Air Products and Chemicals, Inc. (APD) Earnings Call Transcript & Summary

Thank you very much. This is Jonas Oxgaard from Bernstein. It's my great pleasure to host Air Products. We have Seifi Ghasemi here; as well as Scott Crocco; and Simon Moore from IR. [Operator Instructions] At the end of the presentation, there is another link for Procensus poll to give your views on the company and the presentation or the Q&A, and you'll get to see the live results as you finish the poll. And so with that, we're going to go straight into Q&A, but I just -- first, just to say thank you for Seifi and everyone to join us.

You are welcome. It's a pleasure for us to be there. And I know we don't see the investors. Good afternoon, everybody, and it's great to have an opportunity to be with you.

Appreciate that. Let's start with the press release yesterday, 2 days ago about the announcement of a new COO. Can you talk a little bit about this role? I don't believe you've had a COO before. Yes, I'll leave it there.

Well, I'd like to talk about that in the context that I hope everybody has seen the other announcement that we put out on last Thursday. I'm sure you have seen that. Last Thursday, we put out an announcement that the Board has extended my contract to September of 2025, which means another 5 years. So I'm not going anywhere. And the announcement about the COO is no indication that I'm retiring and we are trying to line up somebody for succession or anything like that because that decision will be made at 2025 or later because I'm very committed to what I'm doing and I'm going to stay as long as I possibly can. The reason that we announced about the COO is the fact that the -- there are 3 reasons: One is Dr. Serhan had joined us 4 years ago. He has done a very good job. He is very -- a key person in the execution of all of these projects that we are doing. He is in charge of our engineering and EPC efforts. He has been given the responsibility for business development recently. And therefore, we wanted to recognize him for what he has done and the good job he has done. The second thing is that he interacts with a lot of people and government officials and all of that around the world, and him having a more substantial title will enhance his accessibility and his ability to deal with high-level government officials, ministers, CEOs and all of that. And then the third thing is that obviously, we wanted to demonstrate to the investors and so on that within the company, we have very good, capable people. So those are the reasons that we did that. Obviously, the company is growing very fast. There is a lot of things to do, and we just wanted to make sure that we are elevating people so that they can handle more of the things that I have been doing. The Air Products in the old times did have a COO role. We didn't have a COO role since I started, but I think right now is time to have somebody fill in that position. So we all work here as a team. And I also wanted to stress the fact that this is not an indication as if I have decided to retire or anything like that because I'm not. Have you seen that other announcement, Jonas?

Yes. I have.

Okay. Very good, very good.

Honestly, I thought you were confirmed until 2030 anyways, so...

Okay. Very good. Okay.

So going to Air Products specifically. So you've spoken about consistent strong EPS growth going back years and expecting to extend it for years to come. So what is it about Air Products that allows this kind of growth in a world where GDP only is 3% per year, give or take?

Well, fundamentally, the reason is our strategy. We have a chart which shows the progression of our EBITDA margins and all of that. And you see that obviously, the first 2 years at Air Products, we have been very focused on getting the company more efficient, getting the structure right, getting rid of our noncore businesses, strengthening our balance sheet. But once we did that, then we are obviously focused on growth. And what you are seeing with the jump in EBITDA margins and the growth rates that we are doing is because we are pursuing a growth strategy, which is focused on the big, on-site projects especially gasification or big projects like you have seen us do. So gasification is helping us. All of these projects that we have done on gasification are actually contributing to our bottom line. The second thing is that now as we go forward, our strategy is to build on our gasification and do a lot of projects, which there are a lot of opportunities and you are seeing them happen. A few months ago, some investors were telling me that, "Well, your gasification strategy is dead because with $20 oil, nobody will do gasification." I hope the project in Indonesia demonstrates that these projects are all about national security and has nothing to do with price of oil. Then -- So that part of our business will grow. And then now we are -- in addition to that, we are focused on carbon capture, which are -- we think, will generate a lot of growth opportunities for us. And then the most important thing as far as the long-term future of Air Products is hydrogen. We believe that hydrogen opportunity for mobility, for energy, for everything that you can imagine is huge. And it is going to be a significant part of our business in 10 years, 15 years. And we are focused on that, now trying to put the technology in place or organization in place so that we can participate in this growth. So those are the fundamental growth strategies that we have. And that is why we are very optimistic about the growth prospects of Air Products. And we are very optimistic about the fact that we can definitely deploy the $18 billion that we have been talking about. And quite honestly, we announced that in 2018, and right now, we have already committed $12 billion of that $18 billion.

