www.gasworld.com/intelligence NOAM-USAS-2016-923

www.gasworld.com/intelligence

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Abbreviations and Acronyms ASU

Air Separation Unit

LAr

Liquid Argon

OSP

Onsite supply/pipeline supply mode

LCO2

Liquid Carbon Dioxide

Bulk

Bulk liquid mode

H2

Hydrogen

SB

Plant on Stand-by

O2

Oxygen

NK

Detail not known

N2

Nitrogen

OP

Plant operating

CO2

Carbon Dioxide

CL

Plant closed

Ar

Argon

UC

Plant under construction

JV

Joint Venture

PL

Plant confirmed and planned

EOR

Enhance Oil Recovery

tpd

Short tons per day

Special Gas Facility / Plant

Nm3/hr

Normal cubic metres per hour

Helium trans-fill facility

GOX

Gaseous Oxygen

Cylinder-fill facility

GAN

Gaseous Nitrogen

Acetylene

LOX

Liquid Oxygen

LIN

Liquid Nitrogen


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Contents 1.0 Introduction ............................................................................... 4 1.1 Background ............................................................................ 4 1.2 Objectives .............................................................................. 4 1.3 Definitions .............................................................................. 4 2.0 Executive Summary .................................................................. 5 2.1 Market Share 2015 ................................................................. 6 2.2 Regional Market Share by Company ...................................... 7 2.3 Data Dashboard ..................................................................... 8 3.0 Potential Merger Summary: Praxair and Linde ........................ 10 3.1 Praxair and Linde Merchant ASU Locations ......................... 12 3.2 Praxair and Linde Onsite ASU Locations .............................. 13 3.3 Praxair and Linde CO2 Locations.......................................... 14 3.4 Praxair and Linde Onsite H2 Locations ................................. 15 4.0 Regional Analysis.................................................................... 16 4.1 New England ........................................................................ 17 4.2 Mid-Atlantic .......................................................................... 18 4.3 Great Lakes.......................................................................... 20 4.4 South East............................................................................ 22 4.5 Plains ................................................................................... 26 4.6 Rocky Mountains .................................................................. 29 4.7 South West........................................................................... 31 4.8 West Coast........................................................................... 34 5.0 US CO2 Dashboard ................................................................. 37

Disclaimer The following report is for the exclusive and confidential use of the Authorised Recipient(s) or Organisation to whom it is addressed. This report must not be copied, reproduced, distributed in whole or part, neither by paper nor electronic means, to any other party other than the Authorised Recipient without the prior written consent of gasworld Ltd. This report has been prepared to provide information on the industrial gases business and/or to assist the recipient in its decision making process. gasworld Ltd warrants that all work carried out for this report was undertaken in good faith. No representation or warranty, either expressed or limited, is made as to the reliability, completeness or accuracy of this report. No responsibility or liability whatsoever is accepted by any person including gasworld Ltd, its respective officers, employees or associate consultants for any errors or omissions in this paper. It is for the Recipient to decide what action to take based on this work without redress to gasworld Ltd for the consequences for such action.

App.1 gaswolrd Business Intelligence Services ............................ 38


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1.0 Introduction 1.1 Background Base Year

gasworld’s Business Intelligence service combines in-house generated capacity databases and analytical skills with considerable editorial resources in order to provide up-to-date information on the market size and supply structure of the industrial gas sector in a number of countries and regions around the world. The “gasreports” series of country proﬁles thus aims to support future business and strategic decisions within the industry by providing timely and valuable data. Each report contains a 10year history and 5-year forecast of the respective gas markets.

The base year for the report and the market data presented within the report is 2015 (where not stated otherwise).

This report has been prepared by gasworld and relevant consultants who have had direct involvement in the region being researched. It will provide a good overview of the size and structure of the commercial gases business in the United States. 1.2 Objectives The objective of the study is to provide an independent summary of the structure of the industrial gases business in the United States.

