Russia Moves To Dominate Global Neon & Inert Gases Market

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Inert gases have critical usage as part of the global semiconductor manufacturing process

Russia’s Moscow State Technical University has opened a significant production facility creating pure neon gas, filling a global shortage of inert gases and providing Moscow with partial control of, and significant export potential for export volumes of strategically important goods.

Neon is a gas that belongs to the group of inert or the noble gases, which also include argon, xenon, krypton, among others. Their main significance is their very low chemical activity; under no circumstances do they react with other elements. This determines their value for various industries.

What Is Neon?

Neon is often associated with glowing signs. As such, it and other inert gases are used in signage, however neon’s main use today is in the production of semiconductors. The use of neon assists the photolithography capabilities in the deep ultraviolet and the operation of excimer lasers – the technologies that allow the production of modern semiconductors. About 70% of the world’s neon production is used in the microchip industry, which requires about 540 tons of neon each year. There are no other alternatives to inert gases in this industry and none are expected.

Why Are There Shortages?

Neon is not a rare mineral found in a limited number of deposits, and in fact is equally distributed throughout the global atmosphere, at a raatio of about 0.002% of the planets atmospheric total. However, extracting it is extremely difficult, akin to extracting gold from sea water.

Most inert gases have been produced as a by-product of the steel industry. However, most contemporary technological processes used in the steel industry today do not contribute to the release of noble gases, but they do in the now “obsolete” plants built in the last century in the post USSR, with Russia producing most of the global neon and argon at its production facilities, and Ukraine engaged in purification.

Together, Russia and Ukraine provide about 50-55% of the supply of inert gases for the world market. To give an example of this clout, the United States imports from these facilities make up 90% of its total inert gas consumption.

Deficits in inert gas production have arisen due to the covid supply chain issues, with frantic global demand far outstripping supplies. These have now been compounded by the suspension of production at Ukranian facilities and sanctions upon Russia.

Inert gas prices quadrupled from the middle of 2021 to February 2022 to US$275 per cubic meter. After sanctions were imposed on Russia, Moscow announced restrictions on the export of both raw and pure noble gases. The price is now close to US$2,500 per cubic meter, which is about 1,000 times the current natural gas price on European markets.

The reason there hasn’t been an immediate shortage is that most semi-conductor companies operating in this area had large industrial reserves of inert gases. This has made it possible to avoid the immediate conversion of the rise in prices for materials, into an increase in the cost of the actual chips. But these industrial reserves are now running out.

Supply Chain Alternatives

China is also a major producer of neon, argon, and xenon, and Chinese microchip makers have suffered very little from the supply crisis. In general, it was small producers who suffered the most damage, who could not afford to keep significant reserves of materials. But these too are now running short although supplies can be maintained by Russian sources.

The production of inert gases at a new location requires at least nine months of preparation, and the availability of suitable sites globally is small limiting production options. There are additional dis-incentives to do so in more capitalistic societies as the creation of a new inert gas facility requires significant investments, but there are return-on– investment issues and questions over the investment cost as and when the supply situation stabilizes – but this is dependent on Russian sanctions removal.

Russia has advantages here – it is already the world’s largest producer of raw inert gases, and it possesses the necessary competencies for cleaning these for technological use. It also has the laboratory facilities to do so – as is illustrated by the opening of the Moscow State Technical University facilities. By the end of 2022, neon production at the laboratory is expected to reach 70,000 cubic meters per annum, over 10% of global production. Plans are underway to increase this by 2.5 times, which will make Russia the only global full-cycle producer of these products. Most will be aimed for the export market as only 5% of the inert gases produced in Russia are consumed in Russia. The situation showcases again how Russia had anticipated and studied very specific parts of globally required supply chains in the knowledge that the West would impose sanctions upon it in any event. It also indicates that given time, at some point sanctions policy towards Russia will have to change as the country is dominant in many areas of global supply chains, including oil, gas, water, in addition to precious metals, rare earths and many other industrial minerals.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact us at for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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