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How Rare Gas Supply Fits into Russia’s Warfare

Tonwar Ukraine has reconfigured the flow of oil and gas around the world. Its impact on another supply chain is less obvious: the so-called noble gases — neon, krypton and xenon — which are used in everything from chipmaking to medicine to space propulsion. According to John Raquet of industrial gases specialist Spiritus Consulting, Russia and Ukraine have long been major suppliers, accounting for around 40-50% of global neon supplies and 25-30% of xenon and krypton supplies before the conflict . At times, their share of the neon supply is as high as 70%.

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So after the Russian invasion there were concerns about disruption to chipmakers, which use neon gas in lasers to etch circuit patterns onto silicon wafers that supply other industries. The European Commission’s scientific advisory body, the Joint Research Centre, warned of “serious” disruptions, noting that neon shortages could “seriously affect supply chains for industries that rely on semiconductors”. To make matters worse, the semiconductor industry is looking to ramp up production to meet post-pandemic demand as the war begins. However, a year later, chaos has apparently been avoided. Where did you get it right?

Krypton, neon and xenon are byproducts of air separation, an industrial process used in steelmaking to extract oxygen and nitrogen from the atmosphere. This allows recovery of the remaining mixture, from which the gas can be extracted in specialized purification facilities. In the 1980s, the Soviet Union built air separation plants at steel plants in Russia and Ukraine. Its goal is to produce gas for military lasers to compete with the US “Star Wars” program. After the disintegration of the Soviet Union, Russia and Ukraine became the world’s rare gas suppliers. Even after Russia annexed Crimea in 2014, Russian steel mills continued to ship noble gas mixtures to Ukraine for purification.

That flow stopped after the Russian invasion last year. The conflict has also affected operations at Ukrainian steel mills. As a result, Ukrainian noble gas purifiers have been operating at a fraction of full capacity. At the same time, sanctions have limited Russian exports. The drop in supply has sent wholesale prices soaring, especially for xenon, from $15 a liter in 2020 to more than $100 by mid-2022.

In response, chipmakers have tapped their rare gas reserves and invested in technologies that can recycle them. Other buyers reduce use or switch to substitutes. For example, xenon gas is sometimes used as an anesthetic, but is less commonly used when it is replaced by gases including nitrous oxide if expensive. Other gases, such as argon or nitrogen, can be used in place of krypton in triple-glazed windows. Krypton and xenon are used as propellants in satellite thrusters, but the latest Starlink satellites launched by SpaceX are now using argon instead.

Retrofitting an air separation plant with a tap to extract the noble gas mixture is costly and results in a two to three month downtime. But new factories are being built and taps installed, which will increase future supply. At the same time, Russia diverted its exports to China, which had a surplus at the time, and began exporting its own products.In Japan, President Koizumi Yoshiki said gas review, an industrial gases magazine, is working to increase domestic production through a combination of revamped and new plants. Mr Raquet noted that South Korea, another chip-making hub, aims to become self-sufficient in rare gases within the next few years.

Overall, these efforts to reduce consumption and increase supply have stabilized the market. Prices have come off their highs; a liter of Xenon is now around $45. Media coverage of the warnings has been helpful, said Dan Hutcheson of TechInsights, a consultancy. He noted that as prices rose, it created a “one-hit-two-hit,” prompting companies to act quickly. At the same time, demand fell. By mid-2022, it became clear that the chip shortage was turning into a glut.

Strengthened supply chains and diversified suppliers mean that the rare gas industry is now less vulnerable to geopolitical risks. Companies of all kinds have been paying more attention to their supply chains lately in response to disruptions caused by trade disputes, covid-19 and the war in Ukraine. When companies fail to deal with the chaos, they make headlines. As the rare gas industry has shown, very few people notice when they succeed.

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