An extensive analysis of the various segments of the food processing industry was undertaken to assess the market opportunities for the closed-cycle air refrigeration (CCAR) technology. Opportunities for use outside food processing were also explored. Fact finding included interviews of individuals in the food processing, refrigeration, marine propulsion, petrochemical, and gas utility industries as well as a review of available market studies and secondary resources. The further-processed food segment showed the greatest promise of growth and benefit from CCAR’s niche capabilities.

CCAR is a niche technology for providing –70°F to –150°F ultra-cold temperatures cost effectively and without harmful environmental emissions to the food processing, volatile organic compound recovery, and liquid natural gas industries. Table 2 compares CCAR technology with mechanical and cryogenic refrigeration for food processing.

Conventional mechanical refrigeration systems operate effectively down to –70°F but cannot reach ultra-cold temperatures below –70°F. Liquid nitrogen and carbon dioxide cryogenic refrigeration systems can provide ultra-cold temperatures, but at four times the cost of mechanical refrigeration. CCAR is a cost-effective alternative for the –70°F to –150°F niche, delivering ultra-cold refrigeration at half the cost of cryogens.

Food Processing Industry

Food growing and processing represents one of the largest industries in the U.S. economy, with more than $700 billion in annual sales. At the beginning of the supply chain, the agriculture and livestock sectors generate annual sales of $200 billion. Next in the chain are food processors, which convert crops, livestock, and dairy products into processed foods and generate annual sales of $502 billion (Morris, 2000).

As indicated in Figure 2, supermarkets and food service establishments complete the value chain.

Figure 2. U.S. Food Industry Value Chain

• This segment represents annual (1999) sales of $472 billion (Progressive Grocer, 1999).
  
• Food items are sold wholesale to the food service industry (restaurants, fast food, and institutional markets). The food service industry generates annual (2000) sales of $399 billion (National Restaurant Association, 2001).
  

Food Processing Industry Trends

Sales revenues from processed foods have grown at an average annual rate of about 2 percent (Table 3).

While this average rate is expected to continue, certain segments of the processed foods industry are projected to grow at significantly higher rates. Major industry segments include:

• Room temperature items, such as cereals, canned foods, and bakery products.
  
• Refrigerated or frozen items, including meats, poultry, and seafood. Processing steps are limited to slaughter, washing, chilling to facilitate cutting up, weighing, grading, product forming in tumblers and presses, freezing, and packaging.
  
• Further-processed foods, including meats and poultry items that are marinated, seasoned, cooked, combined with vegetables and other items, and frozen.

Further-Processed Foods

The $131 billion further-processed food segment is projected to experience rapid growth. Since this segment also specifically benefits from CCAR’s ultra-cold niche capabilities, it is an attractive end market for the Advanced Technology Program (ATP) funded CCAR technology.

• A 1998 survey of the U.S. broiler industry indicated that “further-processed food production has grown over 6 percent per annum against 2 percent growth for the broiler industry” (Broiler Industry, 1998).
  
• The “further-processed foods market is the fastest growing segment of the foods and beverage marketplace. It is expected to achieve an annual growth rate of 13 percent between 2000 and 2005.” (Refrigerated & Frozen Food Processor, 2000)
  

As indicated in Figure 2, the further-processed food industry is segmented into several components, each with different economic characteristics.

• Value-added meats and poultry are sized, seasoned, marinated, precooked, and sold to the food service industry and require some additional preparation before serving. U.S. sales in 1999 were $41 billion.
  
• When sold to retail customers, value-added meals are tagged as “home meal replacement items.” U.S. sales in 1999 were $85 billion. This market segment is expected to grow to $109 billion by 2002 (American Frozen Food Institute, 2000).
  
• Ready-to-eat meals, sold to retail customers as complete meals, are ready for microwaving without additional preparation. U.S. sales in 1999 were $5.3 billion.
  

Twenty-five percent of restaurant owners expect to increase utilization of further-processed foods over the next five years (National Restaurant Association, 2001).

Figure 3 indicates the key market drivers of the further-processed food industry: convenience, food safety, food quality, and food product standardization.

Figure 3. Market Drivers for the Further-processed food Industry

Changing Demographics

The underlying factor behind the rapidly growing demand for further-processed foods is demographic change (Figure 3). “As the number of employed persons in the U.S. continues to increase, the amount of time left to prepare meals at home continues to fall. Nearly 4 out of 10 adults (39 percent) reported that they are cooking fewer meals at home than two years ago. Nearly 3 out of 10 adults reported that purchasing takeout food items is essential to the way they live. This trend is more pronounced among younger adults with 47 percent between the ages of 18 and 24 reporting extensive use of takeout foods” (National Restaurant Industry Association, 2001).