Okay. So what keeps you up at night then? What could derail this kind of growth?

Well, I think that quite frankly, even with COVID going around and half of the world being shut down, that is not affecting our long-term strategy. People are looking at these projects for the long term and they look at COVID that is going to be here for another 6 months, a year or 2 years, but it's not going to affect what people want to do 10 years from now. In terms of what I worry about, there are certain things going on in the world that I don't have any control over. Those things that I do not have any control over, I don't worry about it because there's nothing I can do about it. But internally, the things that -- my concern with this big project is our ability and our focus to make sure that we execute them properly. People talk about risk. Yes, the risk on this project is that if you are doing a $2 billion project in Indonesia, if that ends up to be $2.2 billion, then obviously, that's a risk. But fortunately, we have demonstrated -- we did a $2 billion project in Saudi Arabia and we were ahead of schedule and ahead of budget. So that is -- we are very focused on that. That's one of the reasons that we promoted Dr. Serhan because he is really in charge of executing all of these projects, and I'm sure he will do -- he and his team will do a good job. Air Products has a great team. So if you want to say that the area that I'm focused about and I'm worried about and making sure we do a good job is execution of these projects.

Okay. Now -- I see your point, right, but you're not worried about the things you can't control. But an investor, they take that risk whether you can control it or not. So if you're in an investor's shoes, what kind of risks would you be worried about for Air Products?

Well, I think the risk for Air Products from an investor point of view would be that Air Products decides to change the strategy and go back to, "Oh, no, no, we don't want to do these big projects. We want to focus on our merchant business and package business only," a major change in the strategy in Air Products, which obviously is not going to happen. But in terms of the very macro risks, quite frankly, Air Products now is a $50 billion company. We have a very solid balance sheet. And the nature of our business is very local. We don't have a big supply chain. We are not going to be subject to tariffs or anything like that in case that those things happen. But the very bigger risk, are we going to get into a hot war with China? Well, people want to worry about that. They can worry about that. But if anything like that happens, we'll have bigger problems than just Air Products.

That is very true. So execution risk is clearly on investors' mind, but even more so, I would say counterparty risk. Can you talk about the counterparty risk in gasification particularly? How do you evaluate it? How do you protect yourself against it?

Well, with the counterparty risk, we are focused on several things: Number one, we focus on the viability of the project no matter who the counterparties are. That is if you are building a coal to -- let's just take the recent example. If you are building a coal-to-methanol plant in Indonesia, is the cash cost of making that methanol competitive? I mean if you are making the methanol in Indonesia and the cash cost is less than $200, right now with all hell breaking loose, methanol is selling at around $240, $250. So that is the first thing that we focus. It's that is the project fundamentally viable no matter who the counterparty is. Then the second thing is -- because if the project is viable, then we will get paid. If the project -- because somebody will own the project. I mean right now, some people are talking to us about, "Well, this recent thing that you did with the company in terms of buying the SMRs, what happens if they go bankrupt?" Well, if they go bankrupt, what happens? Somebody will come and buy the assets for $1 and they will still be running. It's the same thing that in the early 1980s, a lot of steel companies in the U.S. went bankrupt. But the industrial gas companies are supplying oxygen to those people. So they went bankrupt. Mr. Mittal came and bought them at very low prices but he had to run them. And if you run them, you need the oxygen for running the steel plant. And the gas company is there. There is not much of an option. You can't go shopping. So if you are supplying hydrogen to a refinery, as long as the refinery is running, then they need the hydrogen and they have to pay us. So that is the way we look at the counterparty risk in terms of what is the worst scenario that can happen. And from that point of view, we assess that. And then obviously, we do assess the country risk. I mean right now, I'm sure we would alarm the investors if we announced a coal-to-gasification -- coal-to-anything plant in Venezuela, but we are not going to do that. That is kind of the obvious kind of a thing that you want to stay from. So we assess the project risk, we assess counterparty risk and we assess country risk. We put all of that together and based on that, number one, we decide whether we want to do the project; and number two, we decide what kind of a return we need in order to justify it based on the risk.

