This month’s column examines the business of specialty chemicals, which are omnipresent in our daily routines. Specialty chemicals deliver significant values to the end product and command a premium price. Innovation and product differentiation are the hallmarks of specialty chemicals. These are being threatened by waves of commoditisation.

Specialty chemicals are omnipresent in our daily lives. They make the toothpaste foam and lend a pleasing fragrance to the chore of dishwashing. They help us groom ourselves and keep our homes and workplaces spick and span. They enhance the appeal of the food and beverages we consume. Smartphones that rule our lives would be unthinkable without them. The global market for specialty chemicals was valued at $630 billion in 2019.

Performance Chemicals
Specialty chemicals are often used to impart specific attributes, like flavour, fragrance, texture, lustre, or colour to the end product. They may also be used to modify the physical properties like porosity, surface tension, or structural stability of the end product. Specialty chemicals are used to alter the performance and perception of the end product. They are almost always directly present in the end product used by consumers. Though they form a miniscule constituent of the end product, the specialty chemicals add significant value and often contribute to the brand-building of consumer products. Specialty chemicals have even enabled products to foray into new applications and markets. They are thus able to command a premium price.

Processes
The processes in the specialty chemicals industry usually employ complex chemistries involving hazardous reactions like hydrogenation, nitration, halogenations, etc. Batch processing is the norm in the industry. The manufacturing operations are often challenging with multistep reactions. The purities required are often exceptionally high. More often than
not, these processes are developed in-house after considerable investments in R&D. The chemistries and recipes are zealously guarded. The precursors and raw materials for manufacturing are usually very expensive. As many of these chemicals end up in consumer products, such as fabrics, food, and beverages, cosmetics, electronic goods, etc., the quality requirements are very stringent and unforgiving of even trace impurities.

Innovation
The specialty chemicals industry is knowledge-driven and lays great emphasis on innovation and R&D. Product offerings are often customised to meet the requirements of individual customers. Unlike commodity chemicals, specialty chemicals from various suppliers are not interchangeable with one another. These chemicals are used in such small quantities in the final product that their cost is not of much concern to the endusers. Switching to a low priced competitor could be ruinous as it would sabotage the quality of the final product. Businesses take great pride in their chemistry and molecules, which are closely guarded and cherished like family heirlooms. The specialty chemicals businesses thrive on their reputation of supplying innovative, differentiated products and providing responsive customer service. They are thus able to carve out niches for themselves in a widely fragmented industry. The market for specialty chemicals is consumer-driven.

Bundling Services
Sometimes specialty chemicals are so unique and customised that the supplies come bundled with services. A very good example of this can be found in cooling water treatment. Suppliers of cooling water treatment chemicals are also awarded O&M contracts with personnel stationed at the customer’s site to monitor the performance on a daily basis. Similar examples of handholding can be seen in applications of construction and industrial cleaning, where formulation and dosages are situation-specific.

Fragmented Industry
The specialty chemicals industry is deeply fragmented with more than 350 segments. These include polymer additives, construction chemicals, water treatment chemicals, colourants, surfactants, textile chemicals, flavours and fragrances, cosmetics and personal
care products, etc. Specialty chemicals can be grouped either by functions or by markets. A good example of the functional classification is provided by the popularly known CASE segment made up of coatings, adhesives, sealants, and elastomers. The market classification would be construction, electronics, automotive, oil field, etc. Four end-user industries – Construction, Electronics, Food and Beverage and Personal care and Hygiene – account for a lion’s share of the global consumption of the specialty chemicals.

Construction
Many economists believe that the post-pandemic recovery would be fuelled by a construction boom. A suite of chemicals is employed by the construction industry. These include concrete curing compounds, mould releasing agents, floor hardeners, surface retarders, water repellents, waterproofing compounds, adhesives, rebar coatings, epoxy grouts, and protective and decorating coatings. Chemical admixtures are the smallest constituents of the concrete mix, but provide significant benefits by enhancing the compressive strength, durability and surface finish. Salts of lignosulphonic acids and hydroxycarboxylic acids are used as retarders in hot climates to slow down hydration of cement and lengthening the setting time. In colder climes, calcium formate and calcium chloride are used to accelerate cement hardening and reduce the setting time. Adhesives find myriad applications in construction for tile fixing, panel fixing, floor covering, etc. Adhesives based on polyurethane, acrylics, and silicones are commonly used.