Time-pressed patrons have fueled the growth of further processed (value-added and ready-to-eat) retail foods and, given their increasing affluence, have supported 5 percent annual growth rates in the restaurant, fast food, and take-out food service sectors. In 2001, the restaurant industry will post its tenth consecutive year of real sales growth (National Restaurant Industry Association, 2001).

The underlying demographic factors associated with the growth of further-processed foods can be resolved into four market drivers.

• Market Driver 1: Improved Convenience. “As the foodservice industry enters the new millennium, consumer macro trends indicate increased demand for convenient, value added prepared food products at a fair price” (American Frozen Food Institute, 2000). In 1998, the industry responded with a record number (28 percent increase) of new product introductions; that is, new ready-to-eat dinners and entrees, component meals, holiday meals, pizzas, appetizers, and meat, poultry, and seafood products (Refrigerated & Frozen Food Processor, 2000).
  
  
• Market Driver 2: Food Safety. Food safety, along with drinking water safety, ranks high as a key public sector concern. Bacteria, such as E.coli, salmonella, and listeria, remain the top food safety issues.
  

The Internet is emerging as a source of information about food safety. In 1999, 23 percent of consumers ranked the Internet as their main source of food safety information (Morris, 2000).

Food safety concerns have resulted in increased demand for fully cooked products, such as fully cooked sausages and meat dishes (Refrigerated Foods, 2000). However, any food, even if fully cooked, can grow bacteria in the 40°F to 141°F temperature range, the so-called “danger zone.” The U.S. Food and Drug Administration and the U.S. Department of Agriculture Food Safetyand Inspection Service advise consumers to ensure that even precooked and ready-to-eat meals are refrigerated to below 40°F (American Meat Institute, 2000). CCAR is an innovative refrigeration technology that can accelerate the rate of cooling of hot, cooked, further-processed foods. That is, CCAR can facilitate passing through the “danger zone” quickly, thereby minimizing food safety concerns.

• Market Driver 3: Food Quality. In the retail and food service markets, customer satisfaction with freshness, taste, and appearance (that is, food quality) have been steadily improving. Both retail and food service companies are in highly competitive industries and understand that quality wins and retains customers (National Restaurant Industry Association, 2001). As Figure 5 indicates, freezing is an important step in producing high quality, further-processed foods.
  
  
• Market Driver 4: Standards and Labor Savings. In the food service industry, product quality and consistency are paramount. Obtaining the necessary quality and consistency levels can be labor intensive. When food service establishments purchase precooked items that are standardized per weight, size, and moisture content, several steps in the labor-intensive meal preparation process can be avoided. Using precooked foods also eliminates the need to bring food temperatures up to cooking levels and makes it possible to avoid time consuming compliance with Hazard Analysis and Critical Control Points regulations.
  

Summary

The rapidly growing U.S. further-processed food segment is responding to the key market drivers through the introduction of a rich variety of new products.

The ATP-funded CCAR technology is poised to become an effective enabling and cost-effective technology for meeting the market demands of convenience, food safety, food quality, and standardization. Figure 4 provides a summary of the food freezing process.

Manufacturing Further-Processed Foods

Further-processing plants are linked to meat and poultry processing. Plants fall into several categories: conventional animal harvesting plants, further-processing plants, and integrated facilities. Figure 5 describes and charts these processes.

Figure 5. Manufacturing Further Processed Meat Products

• In a conventional animal harvesting plant, livestock and poultry are stunned, slaughtered, washed, de-boned, skinned, chilled, cut up, weighed, and graded, subjected to product forming in tumblers and presses, frozen, and packaged for shipment.
  
• In further processing plants, meat and poultry parts, received from animal harvesting plants, are seasoned, marinated, and processed through cooking lines. Precooked and ready-to-eat products are then chilled for slicing, possibly combined with other ingredients, refrigerated in freezers, packaged, and shipped.
  
• In integrated plants, animal harvesting and further processing are combined in one facility.

A large further-processed poultry plant operates at throughput levels as high as 20,000 pounds per hour, two shifts or 16 hours per day, five days per week, and 52 weeks per year, with annual throughput levels of 83 million pounds.

Advantages of CCAR technology in Further-Processed Food Manufacturing

After food items are precooked, it is beneficial to chill these items quickly to avoid weight loss through evaporation, quality loss through dehydration, and food safety problems.

Current refrigeration technologies have practical limitations relative to providing cost-effective quick-chill applications.

