The Refrigerant Revolution, Part II: R22 Buying Strategies

Just like any other product, R-22’s price is driven by supply and demand.  However, in this case the supply is dictated by the EPA and demand is difficult to predict.  As a result, prices fluctuate and contractors wonder about the future of this popular refrigerant.

Of all the refrigerants HVACR contractors purchase, R-22 probably comes with the most questions.  What’s the current price?  Where’s the price heading?  How long will it stay on the market? 

Just like any other product, R-22’s price is driven by supply and demand.  However, in this case the supply is dictated by the EPA and demand is difficult to predict.  As a result, prices fluctuate and contractors wonder about the future of this popular refrigerant.

The EPA & R-22: What’s the Latest?
The amount of new R-22 that flows into the marketplace is solely determined by the EPA and every year the spigot gets tighter in accordance with the EPA’s phase out of R-22 (HCFC-22), which is a greenhouse gas that contributes to ozone depletion.  Last year, the EPA capped the production and import of R-22 at 62.8 million pounds and this year it is capped off at 51 million pounds.  By 2020, or as soon as 2018, all R-22 manufacturing and importation will end.  As for future allowances, we are in a holding pattern as the EPA considers three different timelines for the remainder of the phase out.

In December 2013, the agency issued a proposed rule outlining these possible scenarios:

  • EPA’s preferred option: Next year’s cap is set at 30 million pounds and declines by 6 million pounds a year through 2019, which would be the last year that R-22 can be manufactured or imported.
  • The three-year linear drawdown: R-22 production and importation ends in 2018; until then, caps are set as follows: 2015 – 27 million pounds; 2016 – 18 million pounds; 2017 – 9 million pounds.
  •  The estimation approach:  A cap of 50 million pounds is set for next year while future caps are later determined as the EPA gathers market data.

The public comment period for this proposed rule ended in March. In the weeks prior, many industry and public interests stakeholders urged the agency to take a more aggressive approach.  In February, 39 members of congress signed a letter expressing their concern of an R-22 surplus that will grow if the EPA doesn’t accelerate the phase out.  Currently, the EPA is weighing industry comments in order to choose the option they feel best balances market needs and environmental concerns.  A timeframe has not been set for the final rule.

What Happens to the Price?
The EPA’s chosen route will largely drive the cost of R-22 in the coming years.  The aggressive three-year linear drawdown is most likely to cause a significant tightening of supplies while the estimation approach is the least likely to put a strain on the supply-demand dynamic.  Regardless, the most important thing to remember is that R-22 is a commodity and its value will change as various factors come into play – everything from the economy to the weather.  The best advice is to stay abreast of EPA regulations and educate your customers.  It also pays to work with a knowledgeable refrigerant provider that offers fair and competitive pricing.

Virgin vs. Reclaimed Refrigerant

As the EPA cuts production and import allowances, virgin R-22 becomes scarcer and, in some cases, more expensive.  Contractors often ask, “Is it worth it?”  Here are three things to know:

  • Reclaimed refrigerant is not recycled refrigerant
    One of the biggest misconceptions is that reclaimed refrigerant is refrigerant that has been recovered and recycled for reuse.  However, this is not the case; there is a significant difference between recycling and reclamation.  Recycling uses simple oil separation and filtering processes to clean a refrigerant for reuse in the same piece of equipment from which it was recovered.  Reclamation is an exhaustive process that strips a refrigerant of its impurities.
  • Virgin and reclaimed refrigerant meet the same purity standards
    For refrigerants to be labeled as reclaimed, the EPA requires them to meet ARI-700 purity standards, which are the same standards required of virgin refrigerants.  Reclamation employs thorough filtering, drying, distillation, and chemical processes that “reclaim” refrigerant to its original purity level.
  • Reclamation is the future
    Without reclamation, it would be impossible to meet the market demand for R-22.  As supply dwindles and 2020 approaches, contractors will increasingly rely on reclaimed R-22 to ensure customer needs are met.  The EPA is methodically phasing out this gas to remove it from the market while encouraging industry professionals to reclaim existing supplies.  Reclamation is the best way to balance the needs of our businesses, our customers, and our environment.     

Buying for the Future

1. Choose a Provider, Not a Price
When it comes to buying R-22, the familiar adage applies: Don’t be penny wise and pound foolish. 

The price of R-22 may fluctuate day to day and provider to provider; while one provider offers the lowest price today, another may offer the lowest price tomorrow.  In an effort to reap these short-term savings, many contractors end up purchasing refrigerant from multiple vendors over the years.  However, choosing one key provider will help secure your future supply of R-22.

As many industry professionals recall, the industry experienced an abrupt R-22 shortage in the beginning of 2012 as production and importation were put on hold and the industry anticipated an EPA ruling with drastic reductions in R-22 allocations.  During this time, contractors rushed to buy R-22 from a rapidly-shrinking supply pool.  With limited R-22 on hand, most refrigerant providers offered preferential treatment to their customers by offering them the product first.  As the R-22 phase out continues and supplies dwindle, providers are expected to revisit this practice.  The bottom line: Keep tomorrow in sight when buying product for today.

2. Look for Longevity
It’s ideal to choose a provider that has a history in the refrigerant business; one that understands the nuances of this ever-changing industry and can advise contractors accordingly.  Financial stability is also a key as providers must have the resources to weather market volatility and remain in business.  Look for companies that continue to invest in their assets even when economic conditions are less than ideal.  Planning to be in business for a while?  Partner with a provider that has the same plan.

3. Remember Reclamation
In addition to selling refrigerant, many providers offer reclaim programs.  By turning in their recovered refrigerant, contractors can earn either cash or product credit for new refrigerant.   This is a simple way to offset refrigerant costs.

However, there's a bigger advantage.  A provider with reclamation capabilities has an inherent means of increasing their R-22 inventory.  By choosing a refrigerant provider with reclaim capabilities, contractors can further ensure access to R-22 as production and import activities are increasingly curbed by the EPA.      

No one has the proverbial crystal ball, so it's not possible to say where R-22 is heading.  However, by gaining an understanding of the market and adapting a long-term strategic approach to buying, HVACR contractors can secure competitive prices and product for today and tomorrow.

What About HFCs?

As the EPA phases out hydrochlorofluorocarbons (HCFCs) like R-22, they are also looking to reduce the use of some hydrofluorocarbons (HFCs), including R-507A, R-404A, and R-407B, which are used in retail food refrigeration.

In July, the EPA proposed a rule to prohibit the use of some HFCs and HFC-containing blends that are currently listed as acceptable under the agency’s Significant New Alternatives Policy (SNAP) program, which aims to find alternatives to chemicals that contribute to climate change.  The rule would apply to new and retrofit retail food refrigeration equipment. 

The use of R-507A and R-404A would be unacceptable in stand-alone equipment, condensing units, direct supermarket systems, and indirect supermarket systems.  The use of R-407B would be unacceptable for use in direct and indirect supermarket systems.  If approved, the rule would go into effect on January 1, 2016.          

Russell Pryor is the manager of sales at Diversified Pure Chem, the largest EPA-certified refrigerant reclaimer in the U.S. that serves HVACR contractors. For the past five years he has helped contractors make refrigerant purchasing decisions and take advantage of refrigerant reclaim services.  For more information, visit www.divpc.com.  You can reach Russell at 817-636-2089 or [email protected]

 

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