How can the Industrial Gas Sector Increase Efficiency, Reduce Cost, and become more Environmentally Friendly? | Financial Buzz

How can the Industrial Gas Sector Increase Efficiency, Reduce Cost, and become more Environmentally Friendly?

The industrial gas sector constitutes a few well established large companies that compete aggressively on price and the efficiency of their products. In the Unites States, Air Products and Chemicals (NYSE: APD), Airgas, Inc. (NYSE: ARG) and Praxair (NYSE: PX) are market leaders, and in Europe the German based Linde AG is at the peak. Some of the most common gas produced by these companies are: nitrogenoxygencarbon dioxidehelium and acetylene. The uses of industrial gases are very diverse and spread across a number of industries, from aerospace and electronics to manufacturing rubberplastics or paint to metal cutting or welding, and the list goes on.

Producers of industrial gases, in particular public companies and their stocks, are highly volatile to economic conditions and changes. High dependency on overall market growth is evident since major gas buyers are spread across so many different sectors. As a result, sales of industrial gases have shown impressive growth over the last five years, due to an increase in production rates of key gas buyers.

Smaller companies that want to capitalize on some of the key gas buyers in the industry are finding it hard to compete and grow market share. It is possible however, with recognizing industrial weaknesses and creating innovative solutions, barriers to entry can be overcome. MagneGas Corporation (NASDAQ: MNGA) for example, targets acetylene as such a weakness.

Acetylene is one of the most widely used gases in the industrial sector, where it is often used as a fuel for metal cutting purposes and welding. It is considered to be the hottest and therefore most efficient of all fuel gases. A mixture of acetylene with oxygen generates a flame of about 6,000°F, which results in improved cut quality and higher cutting speeds. The downside is that acetylene is highly flammable, and has a tendency to explode every so often due to its intrinsic instability, thus any changes in pressure or temperature can cause an explosion. On March 2011, a Carbide Industries production plant near Louisville, KY exploded and two workers were killed. This was one of the largest local acetylene production plants at the time, and the explosion resulted in major shortage of the gas causing sale prices to rise. Even though production rates of acetylene have recovered since the incident, it remains the most expensive gas in the metal cutting and welding sector due to its complexity. Also, several greenhouse gases are emitted during the production of acetylene, making it environmentally hazardous. In conclusion, acetylene is dangerous, expensive and dirty.

MagneGas Corporation (NASDAQ: MNGA) has the technology to fix all these disadvantages and offer a more efficient product at the same time. MagneGas is an alternative energy company that focuses on production of hydrogen based fuel. The company owns a patent for a technology called ‘Plasma Arc Flow’, which works by gasifying and sterilizing liquid and liquid waste, creating a gaseous fuel called MagneGas. The fuel can be used for metal cutting, cooking, heating, or powering natural gas bi-fuel vehicles. As of right now, the company focuses on the metal working market, which is a multi-billion market.

Hydrogen fuel is not a new invention, and it is known that hydrogen fuel is safe, clean and cheaper, yet it is the first attempt to replace acetylene with such a fuel. Last year MagneGas revealed it’s a second generation cutting fuel, MagneGas® 2, and the tests performed using it generated impressive results. The fuel cuts about 40% faster than acetylene, while producing less smoke and providing a clean plasma quality cutting. According to a study verified by the City College of New York, MagneGas fuel has a very high combustion flame temperature of 10,500°F. The company states that the higher the temperature, the more complete the combustion of the fuel, resulting in cleaner emissions.

MagneGas2 is gaining in popularity since the start of 2015 and has had several positive developments. On January 12th, MagneGas Corp announced that it has received formal confirmation from the Special Operations Command of the Fire Department of the City of New York (FDNY) that it has successfully completed testing MagneGas® to use for metal cutting, as an extraction tool and has placed its first order of fuel. Then on February 17th, MagneGas announced that one of the five largest electric utilities in the U.S. has chosen MagneGas2® fuel to replace acetylene at their power and repair facilities. MagneGas did not disclose the name of the utility due to concerns over competitive interference while the product is being launched at the facilities, a process that will take the next several months to complete. Most recently, on February 26, the company received their largest single order of MagneGas fuel yet – a minimum of 1,300 cylinders ordered by Two Rivers Demolition, Inc. for a large demolition project in California. In response, the stock surged by 16% after the announcement. Since the beginning of the year, the stock of MagneGas increased in value by about 25%.

The risks associated with MagneGas are all about the penetration power of the company into an industry dominated by a few large and strong companies. MagneGas has identified the weakness and may have the technology necessary for success. It is important to remember however that MagneGas is yet to report any profits, and it might take some time before investors will see positive cash flow. For now, MagneGas seems to be working hard to attract more attention as they expand. On Monday, March 23, 2015, MagneGas will host the UN World Water Day Summit at the United Nations Headquarters in New York City. This event will give MagneGas an opportunity to reveal its sterilization system to top industry leaders and international organizations.