Okay. So when you're thinking about the return, you've constantly guided to at least 10% return on all capital deployed. But I'd like to dig into this at least a bit more. So the Jazan project, if we do the math backwards, we end up with something like 13%, 14% return. And I think you said the Indonesian project is well above 10%. So should we think about whatever is above 10% as the risk premium?

Well, first of all, can I just correct -- just make sure that you're all talking the same thing. We are talking about a minimum of 10% after-tax internal rate of return. That translates to 15% return on capital employed. So we are not guiding 10% return on capital employed. We are talking about 15% return on capital employed, which translates to 10% internal rate of return after tax. And we said that, that is the minimum. And then some of these projects are better than that. The project in Venezuela is better than that. So the project in Venezuela is better than 15% return on capital employed. Jazan project, once it gets done, we can -- we will announce the -- more of the details, but it is better. That's the kind of numbers that we are talking about.

Okay. But going back to the fundamental question then is, should we think about the -- whatever additional return here above the 10%, is that the risk premium? Or are you more -- is it just more opportunistic of, "Well, we'll see how much we can get?"

We operate on the basis of how much we can get. If there is a project where it is so essential to the customer and we are the only people who can provide the service and all of that, we obviously charge appropriately. We do not operate on a cost-plus basis. We do not operate on the basis that since our minimum return is 10%, go get -- and get all the projects at 10%. If we can get a project because we are bringing in significant technology and so on to the table and we can get away with 18% return, we will do that. And again, these are all IRR. We have had projects -- we have done projects where the return on capital employed is north of 25%. Yes, we will do that, sure.

Okay. So coming back to the Indonesia project. What's the strategic rationale for that project? And do you see more opportunities with this partner or elsewhere in Indonesia?

Well, the strategic rationale for the project is that Indonesia has a lot of coal. The coal is low-quality coal. It's really not -- it's sitting in the ground. It's creating nothing. Therefore, if you can take that and convert it to methanol or convert it to DME or convert it to urea or anything or ammonia, whatever you can do with it, it will create significant value. It will reduce Indonesia's dependence on oil and it will significantly help with the balance of payment because you don't have to pay hard currency for buying the oil and all of -- or methanol, which is what they do right now. That is the strategic rationale for doing that. Therefore, there should be and there will be a lot additional projects like what we have done in Indonesia or in India. And as has been the case, it will continue to be the case in China and anywhere else where they have coal. But gasification, you know this very well. I just want to stress gasification is not just about coal. We are talking about gasification of the bottom of the barrel in the refinery, which is the Jazan project. We are talking about the need for gasification of petroleum coke, which all of the refineries in the world produce and that is high-sulfur. And in time, they won't be able to sell it. They have to gasify. It can be gasification of wood chips. It can be gasification of any low-quality raw material that can be turned into chemicals. So gasification is a lot more broader than just coal gasification.

Okay. And do you see more opportunities in Indonesia?

Yes.

Simple answer. Broader though, what's your strategic interest in operating ammonia and methanol plants?

