves the liquefying air under pressure at low temperatures and allowing the air to return to its gaseous form under controlled conditions. The principal constituent gases - nitrogen, oxygen and argon are progressively distilled. The equipment required is large and costs several million dollars.

The gases separated from air are the more common gases - oxygen, nitrogen and argon, and the rare gases - principally helium, krypton and xenon. These gases are produced in proportion to the composition of air. Present only in small quantities, argon and the rare gases are therefore regarded as by-product gases from the manufacture of oxygen and nitrogen which jointly represent about 90 per cent of gases produced.

A description by BOC

Oxygen is the most important gas produced which is predominantly used in (oxy) welding, steel manufacturing plants, chemical processing and in water and sewage treatment. When purified, oxygen is used for medical applications.

Oxygen is co-produced with nitrogen, argon and other rare gases collectively produced in higher volumes than oxygen. ,Although oxygen represents only about one-fifth of the gases produced it is also the more valuable gas so that the demand for oxygen has a major influence on the location of most gas plants. Thus many of the gas plants are located near steel works, titanium dioxide plants and major population centres. The two co-products of oxygen, nitrogen and the rare gases if not vented, are shipped as required. The high freight costs of transporting industrial gases has encouraged industry to be located near areas of principal application, foregoing scale-related production efficiencies in favour of freight cost savings. Nevertheless, moving gases in cylinders is an acceptable alternative as illustrated by the Tighes Hill operation in the suburbs of Newcastle, New South Wales which produces acetylene gas but distributes nitrogen and oxygen produced from the Sydney or Wollongong gas plants.
Operation scales for the production of oxygen range from 4 000 tonnes to the largest 150 000 tonnes (at Port Kembla, New South Wales). Large plants are located near titanium dioxide pigment plants such as the Air Liquide plant located at Kwinana Western Australia at 110,000 tpa capacity and 170 000 (?) tpa operated by Linde at Kalgoorlie for the WMC nickel smelter.

The Direct Reduced Iron project by BHP in Western Australia will also require large amounts of oxygen.
bullet Nitrogen is used for its inert characteristics, and in liquid form, for maintaining low temperatures. Principal applications include for the purging of pipelines in the chemical and other manufacturing operations, in frozen food processing and in the metals industry for shrink fixing at low temperatures.
bullet Argon, neon, krypton and xenon are used primarily for welding certain metals which require an inert (essentially oxygen-free) atmosphere. Of these gases, argon is the most valuable and, unlike the other air extracted gases, may also be profitably exported to electronic component manufacturing countries.
bullet Helium is a minor component of air and natural gas. With some extracted coproduction with the principal gases extracted from air, nearly all of Australia's helium requirements is imported. Used in baloons and special breathing mixtures for deep diving.
bullet Carbon dioxide whilst also a component of air, due to the comparatively small proportion, is generally extracted from waste industrial gases such as ammonia fertiliser plants, alcohol fermentation (especially beer brewing although nearly all used in-house) and by electricity generating plants. The beverage industry is an extensive user of carbon dioxide used for dispensing and carbonation. It also uses nitrogen for deoxygenation and sulfur dioxide for sterilisation and preservation.

The principal commercial suppliers of carbon dioxide are the ammonia manufacturing plants of Incitec in Newcastle, New South Wales, Brisbane and the Wesfarmers CSBP ammonia plant in Western Australia. These three plants each produces about 18 000 tonnes per year of carbon dioxide. Other sources include 12 000 tonnes from Botany as a byproduct of the ethylene oxide plant and a natural gas well at Caroline, South Australia operated by Air Liquide.

2. Synthesis Other industrial gases which are not extracted from air tend to be more specialised and produced in smaller volumes. These include acetylene manufactured from calcium carbide (now imported), sulfur dioxide as a byproduct of metal smelting operations, and hydrogen from the electrolytic manufacturers of caustic soda. A broad range of other small volume specialty industrial gases, such as hydrogen sulphide are imported.
bullet Acetylene, used for oxy-acetylene welding is manufactured by BOC at Newcastle, New South Wales from imported calcium carbide.
bullet Sulfur dioxide, principally used by the wine industry, is produced at many metal smelting plants around Australia and which either vent it to the atmosphere, but increasingly convert it to sulfuric acid. A small proportion is extracted by some producers such as at the fertiliser plant operated by Top Australia.
bullet Hydrogen is produced from the electrolytic production of caustic soda especially at Botany by ICI, from oil refinery reformers such as by BOC at Altona and by the electrolysis of water. The electrolysis of water is expensive but the high cost of transporting hydrogen has encouraged BOC to operate plants in Victoria and Queensland. Hydrogen is principally used for cutting and welding, and the hydrogenation of oils and fats
3. Medical gases Medical gases include high purity oxygen and anaesthetic gases such as cyclopropane and nitrous oxide. Except for high-purity oxygen and nitrous oxide, medical gases are imported reflecting the comparatively small Australian market which cannot support local manufacturing facilities.

