Mega projects drive demand for KSA industrial gases sector

The industrial gases sector continues to witness growth in Saudi Arabia, buoyed by expansionary spending and mega infrastructure projects, a new study has confirmed.
Saudi Arabia’s industrial gas infrastructure will continue to grow in support, not only of the energy sector, but also in the developing non-energy sector including the industrial, gas and chemical sectors, said a report released by the National Commercial Bank (NCB).
As the market continues to be fragmented, the pricing of gases differs across the regions due mainly to logistical factors. According to industry insights, project funding comes mainly from (1) shareholders and (2) local banks, with long-term bank loans being a preference amongst the sources of financing. Over the forecasted period, future investments will continue in the production of nitrogen, hydrogen and oxygen.
The report also said that growth in the international industrial gases sector is driven by growth in Asia (namely China, India and Korea), overall high energy costs and climate change initiatives.
In the Middle East, SABIC is the largest producer of air separation gases, with a market share of 27.8 percent.
SABIC operates directly in the market, as well as indirectly vis-a-vis National Industrial Gases Company (NIGS), which is 70 percent, owned by SABIC – with the rest being owned by National Gas and Industrialization Company and other smaller gas firms. According to IHS Chemical estimates, four Saudi companies rank among the top 10 producers.
According to the report, the Saudi industrial gases sector has witnessed the acquisition of shares of local firms by international partners to leverage expertise, or otherwise the formation of joint ventures for exploring opportunities in the Kingdom.

Project funding comes mainly from (1) shareholders and (2) local banks, with long-term bank loans being a preference amongst the sources of financing.
Contracts have a time horizon of 10-25 years, with the standard practice consisting of a return on investment (ROI).
In the medium-to-long-term, future investments will be in three main gases — nitrogen, hydrogen and oxygen — particularly for gasification processes.
The largest challenge faced by the industrial gases sector is that it is at the mercy of project pipelines in the market.
Given that the Saudi industrial gases sector is driven by core business demand, as industrial gases are inputs in the value chain, classifying the market becomes key to determining demand.
According to industry insights, there are four main categories that segment the Saudi industrial gases sector.
hey are (1) tonnage, (2) merchant industry, (3) rare gases/ highly technical market, and (4) acquisition of technology.
The tonnage category refers to both high volume and high quality industrial gas production and consumption. It is usually for heavy scale use by the consumer sent through pipelines around the Kingdom.
Examples include Linde’s 2012 construction of on-site plants to supply Sadara’s chemical complex with carbon monox- ide (CO), hydrogen (H2) and ammonia (NH3).
This investment, which amounted to SR1,425 million ($380 million), is expected to come on-stream in 2015. Sadara will use carbon monoxide, hydrogen and ammonia primarily for the production of aromatics, isocyanates (MDI and TDI), amines and hydrogen peroxide.
Additionally, Air Liquide established its largest contract for hydrogen supply via pipeline in Yanbu,
The project involves the construction of two hydrogen production plants with a total capacity of 300,000 cubic meters/hour as part of a long-term supply contract between Air Liquide and Yasref, a joint subsidiary of Saudi Aramco and the Chinese company SINOPEC.
The merchant industry category includes industry players such as SIGAS and Abdullah Hashim Industrial Gases & Equipment Co. Ltd. From the supplier side, plants are generally built to produce 200-250 tons per day, with gas transportation coming in the form of cylinder trucks. Small-to-medium companies and industrial end-users account for this segment’s consumers. These include companies in the iron, steel, and glass industries.
The rare gases/ highly technical market focuses on the production for technical gas consumers and those that require high purity such as those in the medical industry.
This segment also caters to companies in silicon-based technology, where gas is transported in smaller cylinders.
The last category in the Saudi market includes the backbone of the industrial gases sector and refers to the technological expertise.
These companies are technology owners who develop their own in-house technology, but also avail others’ technologies based on the project.
The report points out that growth of the industrial gases sector is driven by several factors, mainly projects in the pipeline.
These include Saudi Arabia’s large capital expenditure across all industry groups, especially social and physical infra- structure, in addition to increasingly higher energy costs and the drive to address a sustainable energy mix. Differing from the preliminary Saudi budget for 2014, NCB estimates that actual project capital expenditures will be SR238.2 billion for the year, according to the report.
Key industries include those in the refining, petrochemical, power, waste minimization/sulfur treatment plants, and steel/ glass sectors. Large-scale gasification plants, such as Jazan’s IGCC (integrated gasification combined-cycle) which will be located in Jazan Economic City, and the oxygen-based gas-to-liquid plants consume large quantities of oxygen. In addition, large volumes of liquid natural gas (LNG) have accelerated the demand for nitrogen.
According to data from the Central Department of Statistics and Information (CDSI), Saudi Arabia imports and exports four main gases – argon, helium, nitrogen and oxygen.