Well, the thing is that, that is in terms of the value that we bring because -- let's take the project in Indonesia. We have started talking to their customers about supplying them syngas. But then when you got to the details of it, almost 2/3 of the project is air separation unit and gasification. So if you are doing that -- the methanol loop is a very well-known entity. People do it all over the world. And besides that, we got the license from Haldor Topsoe. We have an alliance with them. So we have the technology to do that. So now if you are building this gigantic plant and you are building 2/3 of it, then it's a lot more efficient if you just build the other 1/3. You have less number of contractors on the site and it becomes efficient, it brings down the cost. And then if you have an operation group of people who are running 2/3 of the plant, then running the methanol plant, which is an automated thing, requires a lot less people than you need for gasification and for ASU. So why not just include those people and have one organization doing that. So it makes the whole thing very efficient. We are not getting into the methanol business. We are just operating another process unit, which is a lot less complicated than running the gasifier. So that is what -- it makes the whole thing, the whole picture, a lot more cleaner. And then you don't have too many people involved and you don't have too many issues involved between contractors and all of that. It becomes very clean. Give me the coal and I give you the methanol, and then I'll take care of everything for you. It makes it a lot easier for the customer and for us to execute.

And so would you then be interested in doing the same kind of asset buyouts as you did at hydrogen all the way into methanol and ammonia?

Well, if a customer has a facility that they own and operate, which is air separation unit, gasification and, let's say, ammonia production, we will be interested in buying the whole thing and operating it for them and getting -- we are not going to take the risk of the price of urea or ammonia or methanol, but we will be interested in buying the whole thing, yes, air separation units, gasification units and the ammonia unit or the urea unit or the methanol unit, yes. If there is something like that and the customer wants to sell it to us and outsource it, yes, we will be interested in that.

Okay. So that brings us over to the Haldor Topsoe alliance. Can you touch on the strategic rationale and the structure?

Well, the thing is that fundamentally, I believe very strongly that when you go talk to the customers, you have to have something to offer them other than, "Well, I have money. Why don't you sell me something or let me do something for you?" So the core thing is having the technology. That is why -- obviously, we have the ASU technology. When we wanted to go into gasification, the first thing that we did was buy the GE and Shell technology. That has given us the capability and the credibility to be able to do these gasification projects. If we didn't own the Shell technology, we would have not been able to do the Jazan deal, we would not have been able to do the Venezuela -- do the Indonesian deal because then, we didn't have any technology, any value to it. So now if we want to expand our scope and build the methanol plant or the ammonia plant or the DME plant, we need that access to those technologies. The best technologies for those things is Haldor Topsoe. We didn't want to go and buy Haldor Topsoe but -- because they do a lot of things. This is not core business to us. But we did want to have access to that technology. Therefore, we have made an alliance with them that they will work with us and provide us the technology for these things worldwide. And as a result, now we have the credibility to go to a customer like in Indonesia and saying, "Look, I have the technology end to end. And therefore, you don't have to worry about that. And then we do the construction for you end to end. We can finance it end to end. Therefore, we can be a one-stop shop from the beginning to the end."

Okay. So does that mean there are other technologies you would like to acquire or get access to?

Yes, depending on what else we want to do. There are other technologies that we would like to have. We are working on them, but I would appreciate if you let me off the hook that I don't get into too many details of them until we have done it because I don't want to talk about it before we actually get them done.

That's reasonable. Speaking of the asset buyouts, so coming back to that a little bit, you already did a $500 million acquisition. What's the magnitude of the opportunity that exists today?

Well, if you take worldwide and we have obviously -- you can be rest assured that if anybody owns any kind of an industrial gas asset or gasification asset that they operate themselves, we have talked to them about the possibility of acquiring them. If you take all of those so-called captive industrial gas plants, which includes oxygen plant, nitrogen plant, hydrogen plants, gasifiers and all of that, the opportunity over there, that's more than $40 billion. But most of them will not be accessible because people would not want to let go of that because there are operating people on those companies. Even if the corporate wants to do something, the operating companies don't want to let go of those assets. So I'm not suggesting that all of that $40 billion is available, but there is a big amount of it available and I hope we can play a significant part into that. We have been saying that for 4 years and -- I mean the project -- the Jazan project is the ultimate buyback, right? We are spending $12 billion to buy assets from Saudi Aramco. So that is the best example of the buyback.

