Chemical Profile Hydrogen

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HYDROGEN   February 24, 2003

*Thousands of standard cubic feet (SCF) per day merchant hydrogen from steam reforming of light hydrocarbons or recovered as by-product from chloralkali plants or chemical synthesis operations. Another 3 billion SCF per day of captive hydrogen capacity exists at 145 locations in the US. Last month, BOC acquired Celanese's captive hydrogen/carbon monoxide syngas plant at Clear Lake, Tex. BOC will supply Celanese with carbon monoxide and serve other customers with hydrogen. Last year, four new plants were announced for supplying hydrogen to hydrotreating units at petroleum refineries. In December 2002, BOC announced it had begun construction on a new hydrogen plant at Citgo Petroleum Corp.'s Lemont, Ill., oil refinery. The plant is expected on line in the second half of this year. A month earlier, Air Products announced a long-term hydrogen supply agreement with ConocoPhillips. As part of the deal, Air Products will build, own and operate a new hydrogen facility in Lake Charles, La., with a capacity in excess of 100 million cubic feet per day. Air Products will link the new facility to its existing hydrogen pipeline network. About the same time, Praxair revealed an agreement with BP to supply hydrogen to BP's Texas City, Tex., chemicals and refinery complex. Praxair disclosed it would build two new hydrogen plants, each 100 million cubic feet per day, on the US Gulf Coast to supply BP. The estimated start-up of the plants is in the second half of 2004. In spring 2001, Air Products commissioned a 100 million cubic feet per day hydrogen plant at Port Arthur, Tex., to supply an adjacent Premcor refinery. Air Products is also constructing a 40 million cubic foot per day hydrogen unit at New Orleans, La., for start-up in the third quarter of 2003. The plant will support El Dorado, Ark.-based Murphy Oil's hydrocracker at Meraux, La. HydrogenAl, Becancour, Quebec, Canada, is a joint venture between Hydro Quebec and Air Liquide. Gaspro Airco, Honolulu, Hawaii, is a subsidiary of BOC. Holox, Augusta, Ga., is a 63/37 joint venture between Linde (Germany) and Hoek Loos, the Netherlands. Lagus, Decatur, Ala., is owned by Linde. T&P Syngas Supply, Texas City, Tex., is a joint venture between Texaco and Praxair. Profile last published 1/29/01; this revision 2/24/03.

DEMAND
2001: 421 billion SCF; 2002: 460 billion SCF; 2006: 675 billion SCF, projected. Demand equals production plus imports (2001: 4,137 million SCF; 2002: 4,960 million SCF) less exports (2001: 13,965 million SCF; 2002: 14,402 million SCF). Roughly 8 percent of the merchant market demand is served with cryogenic liquid product and 92 percent with compressed gas. Estimated demand excludes hydrogen produced by captive plants, production by ammonia dissociation and hydrogen consumed as fuel.

GROWTH
Historical (1997-2002): 9.5 percent per year; Future: 10 percent per year through 2006 for merchant hydrogen. Future growth for total hydrogen (merchant and captive) is 4 percent per year through 2006.

PRICE
Historical (1997-2002): High, $2.60 per 100 SCF, compressed gas, tube trailer, f.o.b.; low, $1.25, same basis. Current: $1.70 to $2.60 same basis; $1.15 to $1.80 per 100 SCF, cryogenic liquid, tank truck, f.o.b.; $0.18 to $0.80 compressed gas, pipeline, dlvd. Hydrogen market prices exhibit great variation depending on the form of delivery, consumed volume, location and contract length. For the largest customers, pipeline supply is the most economical supply method.

USES
Petroleum refining, 66.8 percent; petrochemicals, 26.2 percent; other, 7 percent, including: metals, 2.7; electronics, 1.5; US government (NASA), 1.2; edible fats and oils, 0.7; float glass, 0.3; utility power generation, 0.2; miscellaneous, 0.4.

STRENGTH
More hydrogen plants are being constructed because of demand growth from the refinery sector, which uses hydrogen to upgrade fuels to meet mandates for low-sulfur gasoline and diesel, as well as for processing higher-sulfur crude. US refining hydrogen demand totaled 1.4 trillion SCF per day in 2000, and is growing at 4 percent per year. Although aggregate hydrogen consumption is growing at about 4 percent annually, growth in the merchant hydrogen business is significantly higher, perhaps 10 percent, as refineries change their sourcing strategy. In the past, refineries met their hydrogen requirements with recovered material or they built, owned and operated their own hydrogen plants. But refineries are increasingly strapped for cash, making them receptive to buying hydrogen from single and multiuser pipelines owned and operated by industrial gas companies.

WEAKNESS
The soft economy has resulted in reduced hydrogen demand in metals, electronics and float glass production. The impact, however, is only marginal as these segments combined represent only about 5 percent of merchant demand.

OUTLOOK
Hydrogen has remained strong despite the weakened economy in recent years and this situation should prevail regardless of when the economy turns around. The industrial gas majors, Air Products, Praxair, Air Liquide and BOC, have all raised their prices for hydrogen, based on the strong demand. This pricing trend is expected to continue. With the cost of sweet crude oil increasing, refiners are processing more heavy sour crude, which requires additional hydrogen for sulfur removal. Moreover, legislation planned to reduce sulfur content in gasoline in 2004 and in diesel in 2006 will require refiners to use more hydrotreating process steps. As a result, US hydrogen demand should grow at 4 percent per year during the next four years. While some refiners own and operate their own hydrogen plants, industrial gas companies have seen an increase in their on-site business as refiners view hydrogen as a utility and allow the gas companies to build, own and operate the hydrogen plants. This trend will produce double-digit growth in the merchant hydrogen sector.