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How COVID-19 has Impacted the CO2 Industry

Monday, August 31st, 2020

Carbon dioxide is used in our everyday lives more than we realize. From being used to transport the foods we eat, to paper, food processing, and beverages, CO2 is necessary.

The demand for carbon dioxide continues to grow across many industries through different applications such as:
1. Freezing and chilling food
2. Cannabis extraction
3. E-commerce food shipment (meal kits)
4. Microbreweries
5. Specimen temperature control

In the 1980’s and 1990’s, raw CO2 gas was traditionally sourced as a byproduct waste gas from oil refining, ammonia production, and ethanol. Demand for merchant CO2 grew to 10.2 mtpy over the past 5 years–1.3% AGR.

Overall, CO2 is estimated to grow 2.5% per year to 11.6 mtpy however, this estimate was based prior to the COVID-19 pandemic.

The Pandemic has challenged many things that are normal and continue to force the world as we know it to shift to its uncertainty. During the Pandemic, experts suggested that the shortage of CO2 is a big possibility that would affect both the demand and the production of Liquid CO2.

CO2 Demand and Production Concerns

In April, the Compressed Gas Association sent a letter signed by CGA members and concerned food and beverage manufacturers to Vice President Mike Pence. They urged that since the lower demand for ethanol and slowed economy in 2020, many plants have halted production thus affecting the production of CO2.

COVID-19 caused a glut in the gasoline and refining industry, thereby shutting down refineries. And due to a nationwide shutdown, gasoline consumption was at an all-time low. Suddenly, there was a halt in the need for ethanol, a gasoline additive.

The Response

Ethanol plants have been responding to an eroding gasoline market and economic slowdown in 2020 and subsequently either curtailed production or ceased production pending better economic conditions.

The price war between Saudi and Russia drove gasoline prices down to their lowest levels in years which further complicates the economics of blending ethanol for octane enhancement. And since the gasoline demand is falling, ethanol blending is following the same curve.

Ethanol pricing from February through March 2020 shows a downward trend of $1.28 to
$0.91/gallon. The Renewable Fuels Association (RFA) report that 29 of 45 ethanol plants that sell raw CO2 have idled or cut rates.

The U.S ethanol sector is the top supplier of commercial CO2 to the food industry, which
accounts for 40% of the market.

The Supply Impact

Meat plants such as Tyson and Smithfield Foods, are still feeling the effects of the CO2 shortage since it is heavily used in food processing applications.

Many other businesses that buy CO2 as needed without a contract are also struggling to fulfill their supply needs such as beer breweries. To address such a shortage, many breweries are shifting to using nitrogen as an alternative purge gas.

Although many nonessential businesses were shut down, the overall demand for CO2 rose due to businesses that use CO2 in their shipping process. Companies such as Omaha Steaks, Kansas City Steaks, and other e-commerce businesses that sell directly to the consumer at their door-step have caused an unusually high demand for dry ice, the solid form of CO2.

Due to the increased demand for CO2 products and the decreased supply scenario, because of lacking gasoline demand, COVID-19 has created the perfect storm for an unprecedented CO2 shortage in the United States.

Many buyers are facing increased prices while other customers are improvising with less as suppliers are rationing their CO2 supplies amongst all of their clients.

Regional Changes in the Market

Market conditions have taken a sharp turn on the West Coast with CO2 product supply. Every refinery is facing burgeoning storage. Causing them to either shut down or run at reduced rates.

In California alone, there are 6 liquid CO2 plants tied to refineries. Several refineries are currently shut down, forcing major liquid CO2 manufacturers to bring liquid CO2 to the market from other states via rail and truck to supply West Coast demand.

The Return to Normal

Some industry pros say it’s the worst shortage they’ve ever experienced. However, as the
the economy slowly gains momentum toward normalcy, many are a little more optimistic that supply and demand will eventually even out.

According to the Renewable Fuels Association, 106 out of 204 US ethanol plants were running at full capacity as of June 23. This number is up compared to only 46 plants in late April.

However, the CO2 industry is not completely out of the weeds yet. It is expected that these shortages will ease as the economy slowly picks back up, however, there still are forecasts predicting to see shortages into late 2020 and potentially early 2021.