Fair, fair. Switching gears a little bit to the current environment. You gave us a snapshot in April. But here we are, we are more than halfway through Q2 and it looks like things are restarting. Can you give us an update on where we are today, the business?

Sure. We usually don't do this but considering the unusual circumstances, I'll be happy to give you an update as of today because we look at this thing every day. Right now, our business in Asia is back to normal, whether it's on-site, whether it's merchant. And in some product lines, it's actually doing better than last year. So we are very happy with that. In Europe, our merchant business in total, which includes the liquid business and the packaged gases business, is down about 25%. If you focus only on our packaged gases business, it's down more than 40%. When you come to the Americas, we do not have much of a packaged gases business in the U.S., thank God. But our -- it's mainly merchant business and we are down about 15%, volumes. So that's where we are today. And our on-site business is pretty much -- has been -- has not been affected by what is going on, as we have mentioned many times.

Okay. Is this better or worse than you expected a month ago?

It's about the same as we reported to you at the end of April when we announced our results.

Okay. So moving on to -- actually, we had one more question coming in over the -- here about M&A investments. So Air Products made an offer to buy Yingde a few years ago but walked away. Would you still be interested in larger-scale M&A in China?

Whether we are interested or not, it's not practical because now Yingde has become big enough that there will be an antitrust issue.

Okay. Simple enough. Also, on the current business, your price growth over the last, say, 1.5 years has been very strong. So I'm not going to ask you to speculate on the future. I know you don't do that. But can you talk about what has enabled this growth over the last 1.5 years?

It's because -- I can talk about Air Products. In February of 2018, we made a very public announcement that prices for our merchant business has not gone up for -- almost for 10 years. Our costs have gone up. We need to maintain our margins so that we have enough money to invest in R&D and developing our business. Therefore, we at Air Products are going to increase our prices. And if that means that we will lose some volume, we will lose some volume. That was our strategy. We announced that. And obviously, we've been able to increase the prices without -- we lost some volume, but the balance, it was worth it. And we still think that's the case. Air Products' strategy is that we make very special products. We spend a lot of money in R&D, a lot of money and effort. These are products that have no replacement. And therefore, we should get the proper value for them. And therefore, we will be -- continue to be focused on pricing our products in accordance with what they are really worth to our customers. We will continue to do that. And if that means that we will lose some market share, we will lose some market share. But that is our strategy, and that strategy has not changed as a result of the COVID or anything like that.

Okay. So how does that work then for your customers? Do they simply pass on the price increase to their customers in turn?

Well, the thing is that -- the fortunate thing is that most of the products that we supply are a minuscule part of the cost of the total product. I mean you take an MRI machine, the MRI machine sells for $3 million. The amount of helium that you put in there is $15,000. So if the $15,000 goes to even $30,000, it doesn't affect the profitability of the MRI machine. So fundamentally -- or oxygen for making [ a speed ] is such a small part that therefore, there is -- we think there is room for getting more to cover our costs. Our distribution cost has gone up. Our fuel costs have gone up. Our prepaid cost has gone up. Therefore, we deserve -- we think we deserve the price increases. Our customers, they always have a choice. This is a competitive market. They can -- if they choose, they can go buy from somebody else and some of them do that. We have a certain price for our value. I mean it's just like anything else. If you want to go with something, there is a price for it. If you don't like it, you go to the next shop. If you don't like it, you think it's too expensive, you don't buy it. So we are not -- this is not as if -- I mean we are not -- don't have a 50% market share on these things. It's just a matter of the fundamental philosophy of how we operate. Some people operate on the basis that volume is more important than price. We think otherwise. We think price is more important than volume.

