GH2 looking around for suitable volume and price

A sense has appeared that the slump in which compressed hydrogen had been in for so long has finally bottomed out. What lies behind this, including the recovery of silicon wafers, is the high operational ratios of the surviving semiconductor fabs, as well as the stable operation of the automotive industry which consumes a comparatively large amount of hydrogen in such areas as heat treatment and the glass melting process.

However, when it comes to whether it is again heading to a period of growth, the possibility here is rather low. The trend toward a contraction has petered out but this does not mean that compressed hydrogen is now on the road to expansion. The areas where the Japanese manufacturing industry some time ago was repeatedly making capital investment and increasing production are now being found more and more in the developing countries. There is a common awareness in the industrial gas industry that the growth potential of the market for compressed hydrogen for industrial use is small.

Under aspects such as these, in the market, factors such as the contraction of sources, the rise in electricity fees and the push by Iwatani with liquid hydrogen are complexly intertwined. The new Toyota car Mirai has stated to take off, and in the public mind the concept of the “Advent of the Hydrogen Society” has become an issue. Being separate from this, however, compressed hydrogen companies have been steadily making their supply capacity suited to the market and have been taking another look at their prices.

Various causes of cost increases

According to Japan Industrial and Medical Gases Association (JIMGA) statistics, the demand for compressed hydrogen reached a peak in 2006, amounting to 156 million m3, and then began to decline. As a reaction to the Lehman Shock, with the exception of 2010 which showed an increase over the previous year, each year recorded a decrease over the previous year. Compressed hydrogen has continued to go downhill. The sales figures for 2014 have yet to be released but the forecast calls for breaking into the 90 million m3 level. Regarding this run of decreases in demand, the effect of the changeover by Iwatani from compressed hydrogen to liquid hydrogen on this has not been exactly small. However, the slump in the demand for the electronics field involving the semiconductors and liquid crystal displays which are the main customers has been a major cause.

The problem lies in the fact that the demand is dropping little by little, and in a period when the burden of fixed expenses of production costs is mounting, variable expenses such as those for raw materials, and utilities, as well as distribution, also are greatly rising. The main source for compressed hydrogen includes by-produced hydrogen from electrolysis, off-gas from petroleum refining, ethylene off-gas, and natural gas (city gas).

Because hydrogen as a by-product of electrolysis is produced with electricity, the rise is the price of electricity fees is directly linked to the rise in production costs. In other words, what this means is that if the electricity fees rise, the price of hydrogen as a by-product of electrolysis also rises. The electrolysis plants need to have a production balance for caustic soda and chlorine to meet the demand, while operation is not stable. Not a few places operate only at night to conserve electricity and to have a production balance.

Depending on the plant, hydrogen chloride is produced but if the balance between supply and demand gets tight, hydrogen is used as the raw material. Additionally, recently there have been electrolysis plants which employ gas diffusion electrolysis which does not produce hydrogen as a by-product. What this means is that gradually a feeling of a considerable lack of stability is developing regarding sources of compressed hydrogen.

Off-gas from oil refining and ethylene off gas are respectively linked to international price standards of crude oil and naphtha. In particular regarding the off-gas from oil refining, up to last autumn the price of crude oil hovered at an extremely unusual high level, and this caused the price as a source of compressed hydrogen to rise greatly.

The price of imported natural gas is linked to crude oil, and there is a reflection in the price about 6 months later than that of crude oil. If natural gas goes up, of course electricity fees are linked to this, and they rise as well. This has a direct, adverse effect on the production cost of hydrogen produced by cracking natural gas. In any case this means that the variable expenses at the compressed hydrogen plants are directly hit. The price of crude oil began to drop at the end of last year, but this will not be reflected in the price of natural gas until after this June.

Expressed more specifically, the depreciation of the yen is not a very happy event as well. Going back to the source material for compressed hydrogen, there is salt (water when cracking it), crude oil, naphtha, and natural gas. All of these are imported products. These various circumstances pile up, so that the variable expenses for the production of compressed hydrogen rise and fall drastically.

Closings and termination of filling operation follow in rapid succession

Compressed hydrogen companies have shown 2 moves to cope with the rise in costs and drop in demand which reach way back to 2007. One of these involves the “consolidation of production plants.” The other move involves “price revision.” Affected by the shutting down of the nuclear power plants as a result of the Great East Japan Earthquake and the hike in electricity fees by electricity companies around the country, each hydrogen company has been implementing price revisions since the spring of 2012. These revisions ended for the time being last spring but since then too, along with the skyrocketing of the price of crude oil, hikes in electricity fees and in distribution expenses incurred in connection with accommodation of hydrogen due to the shortage of raw materials. Companies were again compelled to transfer these increases in cost to their prices. Prices are going up regionally even now.

As for sources of electrolysis, there is a great discrepancy in the amount of by-product hydrogen produced depending on the production plant. Among hydrogen production plants, there are some in which natural gas cracking is used to produce compressed hydrogen. Circumstances regarding the production of compressed hydrogen differ greatly depending on the region and source, as well as on the raw material.

Also, when plants are shut down and production is consolidated at other plants, it is only natural that the transportation distances lengthen and distribution costs therefore mount. The circumstances here differ according to region. It is said that distribution expenses account for 30% of the price of compressed hydrogen. The impact of this is therefore very great. It seems that price corrections will not be implemented uniformly nationwide but rather on the local level.

04 Jun. 2015

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