• For temperatures colder than –70°F, mechanical refrigeration systems will not be suitable. For temperatures between –40°F and –70°F, mechanical systems require expensive customization.
  
• Cryogens, hauled in from regional air separation and carbon dioxide plants, provide ultra-cold temperatures for rapid chilling and freezing, but costs per pound of items being chilled or frozen are twice the cost of CCAR and four times the cost of mechanical refrigeration.
  

CCAR’s ultra-cold (–70°F to –50°F) temperatures facilitate rapid chilling and freezing of food items more cost effectively than mechanical or cryogenic refrigeration systems.

Estimated Market Demand for CCAR

To confirm that food industry market drivers (Figure 3) can translate into commercial opportunities for CCAR technology systems, Air Products initiated two market studies over the 1996–1999 period. An outside study was commissioned to Strategex, an independent market research company. Strategex surveyed 23 companies in the food processing industry and 10 in the film and tape industries.

The study indicated that 20 percent of respondents placed a high value on refrigeration services colder than –40°F, lending support to the proposition that the ultra-cold CCAR could have attractive commercial potential.

An Air Products internal study surveyed 36 food companies. The results are shown in Figure 6. Forty-seven percent expressed strong interest in the CCAR technology, “if it could deliver ultra-cold refrigeration at reduced cost, relative to cryogens.” Twenty-eight percent expressed mild interest.

Figure 6. Survey of Food Companies’ Interest in CCAR Technology

Source: Unpublished Air Products internal study, 1999.

The Strategex study also indicated that 54 percent of respondents would be willing to outsource refrigeration services to an external contractor. Given that Air Products’ established practice is to sell refrigeration on the basis of “sale of refrigeration” contracts, rather than “sale of equipment” contracts, this was a significant finding.

From a food processor’s point of view, CCAR “sale of refrigeration” contracts represent the outsourcing of internal utility services. Air Products would install CCAR units adjacent to food processing plants, own, operate, and maintain these CCAR units, and sell refrigeration services “over the fence” under a long-term contract.

Air Products did not separately investigate CCAR’s export market potential. However, based on extrapolating the company’s experience, it was concluded that aggregate overseas demand was likely to approximate U.S. demand levels.

Air Products recently signed a memorandum of understanding with a major U.S. meat processor for the commercial placement of a 200-ton capacity CCAR system. In addition, negotiations are reportedly underway for selling CCAR services to other major food processors. The memorandum of understanding tends to validate the conclusions of the above market research studies and indicates a strong potential for CCAR market acceptance.

Pathways to Markets

Five promising pathways have been identified for marketing CCAR services to the food processing industry. These pathways reflect industry trends and conditions relative to the modernization and expansion of food processing manufacturing plants.

Liquid Nitrogen Cryogen Replacement Pathway.
It is estimated that there are 700 liquid nitrogen–based refrigeration customers in the U.S. food industry. Most have small production levels. It is expected that one or two of the larger liquid nitrogen customers would shift to CCAR technology each year. Each CCAR unit would produce 200 tons of output and would be built adjacent to the food processing plant. Air Products would own and operate these units and deliver refrigeration service “over the fence” on a sale of refrigeration basis.

Carbon Dioxide Cryogen Replacement Pathway.
About 1,500 U.S. food processing plants utilize carbon dioxide-based refrigeration systems. Again, most have small production levels. It is estimated that one or two of the larger carbon dioxide plants would shift to CCAR-based refrigeration each year. And again, the CCAR unit would produce 200 tons of refrigeration output and would sell refrigeration service “over the fence” on a sale of refrigeration basis.

Capacity Boost Pathway.
The third pathway is to install CCAR units at further-processed food plants with expanding production. In the current climate of “modest profitability among publicly traded processors,” plant expansion is the likely approach for increasing production levels (Broiler Industry, 1998). The CCAR unit would complement the plant’s existing mechanical refrigeration system. The food processor would pay for only the incremental refrigeration services during a gradual production ramp-up. CCAR’s “good turndown characteristics, i.e., its ability to operate efficiently at less than full load” will reduce energy costs and facilitate the processor growing into CCAR’s full capacity. It is estimated that one or two food plants will contract for sale of refrigeration-based CCAR services each year.

Greenfield Pathway.
The fourth pathway is to install CCAR units at newly constructed food plants. It is estimated that one processing plant will contract for CCAR services each year.

Export Pathway.
Given the additional challenges of generating overseas sales with new technology, export sales of CCAR services are estimated to start in the third year of an active marketing program. Projected CCAR installations at overseas food processing plants is one unit in 2004, three units in 2005, and four units in 2006.