Okay. Now you say that but you haven't actually lost any volume. Your volume growth has been strong. So what am I missing here?

Well, maybe the customers have decided that what we are charging them is fair and they keep buying from us.

Okay. But would you mind just commenting also on pricing in this quarter? Are we seeing the same kind of trend as Q1?

We -- you have the result of our pricing for October, November and December, and you have it for January, February and March. No. I think -- don't think it would be appropriate for me to talk anything about the pricing for right now and so on because that would not be appropriate. Once we announce our results at the end of July, you'll see how we did this quarter. We had good pricing in the month of January, February and March.

Okay. That closes out the pricing section. So sort of putting all this together, how should we think about your recurring EBITDA and free cash flow from all the assets you have in the ground if we take out all the new growth CapEx projections?

Well, if you take the investment and the strategy that we have implemented and the growth strategy that we have implemented, the rest of our business, which is the standard merchant business and packaged gases business -- we have talked about this before. That business only goes with GDP. So if you don't do these growth things and you just sit on top of the existing business, you're going to grow -- if you are lucky, you grow 2%, 3%, 4% during normal times, and you will have a hell of a problem during the current time. I mean the reason that we had results in the first 3 months of this year with the world shutdown and we have still been about 7% ahead of the year before was because of the strength of all of these projects that we have done and gasification and all of this kind of things. If you hadn't done those, the volume growth would have been a lot lower. You can look at our volume growth rates in the first quarter and compare it to other people and the answer becomes very obvious.

Okay. Switching gears to ESG. I would say that the most -- one of the most commonly asked questions, at least I get, is doubling down on coal at a time when most of the world is moving away from it. How do you see your coal exposure in the context of ESG?

Number one, coal is one of the things that we are doing. If you take -- when we are doing coal gasification, the product -- we put CO2 in, but we are helping convert that coal, which otherwise will be turned or -- into products that actually help the environment. Air Products is based -- today, if you take all of the CO2 that we emit and then take the benefit that it brings -- if you have a steam methane reformer, puts out CO2 but the hydrogen that it produces is cleaning up the fuel in the cars. If you take the total in balance, we are saving the world 55 million tonnes a year of CO2 emissions. If it wasn't -- because of what we are doing, we are saving the world 55 million. So we are actually a positive effect on the environment. And as time goes forward and we do these projects and we start implementing our carbon capture strategy and we start implementing our hydrogen for mobility strategy, ESG focus is going to be significantly favorable for Air products because we are focused on making the world a better environment for people to live in and we can clearly demonstrate that the implementation of our strategy will save the world and make it a cleaner place. The oxygen does the same thing. Hydrogen is going to do that. Carbon capture is going to do that. Therefore, we are -- we welcome investors' focus on ESG. I hope they become even significantly more focused on that. We would like to engage with them on this discussion. That is why we have put the responsibility for sustainability and so on with our IR department so that they are the face to the investors. We welcome discussion about ESG with any one of our customers to demonstrate to them that what we are doing, that is to the benefit of the world and the future is going to be even a lot better for Air Products when it comes to sustainability.

Okay. So if I summarize what I think I heard is these plants are going to be built anyway and you do it better -- sorry, the coal is going to be burnt anyway and you do it better with less CO2 emissions. Is that fair?

Well, you are just focusing on the coal, right? But in addition to coal, we are going to do carbon capture. That is going to reduce a lot of carbon. In addition to that, we are going to do hydrogen, which is going to be a significant source of eliminating pollution. So you have to take the whole thing in combination, yes. And I am saying that, yes, when you gasify the coal, you are helping the environment. That isn't hearsay -- compared to alternative uses, yes.

