The food and beverage industry relies on carbon dioxide to grow, process, package and ship its items. But production of the raw CO2 is dependent on other industrial processes prone to shutdowns, especially in times of expensive energy prices, which has periodically left the merchant market without this critical ingredient. In a session on markets and feedstocks at gasworld’s European CO2 Summit in Rotterdam this week, industrial gas experts unpacked these dependencies and the work that the supply chain is doing to build resilience.
Traditional dependency on ammonia and ethanol production
To begin with, a whopping three quarters of Europe’s merchant CO2 supply is made as a byproduct of producing either syngas (most notably used for ammonia manufacturing, although it has other applications as well) or ethanol, according to gasworld’s data intelligence director Aidan Sparrowhawk. This means that it is the margins and market developments in those products, and not the need for CO2, which determine whether the ammonia and ethanol plants which are also making CO2 will even run.
This is especially important in periods of high energy costs. LNG represents an estimated 80% of the cost of ammonia production. If its cost goes beyond a certain point, production becomes unprofitable.
“Whenever these [ammonia or ethanol] plants are in a position where it’s not physically economical to run these plants, the first thing that comes to mind for them is, ‘does it make sense for us to continue to run the plant’ and the last thing on their mind is, ‘well, what about CO2?’” observes Gabriel Kiewek, COO and VP of operations at Nippon Gases. “CO2 has always been a case of the dog wagging the tail, and not the other way around.”
Unfortunately, European industry has suffered high gas prices for much of this decade. Peaks in 2018 and 2022 caused production shutdowns, which resulted in allocations or Force Majeure declarations by CO2 providers, which rippled out across the food industry, impacting availability of items from chicken to beer in markets such as the UK.
However, even outside of these periods of acute crisis, this dynamic is critical to understanding CO2 supply. For example, it is largely responsible for the sizeable seasonal shifts in availability, as ammonia plants tend to go offline for maintenance in the summer, in line with the rhythms of the fertilizer markets, leaving the CO2 market with less material at a time when demand for beverages and refrigerants is at a peak.
Beyond these noticeable but temporary disruptions, there have also been structural impacts. As the European energy crisis has dragged on, facilities have shut, bringing CO2 capacity offline for good. Kiewek claims that 1 million tons of ammonia production has closed down since 2022, with more on the chopping block in years to come. Capacity is also being lost in other sectors whose CO2 byproduct entered the merchant market, such as ethanol and chemical production; Expana’s discussions with market participants on the sideline of the gasworld European CO2 summit revealed that reductions in operations at chemicals giant BASF had contributed to supply loss in southern Germany, for example.
Structural transformation
However, this is not the end of the story. The industrial gas companies, responsible for sourcing the raw CO2 from such operations, processing it, and delivering it to clients in the merchant market, are well aware of this Achilles heel, and building resilience into the system is of paramount importance.
Kiewek explained that Nippon Gases has been preparing by investing in monitoring and decision-making tools to identify where shortages may occur and how CO2 can be reallocated within their system to avoid impacting customers, as well as transportation solutions such as ships and trucks beyond the dedicated local delivery fleets to help bring that gas from one region to another when needed.
Nippon Gases, along with the rest of the industry, are also increasingly looking beyond the traditional sources of raw CO2 to an emerging suite of alternatives, such as from biomethane. These emerging sources tend to produce much lower volumes than the traditional sources; 7,000 tons per year is about standard for the roughly 125 plants across Europe equipped with CO2 capture, according to Kiewek. On the one hand, he explained, this creates a “hard math” problem when it comes to making the activity profitable after capex (mainly the liquefier), operational expenditures, and the increasingly complex logistics and transport are accounted for. But on the other hand, it also creates less strategic dependence on a small number of big producers in the network.
And with the food and beverage industry representing around 46% of European demand for merchant CO2 according to Sparrowhawk’s data, the industrial gas suppliers are keenly aware of their duty to keep this essential product flowing. Even though traditional sources, like Yara’s ammonia and fertilizer plant in Sluiskil, in the Netherlands, will unequivocally remain part of Nippon Gases’s network for the foreseeable future, Kiewek concludes “Europe is moving towards a structural transformation of its CO2 supply.”
Written by Shannon Behary
