Further limitations driven by lack of access to transportation, reliable power supply, fragmented volume demand, availability of capital and so on aggravate this issue in LMIC’s. A multipronged approach of policymaking, corporate engagement and localised investments can help ensure medical oxygen supply during this critical period and beyond.
How has COVID-19 affected global medical oxygen demand?
Medical oxygen is a resource with significant value in critical healthcare and in first-responder settings. According to the PATH COVID-19 Oxygen Needs Tracker , as of 22 March 2021, low- and middle-income countries in aggregate required about 10,813,000 cubic metres of medical oxygen per day; This equated to 1,544,770 cylinders of 7 m^3 capacity. COVID-19 resulted in a significant oxygen demand spike through 2020.
This increase in medical oxygen demand had to be met from a supply that was constrained even before the pandemic, with the shortfall particularly evident in Africa.
The Access to COVID Tools Accelerator (ACT-Accelerator) estimates a funding need of USD 1.6 billion over the next twelve months to address urgent, short-term oxygen requirements for the most challenged countries . The severe medical oxygen shortages in LMIC has contributed to the premature death of many patients who may have otherwise survived the disease .
What are the key factors for supply and demand?
Oxygen is a non-perishable resource that is available in abundance around us. However the oxygen separation process is an energy and capital intensive one with distribution often limited to a 150-200 mile radius.
The base oxygen needs in an area depends on the capacity of the health system and the number of hospital beds (Intensive Care Unit (ICU) vs. non-ICU) in the system. Clear visibility on medical oxygen customers and long term volume commitments are required to drive capital for oxygen investments.
The largest scale industrial gas plants utilise cryogenic processes to separate air into constituents and they supply the concentrated oxygen in gaseous or liquid form to various industrial and health settings.
The industrial gas space is highly concentrated with few publicly traded entities controlling the supply chain. In geographies with predictable but lower volume demands, air separation technologies such as PSA or VSA (pressure swing or vaccum swing adsorption) can be used to create medical oxygen at scale.
What 'on the ground solutions' can meet this spike in demand?
The medical oxygen supply issue cannot be fully solved using only market-based mechanisms – creative thinking about existing facilities and pricing models can also help. The quickest way to access medical oxygen is by utilising existing assets on the ground.
Governments can take the initiative to identify air separation units serving domestic industrial plants, metal and mining operations and so on to understand the feasibility of collaborating with existing gas producers for producing medical oxygen.
Policymakers also can play a role in increasing the price transparency of medical oxygen and thereby create accountability on the part of industrial gas companies. An example is the recently launched Indian e-marketplace portal , which is designed to help public health systems compare and contrast pricing.
Captive PSA/VSA oxygen generators is an option for small to medium sized hospitals who do not have access to product from the large gas distributors. For rural areas with lower oxygen volume requirements, portable oxygen concentrators or oxygen cylinders is a viable solution.
In all the solutions mentioned above, there is a role for allocators to provide risk based capital or concessionary capital upfront to fund the projects.
Given the complexity of issues at hand, the world must be ambitious and target a multipronged approach to solve for the oxygen shortage issue.
What role can public market investors play?
This industrial gas space is highly concentrated with a few large publicly traded entities controlling the supply chain. Investors can play an active role in this issue by identifying best practices in the medical oxygen value chain and holding companies accountable for key performance indicators in served geographies. A positive response from policymakers, investors and corporates is required to create a more efficient and equitable oxygen supply system, which can support wider health care needs beyond the COVID-19 pandemic and into the future.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.