1.3 Definitions Size of Market Our deﬁnition of the size of the industrial gases business is based on the value of the supply of industrial gases and related services to the end-user and does not include third party equipment sales or plants owned and operated by the end-user. We have also attempted to address the possible double-counting that occurs with some wholesaling business and so the data we have provided should represent the retail market.


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2.0 Executive Summary 2015/2016 In 2015, the US market was valued at around $19.6bn, down from around $19.8bn in 2014. When seeking reasons for these declines, a proportion of the blame can be attributed to energy cost pass-through, specifically in relation to tonnage hydrogen. End-users have also faced increasing global pressures of oversupply (especially in steel and petrochemicals), resulting in a drop in demand and a knock-on effect for industrial gas plant utilisation rates. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


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2.1 Executive Summary – Market Share 2015 Rocky Mountain Market Share 2015

Great Lakes Market Share 2015

Plains Market Share 2015

West Coast Market Share 2015

Mid-Atlantic Market Share 2015

South East Market Share 2015

South West Market Shares 2015


New England Market Share 2015

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2.2 Regional Market Share by Supply Mode – Praxair and Linde

Praxair Linde Others Total

US Region New England

Mid-Atlantic

Great Lakes

South East

Comments

Praxair Linde Others Total

US Region Onsite

XX%

XX%

XX%

100%

100%

Bulk

XX%

XX%

XX%

100%

XX%

100%

Packaged XX%

XX%

XX%

100%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

XX%

XX%

XX%

100%

Onsite

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

100%

Packaged

XX%

XX%

XX%

100%

Packaged XX%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

Onsite

XX%

XX%

XX%

100%

Onsite

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

100%

Packaged

XX%

XX%

XX%

100%

Packaged XX%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

Onsite

XX%

XX%

XX%

100%

Onsite

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

100%

Packaged

XX%

XX%

XX%

100%

Packaged XX%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

Other

XX%

XX%

XX%

100%

Onsite

XX%

XX%

XX%

100%

Bulk

XX%

XX%

XX%

Packaged

XX%

XX%

Other

XX%

Onsite

Plains

Rocky Mountains

South West

West Coast

Comments

Values highlighted in yellow indicate a potential anti-trust issue.


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2.3 Data Dashboard1

GDP, IPI and Inflation

US Market by Company 2015 ($19.6bn)

10 5

%

GDP % 0

IPI (%) 2000 2002 2004 2006 2008 2010 2012 2014 2016

Inflation (%)

-5 -10

US Market by Company 20162 Est. ($19.9bn)

Commercial gas Market, GDP and IPI 20 15 10

%

5 0 -5 2000

2002

2004

2006

2008

-10

2010

2012

2014

2016 (est)

-15 -20 1 Source: Economic data is supplied by the Bureau of Economic Analysis and the IMF WEO. 2. Assuming merger takes place (excluding divestments)


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Market by Supply Mode 2015 ($19.6bn)

End User Market 2015 ($19.6bn)

US Market by Gas 2015 ($19.6bn)

US Industrial Gas Market Forecast

2000

2002

2004

2006

2008

2010

Macro Economic Forecast


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2012

2014

2016

2018

2020

gasworld Forecast

NOAM-USAS-2016-923

3.0 Commentary on Proposed Merger (LindePraxair)

Interestingly, there was a lot of speculation related to merger and acquisition (M&A) activity within the industrial gases business in 2004/5 – varying from BASF’s desire to acquire BOC to other companies looking to buy The Linde Group. It would be fair to say that the Linde Board had a choice at the time – buy or be bought. The Linde Group opted to acquire and, having researched the options, agreed in early 2006 to make a friendly approach to acquire the BOC Group. This was subsequently completed in September 2006.

