Supply Mode
Industrial gases are continuously required by large-scale industries including oil refining, chemical processing, and steel manufacturing, among others.
Globally, on-site production accounted for 28.3% of the total industrial gases demand, valued at USD 28.4 billion in 2023. In India, the on-site production supply mode constituted 16.7% of the total industrial gases demand by value in the same year. Almost 3.2 million tons of gas was supplied through on-site production in India in 2023.
The industrial gases industry is characterized by high customer stickiness, particularly for large customers, as gas generated is directly supplied by pipelines based on long-term contracts, typically ranging from 15 to 20 years. This arrangement makes transitioning suppliers cumbersome, inconvenient from an integration perspective, and financially onerous. Additionally, customers are highly selective in choosing new suppliers for industrial gases due to the critical role these gases play in the overall manufacturing process across industries, and the high costs and risks associated with switching suppliers, especially where product reliability and uninterrupted supply are essential.
Obtaining and maintaining the necessary qualifications and meeting internal supplier selection procedures is time-consuming and capital-intensive, constituting a significant barrier to entry for new industry players. The on-site business model provides unique advantages in terms of infrastructure integration with customers, reducing their inclination to seek alternative suppliers. This model ensures a clear demand pipeline and assured cash flows for suppliers.
The supply of industrial gases to government organizations, typically undertaken through a tender process, involves stringent qualification criteria, further acting as a barrier to entry for new entrants in the market.
In 2023, bulk container supply, including tankers, accounted for 31.8% of the global industrial gases demand by value. In India, this mode constituted 41.3% of the total industrial gases demand by value, with approximately 4.1 million tons of gas supplied through bulk containers.
For medium to large-scale consumers who require substantial quantities of gases but lack the resources or demand for on-site production, bulk containers (including tankers) provide an affordable option. By reducing the frequency of smaller deliveries, this method minimizes environmental impact and lowers transportation costs related to gas supply logistics.
Bulk gas supply involves transporting gases in liquid form via cryogenic tankers to the consumer’s site, where they are stored in large cryogenic storage tanks. These storage systems maintain the gases at extremely low temperatures to keep them in a liquid state, which is more economical for transportation due to the higher density of liquid gases. At the point of use, the liquid gases are converted back into their gaseous form through vaporizers. This process ensures a steady and dependable supply of gases for sectors such as petrochemicals, automotive production, and food and beverage processing.
Bulk gas deliveries are convenient and efficient, as many companies already have the necessary infrastructure to handle them, integrating well with their current operating and supply chain procedures. This method is particularly advantageous for industries requiring a continuous and high-volume gas supply, ensuring operational efficiency and cost-effectiveness.
In 2023, the supply through cylinders accounted for 39.9% of the total industrial gases demand by value globally. In India, cylinders constituted 42.0% of the total industrial gases demand by value, with almost 4.2 million tons of gases supplied through cylinders.
Cylinders are preferred for specialized and smaller-scale applications due to their versatility in handling different types of gases and varying demand levels. Firms can avoid the high capital costs associated with bulk storage systems or on-site manufacturing facilities by using cylinders. This makes them a practical option for both suppliers and end users, as they are easy to distribute and handle.
For package customers, the seamlessness of the supply chain, controlled transportation conditions, familiarity with suppliers, and safety and quality control concerns limit the extent to which customers are willing to switch suppliers of industrial gases. The package business is geographically limited due to the risks associated with transporting industrial gases over long distances and the high transportation costs involved.