That's fair. Now the time scales are different, though, right? Hydrogen is not -- hydrogen fuel is not a big thing right now. Carbon capture is years away from being economical or even -- or paid for it. But the coal gasification happens now. And so if you're an investor concerned about ESG, as of this moment...

But as I said...

Yes, a familiar question, sorry.

Yes. But if we have an investor who is concerned about the next 2 years, ESG is a long-term thing in terms of the direction of the company. It's not an issue of this year or next year. It's where is the company. ESG is about where is the company going to be 10 years from now or 5 years from now or 15 years from now, what is the trajectory that you have in terms of what you are doing, and we believe that trajectory is going to be significantly advantageous for people who are involved in the kind of thing that we do. And there are other people involved in the same business, right?

Okay. So let's talk a bit more about the hydrogen opportunity. What kind of projects does that really mean for APD? Is this hydrogen for mobility, hydrogen for ammonia? Where do you think the opportunity is here?

It is hydrogen for everything. Hydrogen for mobility because all the cars in the future are going to be running on hydrogen. If all of us live to be through 2035, 2040, I don't think you'll see any electric cars around. It will be all hydrogen. Because electric cars in time are going to become a problem because how do you generate the electricity to feed them unless you go nuclear, and I don't think a lot of people in the world are going to go nuclear. So hydrogen is going to be the choice and that would be a significant opportunity, hydrogen for heating your homes, hydrogen for decarbonizing the natural gas pipelines. The world is going to be a hydrogen economy 15 years from now, and we need to do the work today in order to get prepared for that. I can clearly see that in 2035, maybe 70% of our business will be hydrogen.

So you said that electric cars are not viable because we need to generate electricity for it. So are you saying that the hydrogen is generated from fossil fuels and then the carbon is captured and put back into the ground?

No, I'm suggesting that hydrogen will be generated by renewable energy and electronics is avoided.

But if we're doing renewable energy, why wouldn't we just run the cars on electricity in the first place?

Because hydrogen is more efficient. I mean if you are making -- if you are doing renewable energy, one way to think about it is that, that renewable energy, you need to make hydrogen in order to -- it would be a lot more efficient to heating your house and decarbonizing the natural gas pipeline. And in terms of running the car, there is a limit to the cars because of the size of the battery. And the battery, the recycling of -- right now, nobody is worried about it, but 10 years from now, when all of these batteries are going to be -- have to be disposed, there is a lot of toxic stuff in there. And that would become self-evident that we shouldn't be doing that. Beside that -- beside -- most of the application for hydrogen where it becomes very efficient is going to be in buses and trucks that there, it is very difficult for electric cars to compete because of the size of batteries required.

Okay. The European Commission put out their budget this morning. And in that budget, there's a $30 billion hydrogen initiative. Now my understanding, most of that investment is supposed to be for replacing what they call gray hydrogen, so hydrogen from ammonia and urea. Is there an opportunity for Air Products in that proposal? And what's the time scale before you think you could get something in the ground there?

First of all, the way I read that report is that the amount is not $30 billion. It's $1 trillion in terms of the total commitment that they are making. And secondly...

Specifically for hydrogen though?

Yes. If you read the details of that, it's -- in total, in time, it's almost $1 trillion commitment. But I don't want to get into the details of that because I haven't read the whole thing. So I don't want to get ahead of myself. But that is a good indication for you about what direction this thing is going because they are going hydrogen. They are making a commitment. And obviously, we are the leading producer of hydrogen in the world. We have the technologies, and therefore, we participate and benefit from all of these things, like everybody else who has the technology and the know-how to deal with this one. I think you are going to see everybody and their cousin getting very interested in hydrogen.

Fair enough. It is fun to play with, I have to agree. Switching over to carbon capture side, can you talk about the financial impact of carbon capture?