There is an expression ‘what goes around, comes around,’ and its truth applies to the breaking news of a potential merger between Praxair, Inc. and The Linde Group. Here, gasworld Business Intelligence explores the history and potential future between the Tier One players. The roots to this date back to the First World War, when German company Linde AG were forced to exit the US gases market – having entered in the early 1890s. Following the war, Linde Air Products’ assets were confiscated and sold to Union Carbide in 1919, which included the rights to use the Linde name in the US. From 1963, the industrial gases arm of Union Carbide was better known as ‘The Linde Division.’ It was in 1992, when Union Carbide decided to spin off the gases division, that the Praxair Division was formed. It was only in 1998 that The Linde Group bought back the licence to use the Linde name again in the US.

So, what now for the global business and for the US? Firstly, our industry continues to face challenging times – with low growth forecast for the next few years, low energy costs and lower project activity, to name a few. Praxair’s shares have come under pressure of late, with analysts preferring the turnaround success of Air Products to the performance of Praxair. The Linde Group has fully integrated BOC operations essentially, as well as that of its more recent acquisition, Lincare. However, the time could be right after the recent move by Air Liquide to acquire Airgas. Following the latest appointment of Professor Wolfgang Reitzle as Chairman of the Linde Group – analysts know he is a deal maker from both his “automotive days” and more recently with the Linde-BOC deal.

However, the two companies have been serious competitors. This was first seen in 1999 when Praxair and BOC began merger talks – although they quickly failed – but lead Praxair to move into merger talks with Swedish gases company, AGA. Worried that his company would be left behind in the growing global gases business, the CEO of Linde Group made a cash offer for AGA to counter the merger with Praxair. Linde came out top and the deal was completed in 2000.

Can such a deal be done? James Barr, Senior Business Analyst in gasworld’s Business Intelligence Unit, says, “The deal would present some significant anti-trust issues in some regions and countries around the world.” Having recently completed an assessment report of the Air Liquide-Airgas deal, in which 18 air separation units (ASUs), six carbon dioxide (CO2) plants and few other business assets needed to be divested, Barr continues, “The US would present one of the largest hurdles for the

Since the spin off in 1992, Praxair has been and remains the most performance-driven gases company. It not only improved its financial performance through the 1990s, but in the first decade of 21st century Praxair was the leading performer in the industrial gases space.


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merger to happen – particularly at the on-site level but also across some regions in the merchant gases business as well.”

on the potential impact of the merger and the regional dynamics within the US, rather than the US as a whole.

The facts speak for themselves. The Linde Group would have gas sales of around $16bn worldwide compared to Praxair’s $10bn. Combined this would give them 33% market share, before any potential divestments. However, Barr commented that there would be divestments made in North America, parts of South America, in Europe and also in Asia. “The merger is possible but it would be complicated,” he stated.

Provisionally, we see an overlap in gas sales of around $1bn, but we have also provided maps (see following pages) of various assets that would be reviewed by the FTC if these merger talks continue.

The largest anti-trust pressure would come in the US, where the corporation’s combined market share would exceed Air Liquide’s current market share of 28% by eight percentage points, again before any potential divestments. However, the Federal Trade Commission (FTC) would have regional issues across the US, which could result in some significant revenues being divested. There are other complications associated with this potential merger to take into consideration. Firstly, the FTC would look at who has the capability to acquire the required divestments – could a competitive market be maintained in the US? Secondly, there is a strategic difference in the homecare sector, what with Praxair having divested its Homecare business and Linde having invested heavily, both in the US and in Europe in recent years. Thirdly, what would happen with Linde Engineering? To The Linde Group, this is core and part of the company’s DNA, whereas Praxair have outsourced much of its plant build and engineering capability. As we have mentioned, the discussion over the merger will focus on a number of countries where there is an overlap of more than 40% market share. The FTC would view the tie up in the US on a more localised rather than a national basis, hence we have focused more analysis in this report


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3.1 Praxair and Linde Merchant ASUs

Possible production overlap


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4.0 Regional Analysis

The section details the analysis of all eight regions of the United States. For each region, the total market shares by company for 2015 is given, alongside the estimated market share by company in 2016. The 2016 market shares take into account the already completed Airgas/Air Liquide transaction (including divestments), and also combines the forecast market shares of Linde and Praxair. Locations and details of plants with possible production overlap are also detailed, on a regional basis. 1

NOTE: all reference made to 2016 market shares in this report assume merger happens and does not include any potential divestments.