Medical oxygen is produced by BOC by the purification of industrial grade oxygen. About 2 000 tonnes per year of nitrous oxide is made by the thermal decomposition of ammonium nitrate at Wetherill Park, New South Wales.

Some of the medical gases are blended and produced for special applications such as for underwater diving life support systems and special industrial welding mixtures. 4. Other gases There are also other smaller volume gas requirements for agriculture and other specialised applications purposes including ethylene gas produced by the chemical industry as part of their petrochemical production operations and a broad range of imported insecticidal fumigants. Markets
About one-half of the market for industrial gases is for the cutting and heat welding of metals which use oxygen, acetylene, hydrogen and inert gases. Oxygen is by far the most important gas used in chemical operations and steel manufacturing whilst nitrogen is used for the purging of reactor vessels.

The food processing market is the fastest-growing sector, using nitrogen and carbon dioxide as expendable refrigerants in the chilling of foods. The inert properties of nitrogen enables it to be used safely with all foods whilst carbon dioxide is used in the packaging of meat. Hydrogen is used in the hydrogenation of oils and fats to produce margarines and solidified fats.

Gases must be transported in specialised bulky containers so that the gas plants have located near markets trading-off scale economies against transport cost savings. Although this trade-off is a common feature of many activities, notably the phosphate fertiliser industry, competition from imports is insignificant and prices are determined by other local manufacturers. The cost of international freight is far greater than internal freight between producers and markets.

Service rather than price tends to differentiate manufacturers. BOC has placed the greatest emphasis on support to develop closer and more durable relationships with customers. The services include the sale of welding equipment and services (including computer-assisted welding equipment), workshop equipment, specialised gas supply equipment for hospitals, pest control services and gas cylinder manufacture. Diversification to achieve more stable sales has led BOC to enter the pest control market with gas reticulation and fumigation services. This integration process has progressed to the point where gas sales represent now represent only about 60 per cent of BOC's turnover but three-quarters of its profits with the low return from services accepted as a means of maintaining its (dominant) market share. Clearly service provision is less important for stable industrial customers as would be the case where the gas is supplied under fixed contract e.g. for steel or pigment production where efficient engineering design and capacity to maintain determines competition.

Market presence is an important influence. Though all main producers can supply key gases, the absence of retail outlets in WA and Queensland for example precludes a presence of Linde in the retail sector.

Air Liquide has arrangements with welding agencies (such as Lincoln) to market gases and in WA has a joint company Air Liquide (WA) Pty Ltd with Wesfarmers (40:60). In WA, Wesfarmers operates an LPG straddle plant at Kwinana to extract LPG gas which is sold through Wesfarmers Kleenheat Gas retail outlets. Its strong position promoted the joint venture from which Air Liquide achieves market presence (and being a "local company") and in return provides its technology. In WA, it is believed to supply around 40 per cent of the market (BOC ca. 50 per cent).

All companies practice the resale of retail gases including to their competitors.

All companies compete in the retail sector though Linde only has a limited presence in WA and Qld with gases often supplied by their competitors (at opportunity value - ie. import or transported values).

Praxair, a major US manufacturer, that imports helium into Australia, is believed by industry to be contemplating entry into the Australian market.

Market growth
Over recent years the underlying growth for the diversified gas producers has been between 2 to 3 cent per year with marked variation according to the gas type. Gases such as acetylene, oxygen and hydrogen have been growing at about 2 to 3 per cent per year whereas nitrogen (to freeze foods) and carbon dioxide (to carbonate beverages) have experienced faster growth of about 5 per cent.

The technology for gas production is well established so that competition is determined by engineering factors (operating scales and technology) and for other markets, increasingly the capacity to provide appropriate support services.

Growth in the industry is expected to continue to be firm with industrial gases grow at about 2 per cent but with gases, for use with mineral processing, expected to continue to grow at about 6 per cent through the 1990s. Expansions in the titanium dioxide pigment industry will require plant expansions at Kemerton and Kwinana in Western Australia. The new DRI steel project by BHP in Western Australia will also require new oxygen supplies.

The fastest growth will remain in nitrogen and carbon dioxide gases with growth of about 6 per cent reflecting changing lifestyles with consumer interest in frozen and ready prepared foods.

New hydrogen plant

A A$171 million investment announced October 2000 by British industrial gases company, BOC Group, to manufacture hydrogen for joint venture partner BP at Pinkenba's Bulwer Island, near the entrance to the Brisbane River.

BOC Gases' managing director, South-Pacific, Mr David Hind, said: ``The alliance between BOC and BP has allowed us to leverage off one another, using new technology to provide clean fuel and address the environmental aspects of the business."


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© 1996; ACTED Pty Ltd, PO Box 673, West Perth, Western Australia
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