Factors driving CO2 supply shortage
The short story is that the United States CO2 market ran dangerously low of carbon dioxide in 2022.
But the “short story” doesn’t provide the context necessary to help restauranteurs and beverage professionals understand the root causes of the CO2 supply shortage or how to mitigate risks in the future. We are going to do our best to provide an overview of the 2022 supply shortages and their causes, what the crystal ball is saying about 2023 supply, and what you and your team should consider as risk mitigation opportunities for this year and beyond.
Why is CO2 so important?
For reference, CO2 is a vital component in beverage and craft-beer production due to its use in carbonation. In addition, CO2 is used keep oxygen out of the process which can introduce off-flavors - especially in beer. Even the smallest amounts of oxygen can cause issues in finished beer, so brewers tend to use a significant amount of pressurized carbon dioxide to keep oxygen out of their equipment.
When a brewery or beverage industry tries to conserve their use of carbon dioxide we typically find higher oxygen levels as a result. This affects beer stability and create stale flavors in beverages sold as packaged products.
Why is there a CO2 supply shortage?
The shortage in carbon dioxide in the US is due to multiple carbon dioxide suppliers suffering from gas contamination. For example, Denbury found out that their Jackson Dome Carbon Dioxide plant in Mississippi was contaminated with gas from an extinct volcano!
This delay in production prevented suppliers like Denbury from providing the CO2 needed to produce products. For beverage industries, the demand for carbonated beverages and beer is continually on the rise. With this shortage the impact on businesses was evident.
Overall, beverage grade carbon dioxide comes from three main sources. It is a:
- Byproduct of ammonia production
- Byproduct of ethanol production
- Pulled from natural wells
During ammonia and ethanol production, CO2 is stripped off as a waste product, captured, refined, cleaned, and shipped to restaurants and other end users.
As of early 2023, data shows that the US CO2 supply is 2,500 metric tons per day below market demand. Besides restaurants, other markets that use CO2 include welding, food packaging, cannabis cultivation, fire suppression, and many more.
How does the shortage of CO2 supply effect society?
At the end of every summer, when farmers are starting to need less ammonium nitrate fertilizer, the ammonia plants close for regular maintenance. Normally, these closures put strains on the regular CO2 supply chains. But the markets have become accustomed to the late summer closures by creating methods of smoothing out supply, designing in extra storage capacity, and using delivery management tools all ensure the end user sees no supply interruptions. These plant closures happened on schedule in 2022 reduced supply in the market by roughly 20-25%.
Then, an unforeseen series of events occurred.
Several ethanol plants across the US in Virginia, New Jersey, Georgia, California, and others went off-line for unscheduled maintenance around the same time. These plant closures took another 10-15% of CO2 supply out of the market.
As a result, the bulk CO2 supply shortage, while not effecting the society on an environment level, preventing normal production of products that used CO2 as an input despite the improved state of the economy.
When it comes to beer, as a result people were not able to socialize as they once did before due to the shortage.
Why is there a shortage of CO2 for beverage?
One of the largest disruptions in CO2 supply occurred when Jackson Dome experienced benzene contamination due to cross contamination from new wells. Benzene is a chemical that cannot be in beverage-grade CO2 because it will cause terrible flavors and smells in your soda and beer. The issue at Jackson Dome took approximately 25-30% of the CO2 supply out of the market.
If you combine both foreseeable and unforeseeable issues, the US lost nearly 60% of its beverage CO2 supply in late August/early September 2022. These issues were immediately identified, and work began to rectify them rapidly. However, CO2 supplies did not start to return to normal until mid-November 2022.
What is the future impact of CO2 shortages?
Because 70% of the bulk carbon dioxide produced in the united states is used by the food and beverage industry, gas shortages will force companies to find ways of using less CO2.
However, looking at trends in the industry, we find the shortage may not be as critical as some may assumed - especially for the future.
Looking into the the future we also see these trends:
- Ammonia plants will continue to go offline for regular maintenance
- We will have unscheduled maintenance issues at ethanol plants
- We should not have unforeseen contamination issues at natural well sites
If managed appropriately by the major and independent CO2 suppliers most customers may see some supply tightening - but few outages. However, if any of the three major CO2 sources has unforeseen issues we will see supply chains tighten again leading to shortages or outages again.
One other factor that is starting to come into play is carbon capture, utilization, and sequestration – known commonly in the market as “CCUS” or “45Q”.
45Q is a portion of the US Tax Code that was enacted in 2008 that provides tax incentives for capturing CO2 and either utilizing it or sequestering it permanently. As it stands today, it is five times more profitable to sequester CO2 than it is to sell it in the market. This means that we are likely to see valuable CO2 permanently sequestered rather than being used.
What gases can be used instead of CO2?
As stated by the British Compressed Air Society (BCAS), nitrogen can be used in place of carbon dioxide in breweries and beverage plants to remove oxygen when purging tanks to prevent contamination. Like CO2, N2 is an inert gas.
For consumers, nitrogen is not a suitable alternative as it offers a unique mouthfeel and smoothness due to being less soluble in liquid than CO2.
Nitrogen can be used for cleaning, pressurizing, and inerting purposes rather than carbonization of hop-forward beers and beverages.
Therefore, breweries may choose to use more nitrogen for maintenance in order to conserve CO2 for beer.
Mitigating the risk of bulk CO2 shortages
These five steps can help mitigate the risks of CO2 outages in the future.
- Work with your contracts and procurement teams to understand your CO2 contracts in detail. How are shortages detailed? What actions can you take if you are run out? Do you understand the force majeure clause?
- Ensure that you know who in your organization is having regular conversations with your CO2 supplier about potential shortages. Don’t take it for granted that someone is either. Is your supplier forthcoming with CO2 supply information or are they “playing off the potential issue” like it is no big deal?
- Stress the need for regular reviews and maintenance of your beverage dispense systems - both soda and beer. Ensuring that your systems are working at optimal performance not only ensures that your using the right amount of CO2 but it also ensures maximum profits too. You have regular maintenance on your HVAC and fire suppression systems - why not your beverage systems too.
- Educate yourself on the market and current trends – and speak up. Make a note to check on the CO2 markets as the summer draws closer. Contact your Congress people and ask them to ensure that CO2 is utilized to the full market demand BEFORE 45Q credits are provided for sequestration.
- Involve other trusted partners inside and outside the restaurant world to ensure you have the entire picture. “Hey Sam. Who helps you understand the market conditions and issues besides your CO2 supplier?” If you don’t already have these people in your contact list identify them immediately and start conversations now instead of scrambling when issues are happening.
For more information on carbon dioxide insights, gas detection, and industry trends, visit our blog page to learn more or contact us at 877-678-4259.