Food and Beverage
Chemicals are used as additives in foods and beverages to improve their safety, freshness, flavour, texture, and appearance. The main types of additives are – thickeners and stabilisers, emulsifiers, colourants, sweeteners, enzymes, and preservatives. Additives ensure processed foods stay safe and fresh on their long journey from factories to homes. Thickeners and stabilisers, referred to as food hydrocolloids, are added to imbue food with stability, structure, and mouthfeel that customer’s desire. They are commonly used in bakery and confectionery, dairy products, and frozen desserts. Many of these are derived from natural sources like proteins and starches, but they are also produced synthetically at
lower costs.

Electronics
The electronics industry depends upon a broad spectrum of specialty chemicals to manufacture various components. Electronic Chemicals, as they are called, are used in the fabrication of semiconductors, integrated circuits, and printed circuit boards, and photovoltaic cells. Electronic Specialty Gases are used in various fabrication processes like film deposition, film etching, substrate doping, and chamber cleaning. These include various silanes, halocarbons, arsine, diborane, phosphine, germane, and various oxides of nitrogen.

Care and Hygiene
This segment of specialty chemicals addresses our physical and psychological well-being. Consisting of products for personal and home care and for home and workplace cleaning, this segment has come into the forefront following the COVID19 pandemic. Surfactants, pigments, fragrances, and solvents are some of the major chemicals that go into formulation of the care and hygiene products.

Commoditisation
The specialty chemicals industry has been fighting strong headwinds of commoditisation and consolidation for several years. Commoditisation will remove product differentiation, the USP of the specialty chemicals business. The increased standardisation and competition will depress margins, which in turn will hurt investments in innovation. The specialty chemicals industry needs to innovate continuously to keep pace with the rapidly changing demands of the new economic order that is bound to shape the postpandemic world. This will also help it stave off commoditisation.

Readers’ responses may be sent to:
k.sahasranaman@gmail.com or
chemindigest@gmail.com

Dawn is breaking on the Hydrogen Economy and nations across the developed world are ramping up investments in technologies and infrastructure. This month, our columnist examines the various technologies to produce Green Hydrogen by splitting water using renewable power. The Hydrogen Economy is estimated to grow into a $12 trillion behemoth in the next three decades.

Green Hydrogen

Early during the present pandemic, on 20th April, the US oil benchmark West Texas Intermediate dropped below zero, hitting a jaw-dropping value of minus $37.63. But even more remarkable was the calmness with which the markets greeted this surreal information. Apparently, the world was expecting this sooner or later and was not prepared to shed tears for the impending demise of the fossil fuel. Though the fossil fuel may be around for some more decades, the bugle heralding the dawn of the Hydrogen Economy has been sounded loud and clear.

Hydrogen Economy
The idea of a Hydrogen Economy appears to have been first mooted 50 years ago in a concept paper – Towards a Liquid Hydrogen Fuel Economy – by Lawrence Jones in 1970. The environmental benefits of the Hydrogen Economy are only too obvious, yet high cost and lack of infrastructure has held back its adoption all these years. But with the climate change monster’s foot already in our door, there is scarcely a moment to waste, notwithstanding even the ongoing pandemic. If anything, the pandemic has only heightened the public awareness of health and environment. Politicians and policymakers can ill afford to be blind to this altered public perception.

Colours of Hydrogen
Three different kinds of Hydrogen are being recognised based on their environmental footprint. Grey Hydrogen is produced by steam reforming of fossil fuels, usually Natural Gas. Hydrogen derived from fossil fuels, but accompanied by CO2 capture, is dubbed as Blue Hydrogen. Green Hydrogen, the most sustainable variant is obtained by electrolysis of water using renewable energy. A deep synergy exists between Green Hydrogen and renewable energy. Cheaper renewable energy will drive down the cost of Green Hydrogen. Also Hydrogen may be a more sustainable alternative to metal-based batteries when it comes to storing and smoothening out the uneven production of power from renewables. The share of renewables in global electricity generation was 28% in Q1 2020 and is expected to grow to 45% by 2040.