Well, carbon capture is very, very valuable right now. If you do the carbon capture project in California, the amount of incentives is such that it makes it very economical to put in the investment to capture the carbon if you can find a way of doing something with the CO2, whether it is enhanced oil recovery or putting it into ground and so on. But those projects are obviously challenging, and permitting and all of that, but there is opportunities and we are working on those. I mean that is one of the things that we want to do in terms of capturing CO2, using it for an enhanced oil recovery like we are doing in Port Arthur. We have the largest commercial operating plant of capturing CO2 from a steam methane reformer, and we put it in the Danbury pipeline, which is used for enhanced oil recovery. In addition to that, you can think about carbon capture in different parts of the world and sequestering it. We are looking at that at different parts of the world to see how we can do that. And then the third part is obviously the issue of dry reforming. Can you come up with a way of taking the CO2 and basically recycling it and make more chemicals out of it?

Okay. And then the final one I have on ESG is an investor question here. In what areas of ESG do you think Air Products could improve most from where you are now?

I think that -- you mean improved in terms of -- well, in terms of getting our organization under control and rightsizing and so on, I think we are where we need to be. So there is -- this is not 2014 when we have -- we're doing a lot of things which are not unnecessary. So I think we have done a good job in terms of rightsizing the company. Right now, I think what we can do better is making sure that we can execute these projects properly. And the second thing is that in the areas of gasification, carbon capture and hydrogen mobility, we move faster than we are doing right now in order to develop a lead. We already have a lead in gasification, but we need to work hard to make sure we maintain that lead. In terms of carbon capture, we need to move faster, a lot faster in order to come up with projects and demonstrate to the world that we can do something and the same thing for hydrogen for mobility.

Okay. And so it brings me to the last question from investors here. The balance sheet capacity for growth investments, what does it look like once your next few years of projects come online, right? You talked about the $18 billion, you have 2 more years to go. And hopefully by then, you've more than spent it. But what happens next?

What happens next is that if we -- all of the projects that we are doing and we deployed the $18 billion, then our EBITDA wouldn't be $4 billion. Our EBITDA would be $6 billion, $6.5 billion. Therefore, we have capacity to lever the company and still maintain our leverage. And therefore, then we will be able to spend a lot more than $18 billion. If you actually do the iteration and so on, we can spend $30 billion in the next 5 years. We will give the investors kind of a little bit of a road map once the 5 years is over. That means we told them for -- so 2018 to 2023, and when the time comes, we will tell people where we are and then we give them a road map for the next 5 years.

Okay. But should we expect that 10 years from now, Air Products has spent $1 billion more on renewable hydrogen, $1 billion more on carbon capture?

In 10 years?

Yes.

In 10 years' time, you should expect that Air Products has spent $10 billion on hydrogen for mobility and another $10 billion on carbon capture. I mean 10 years is a long time and there is a lot of opportunities. If you want to be a player and be having to spend the $7 billion or $8 billion on hydrogen for mobility, we are falling behind.

Okay. Very last question because running out of time here. It's a question we asked from all the companies at this conference. As you think through and beyond the pandemic, how do you expect your priorities to shift? Are you doing things differently than you did before?

I don't expect much of a shift. I mean we are seeing the future in China. I mean what happened in China? Right now, life is back to where it was. I see that -- the same thing happening in the U.S. I think -- and the rest of the world. The issue is how long is this going to take? I mean China, Taiwan, South Korea, they got this thing in control -- under control in 2 or 3 months. Are we able to do that? I don't know. I hope so, but I don't know. For us and the rest of the world, because of the way we have and the way we run our governments and all of that, it might take a lot longer than that. But at the end of the day, 2 years from now, I don't see much of a change.

Very good. It was a pleasure, and I thank you very much. For investors...

Thank you. Very good questions, very good questions. I appreciate that.

My pleasure. For investors, if you could spare 60 seconds to do the Procensus poll on the left side, we'd much appreciate it. And yes, once again, thank you everyone for listening, and thank you Seifi for answering our questions.

Thank you, and thanks to all the investors for listening. Thank you very much.

Have a good day.

Thank you.