SECONDARY Markets for CCAR

Potential applications for CCAR technology have been identified in other markets besides food processing. These secondary markets include volatile organic compound recovery systems as well as applications in the liquid natural gas, pharmaceutical and petrochemical industries. Secondary market opportunities are summarized in Table 4.

Volatile Organic Compounds Recovery and Liquid Natural Gas Industry Trends and Pathways

Volatile Organic Compounds Recovery Systems

Chemicals containing hydrogen, carbon, and other elements that evaporate easily are known as volatile organic compounds (VOCs). In the presence of sunlight and nitrogen oxides, VOCs react to form ground level ozone, a component of smog. Sources of man-made VOCs include auto and diesel emissions, petrochemical industry emissions, and emissions from the use of solvents and coatings. VOC emissions are regulated by the U.S Environmental Protection Agency and state air quality boards. These regulations drive the VOC recovery and abatement market, whose annual revenues are projected to reach $4.3 billion (Power Engineering, 2000).

The use of refrigeration and condensation to capture VOCs represents one approach for controlling these harmful emissions. Other approaches include incineration and membrane adsorption. CCAR can provide the refrigeration component for the VOC condensation approach and would provide the environmental benefit of using high-pressure air as the refrigerant. Air Products has a strong market position in the specialty chemical and petroleum industries (which generate considerable VOC emissions). These business relationships are expected to facilitate market acceptance of CCAR as a viable and environmentally attractive volatile organic compound recovery technology.

Although a formal market assessment remains to be completed, VOC recovery applications are estimated to generate annual sales of refrigeration revenues of $250,000 each. This application is expected to require smaller CCAR units sized at 50 tons of refrigeration rather than the standard 200-ton units.

Liquid Natural Gas Applications

Natural gas is composed of methane and ethane and may contain water, hydrogen sulfide, carbon dioxide, and other impurities. It is cleaned and processed into pipeline quality “dry gas” at gas processing plants. A national network of 70,000 miles of high-pressure pipelines is used to transport gas to U.S. retail markets.

When cooled to a temperature of –260°F at atmospheric pressure, gas condenses to liquid natural gas. Under higher pressures, natural gas can be liquefied at warmer temperatures. Under 200 psig of pressure, CCAR units will liquefy natural gas at –150°F (i.e., within the unit’s cooling range).

When natural gas is liquefied, the resulting liquid natural gas is 600 times more compact than gas in a vapor state, giving 1.7 gallons of liquid natural gas the equivalent energy density of a gallon of diesel fuel (Sen, Gas Technology Institute (Interview)). Liquefaction can thus facilitate ease of storage and transportation when pipelines are not available or when storage space is constrained.

U.S. liquid natural gas consumption is sourced from domestic liquefaction facilities and from overseas imports. Imports in 1999 at three East coast marine terminals and one West coast marine terminal were 160 billion cubic feet. Annual liquid natural gas imports are projected to grow fivefold by 2015 and reach 900 billion cubic feet, reflecting growing demand projections (Sen, Gas Technology Institute (Interview)).

Liquid Natural Gas Marine Propulsion

According to research conducted at Carnegie Mellon (Corbet and Fischbeck, 2000), air emissions from cargo ships and ocean-going ferries powered by diesel engines are among the most polluting combustion sources per ton of fuel consumed. Multiple regulatory initiatives are underway. The International Maritime Organization is expected to implement new NOX reduction regulations. The European Union is expected to set tougher limits on marine fuel sulfur levels (Environmental News Service, 2000). Under authority of the 1990 Clean Air Act, the U.S. Environmental Protection Agency is developing regulations for emissions from diesel powered marine engines (Hughes, 1999).

Use of CCAR to liquefy pipeline natural gas potentially enables replacement of diesel fuel with liquid natural gas for selected marine applications. This could generate considerable environmental benefits. At port facilities, CCAR units would provide refrigeration to liquefy pipeline natural gas. Port terminals are expected to require three CCAR units of 200 tons of refrigeration each. The liquid natural gas would be stored in insulated bulk tanks onboard ferries, barges, and other ocean-going vessels and for use as alternative fuel to marine diesel.

Ferries and barges are expected to operate on a two-shift, seven-day-per-week basis and generate $840,000 annual sale of refrigeration revenues for each CCAR unit. Annual sale of refrigeration revenues from CCAR are estimated at $2.5 million for a liquid natural gas liquefaction facility operating with three CCAR units. When pressurized to 200 psig as required to produce liquid natural gas at –150°F , use of CCAR will require heavier storage tanks with thicker walls. This may negatively affect the economics of utilizing CCAR-generated liquid natural gas on ocean-going vessels. Will pressurized liquid natural gas maintain its advantages relative to compressed natural gas when storage tank wall thickness and weight are considered? Technical studies and a formal market assessment remain to be completed.