Technology
Water splitting by electrolysis is more than 200 years old and was first demonstrated in 1800 by William Nicholson and Anthony Carlisle. The first industrial electrolyser was constructed in 1888 and by the turn of the century, few hundred electrolysers were in operation. Electrolysis of water for onsite generation of Hydrogen has been for very small volumes. This has to be scaled up by several orders of magnitude in a robust Hydrogen economy. Two matured technologies are available today for producing Hydrogen by electrolysis of water – Alkaline Electrolysis and Proton Exchange Membrane (PEM). Some more technologies are in advanced stage of development and are expected to break the existing duopoly.

Alkaline Electrolysis
Alkaline Electrolysis, the older of the 2 established technologies, typically uses 30% KOH solution as the electrolyte. The cathode and anode are separated by a porous diaphragm, which was historically asbestos based. Following the ban on asbestos, many other materials have been developed. The electrolyser is operated at a maximum temperature of 90 degrees C and the pressure is limited to 30 bar. The current density is typically between 2 and 4 KA/m2 and a representative power consumption is 4.5 KWH/Nm3 of Hydrogen. The largest Alkaline Electrolysis plant was started up in Japan, in March this year. It can produce 1200 Nm3/hr (900 tpa) of Hydrogen.

PEM
Proton Exchange Membrane (PEM) technology, also known as Polymer Electrolyte Membrane technology was first deployed in 1970s in space and military applications. The largest PEM facility for production of Hydrogen is expected to go on stream this year in Germany, befittingly at the site of the country’s largest refinery – Shell Rheinland Refinery near Cologne. The plant will consume 10 MW power to produce 1300 tonnes of Hydrogen per annum. Central to the PEM technology is a polymer membrane that electively transports protons from the anode to the cathode. The technology has several advantages over Alkaline Electrolysis. These include higher current densities, typically 5 times higher than the Alkaline Electrolyser. But a more significant advantage is its ability to respond to fluctuations in power, typically associated with renewables. The PEM cell is also safer because the membrane acts as an effective barrier between Hydrogen and Oxygen. PEM cells are expensive because the electrodes have materials like Platinum as catalysts.

AEM
Anion Exchange Membrane (AEM) technology seeks to build on the advantages of PEM and Alkaline Electrolysis. Operating at higher current densities and using less expensive materials it aims to lower the investment cost significantly. At the heart of the AEM technology is the membrane that will selectively transport hydroxyl ions from the cathode to the anode. The membrane is still under development and has received a funding of $ 2.4 million from European Union’s research programme. The membrane is expected to be in operation by 2022. The project sponsors are targeting to bring down the installed cost of AEM plants to $600-$700 per KW against $1200/ KW for PEM and $950/KW for Alkaline Electrolysis.

SOEC
A dark horse in the arena of Hydrogen Economy is the Solid Oxide Electrolysis Cell (SOEC). The cell operates at high temperatures in the range of 700 to 1000 degrees Celsius and reverses the process occurring in a fuel cell, converting electrical energy into chemical energy. Power required for SOEC is significantly lower, typically 3 KWH/Nm3 Hydrogen as against 4.5 KWH/Nm3 Hydrogen for Alkaline Electrolysis. The main advantage of SOEC lies in the possibility of co-electrolysis of steam with CO2 resulting in syngas, which can then be used as a building block for the production of various hydrocarbons. The high temperature operation however poses many material and engineering challenges including the structural stability of the electrodes. The technology is still in a nascent stage and much needs to be done before it can see the light of commercialisation.

Epilogue
Hydrogen is expensive today and accounts for only about 1% of the global production of Hydrogen. International Energy Agency (IEA) estimates the cost of Green Hydrogen at $3 – $7.5 per kg compared to $0.9 – $3.2 per kg for Grey Hydrogen. For Green Hydrogen to become competitive, two things need to happen – Electrolyser costs have to drop and renewable energy has to get cheaper. Big investments in these two areas are expected to drive down the costs in the next two decades.

Readers’ responses may be sent to:
k.sahasranaman@gmail.com or
chemindigest@gmail.com