“The world’s most advanced chips depend on a gas whose supply was controlled by two Ukrainian cities.” A critical semiconductor input hidden in plain sight — until war revealed it.
Executive Summary
Neon gas is an essential input for the excimer lasers used in deep ultraviolet (DUV) lithography — the light-source technology that patterns semiconductor circuits onto silicon wafers. Before Russia’s invasion of Ukraine, roughly 70% of the world’s semiconductor-grade neon was produced by two Ukrainian companies: Ingas (Mariupol) and Cryoin (Odessa), which captured neon as a byproduct of the massive Soviet-era steel mills in eastern Ukraine and purified it to the ultra-high purity levels chipmakers require. Russia’s invasion in February 2022 immediately shuttered both facilities — Mariupol was besieged and largely destroyed — triggering an acute supply shock that sent neon spot prices surging over 500% and forced chipmakers globally to draw down emergency inventories while scrambling to qualify alternative suppliers. The episode exposed a single-point-of-failure vulnerability in semiconductor supply chains that had been documented but unaddressed since a prior supply disruption in 2014.
The Strategic Mechanism
Neon’s criticality flows from its specific industrial role:
Physical application:
- Excimer lasers (ArF and KrF) use noble gas mixtures — including neon — to generate the 193nm and 248nm ultraviolet light used in DUV lithography systems from ASML and Nikon
- EUV lithography (ASML’s cutting-edge systems) does not require neon in the same way, but DUV remains essential for mature nodes (28nm and above) that represent the majority of global chip output by volume
- Neon must be purified to 99.999%+ purity for laser-grade application — a highly specialized refining process not easily replicated
Supply chain geography pre-2022:
- Ukraine: ~70% of global semiconductor-grade supply
- China: ~15%, but at lower purity grades requiring upgrade processing
- Global: Small volumes from air separation units attached to steel plants worldwide
Post-2022 diversification:
- U.S. Air Products, Linde, and Air Liquide accelerated investments in neon recovery and purification capacity in the U.S., Europe, South Korea, and Taiwan
- Samsung and TSMC disclosed 3–6 month neon inventory buffers; chipmakers have since extended strategic stockpile targets
- Chinese domestic neon production capacity was rapidly scaled, with Chinese suppliers qualifying for higher-purity semiconductor applications
Market & Policy Impact
- Price volatility hedge: Major chipmakers now maintain 6–12 month strategic neon inventories and multi-source supplier contracts — adding cost but reducing catastrophic exposure
- Critical minerals designation: The EU and U.S. have added neon and other noble gases to critical raw materials frameworks, unlocking public investment support for domestic production
- CHIPS Act alignment: U.S. CHIPS Act implementation includes provisions for domestic specialty gas supply chain development adjacent to new fab construction
- China exposure concern: As Chinese neon production capacity has grown, analysts assess the risk of a future Chinese supply leverage scenario analogous to rare earths
- EUV transition pressure: The vulnerability has accelerated the industry’s migration toward EUV systems that reduce DUV (and thus neon) dependence — perversely strengthening ASML’s dominance
Modern Case Study: Ukraine Invasion Supply Shock and Recovery, 2022–2024
When Mariupol fell in May 2022 and Cryoin suspended operations in Odessa, the semiconductor industry faced its most acute specialty gas crisis since a 2014 Russia-Ukraine confrontation had previously disrupted neon supply — a warning that went largely unheeded. Spot neon prices rose from roughly $500/m³ to over $3,000/m³ within weeks. TSMC, Samsung, and Intel drew down months of stockpiles while urgently qualifying alternative suppliers in South Korea, Taiwan, and Europe. By mid-2023, new purification capacity had come online sufficiently to normalize prices. The recovery was faster than many had feared — but primarily because the industry had learned partial lessons from 2014 and maintained larger buffers than raw supply chain mapping suggested. A 2024 analysis by the Semiconductor Industry Association found that noble gas supply chain resilience had improved materially, but that other ultra-high-purity specialty chemicals used in chipmaking remained similarly concentrated with limited market awareness — indicating the neon episode exposed one vulnerability in a broader pattern of hidden single-point dependencies.