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4.2 Mid-Atlantic

Mid-Atlantic Market Share 2015

Incorporating: Delaware, District of Colombia, Maryland, New Jersey, New York and Pennsylvania. The Mid-Atlantic region of the US is home to the fifth largest industrial gas market, out of the eight regions of the US. Revenues amounted to almost $2.1 billion in 2015 – up from $1.5 billion in 2005 – indicating an average annual growth rate of 3.1%, for the decade (2005-2015). Revenues were slightly down on 2014 however, by approximately 1%. Before Airgas/Air Liquide deal, in 2015 two major companies in Text the continues… contention for the number one market position in the region. gasworld Business Intelligence estimates that in 2015, Praxair managed to secure their number one market position by a marginal 1.9%. The company have cemented its top position in the region with a strong network of merchant ASUs and onsite supply contracts. Praxair also stand in good stead for the coming years, with a number of projects set to be commissioned in the region in the next few years.

Mid-Atlantic Market Share 2016 (forecast)

In 2016, after all required divestments, it is estimated that Air Liquide will hold a market share in the region of 30%. MATHESON have acquired two ASUs in the region, plus the nitrous oxide facility in Pennsylvania – this should help MATHESON achieve a market share of around 4% in 2016. If the potential Praxair/Linde merger is successful, the joint market share could equal 36%. This does not take into account any potential divestments – the Federal Trade Commission may take issue with the production overlap from merchant and onsite ASUs in the region.


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4.2.1 Mid-Atlantic Production Overlap Analysis 

A number of Praxair and Linde ASUs in the Mid-Atlantic region are close enough to each other to possibly pose a production overlap.



These include Praxair ASUs in Curtis Bay MD, Hatfield PA, Keasby NJ and Stockertown PA. In this zone, Linde also operates an ASU in Claymont Delaware.



A possible production overlap may also occur in the Buffalo/Niagara Falls area – Linde has an ASU in Buffalo – and Praxair in Niagara Falls.



No production overlap should be experienced with regards to CO 2 or hydrogen. This section contains analysis



of potential production overlaps of air gases, carbon dioxide and hydrogen.

Both Linde and Praxair operate a high number of onsite nitrogen plants in the region – however these are generally small capacity plants and should not pose an issue for the anti-trust authorities.

Mid-Atlantic Merchant ASUs Mid-Atlantic Onsite Nitrogen Plants


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5.0 US CO2 Market Dashboard – 2015/2016

US CO2 Market Share by Installed Capacity 20161 c.XX,XXXtpd

US Co2 Market Share by Installed Capacity 2015 c.XX,XXX tpd

$m

Carbon Dioxide Market Value 2000-2015

2000 1

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Assuming merger goes ahead – excludes any potential divestment


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App 1 - gasworld Business Intelligence Services For more information on the eight regional industrial gas markets of the United States, subscribe to Business Intelligence Online: North America. Each regional dashboard contains:        

Macroeconomic drivers Market shares by company Market shares by supply mode Market shares by gas End user market shares Regional gas market forecasts Interactive capacity maps ( ASUs, CO2, HYCO) Interactive cylinder filling location maps

All data featured in our dashboards is available to download – helping our customers to filter, search and analyse our extensive databases in their own, bespoke manner. gasworld business Intelligence online also provide analysis of most other industrial gas markets across the globe. Including:        

All European markets, Africa Middle East Central Asia South East Asia Japan India Australia

For more information on any of our services, please contact [email protected], or call +44 1872 225031.


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