Liquid Natural Gas Peak Shaver

To meet normal demand levels, natural gas distribution companies obtain gas supplies from a network of high pressure pipelines that cross much of the United States. To meet unusual peak demands, distribution companies may store natural gas in refrigerated liquid natural gas form. Liquid natural gas takes up 1/600th of the required space for gas in a vapor state. CCAR systems could potentially be used to provide the required ultra-cold refrigeration for conversion of gas to liquid form at newly constructed liquid natural gas peak shaving facilities.

According to Chicago Bridge & Iron Co., U.S. gas distribution companies are currently operating 57 liquid natural gas peak shavers for meeting peak demand conditions. Nineteen are in the mid-Atlantic and New England region, sixteen in the South, fifteen in the Midwest, and seven in Mountain states and the West coast. Figure 7 depicts the geographic distribution of liquid natural gas peak shavers.

Figure 7. Geographic Distribution of 57 Liquid Natural Gas Peak Shavers in the United States

Source: Unpublished data from Chicago Bridge & Iron Co, 2000.

Forty-seven (82 percent) of U.S. peak shavers were built during the 1960s and 1970s. Only five were built in the 1980s and five in the 1990s. It would appear that the market for peak shavers has fallen off as national pipeline capacity continues to grow and to provide gas transportation services effectively to more and more regions of the country. New construction of liquid natural gas peak shavers may be restricted to regions with limited pipeline capacity and thus may represent only a limited niche market for CCAR systems.

Each peak shaving facility using CCAR is expected to require three CCAR units with 200 tons of refrigeration capacity. These units would be sold outright to natural gas distribution companies on the basis of sale of equipment contracts. Expected one-time revenues from the sale of three CCAR units are estimated to be $6.0 million.

Other Potential Applications

The following pathways have been identified as possible opportunities for CCAR units through discussions with Air Products staff and with industry experts.

1. Pharmaceutical industry: Pharmaceutical companies have expressed interest in using CCAR technology for freeze-drying formulations, low temperature chemical reactions, and volatile organic compound collection and recycling. The industry needs more cost-effective low-temperature refrigeration for these processes, and CCAR could be cost competitive with currently utilized cryogenic systems.
   
   Prior to CCAR’s acceptance by the pharmaceutical industry, several market barriers must be overcome. First, units must be scaled down to 20 tons of refrigeration, a tenfold reduction from the standard 200-ton size. Scaling down is likely to require significant additional R&D effort. In addition, use of CCAR technology will raise regulatory issues. The pharmaceutical industry is regulated by the U.S. Food and Drug Administration. The introduction of a new refrigeration technology may constitute a modification of FDA-approved manufacturing practices and necessitate a potentially costly and time-consuming review and approval process. A formal assessment of CCAR’s pharmaceutical market potential should be undertaken before committing resources to further R&D and commercialization efforts.
   
   
2. Petrochemical industries: The chemical, petrochemical, and oil refinery industries utilize large refrigeration plants for (1) separation of one gas from another by liquefying one gas, (2) capturing and condensation of gases as an alternative to wasteful or environmentally impermissible venting, (3) maintenance of stored liquids at low temperatures to control pressure in containment vessels, and (4) removal of the heat of chemical reaction in manufacturing process. These industries currently utilize mechanical refrigeration systems with hydrocarbon (propane, ethane, and ethylene) refrigerants. These refrigerants are nearly “cost free” byproducts of petrochemical manufacturing and are considered to have good refrigerant properties
   
   Given that mechanical systems have a lower first cost and that refrigerants like propane often come “cost free” to petrochemical companies, CCAR may not currently be cost competitive for petrochemical applications (Kiczek, Air Products; Shepherd, Toromont (Interview)). However, the petrochemical industry is under substantial regulatory pressure on environmental issues and substituting air-based CCAR could appear to be “low hanging fruit” in achieving positive environmental results. Air Products reported on-going discussions with potential CCAR clients in the petrochemical industry who were interested in utilizing air rather than polluting hydrocarbons as refrigerants.
   

Unlikely Markets

In its 1995 proposal to ATP, Air Products mentioned potential market opportunities in the residential and automotive refrigeration markets. The 1995 proposal postulated that “with further technical advances in equipment and efficiency, the residential, automotive, and other warmer temperature applications may become viable markets” for CCAR technology.

To reach these markets, the ATP-funded CCAR technology would have to undergo fundamental design changes to scale down 200-ton units to the micro scale typical of residential and automotive applications.