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

Good afternoon, everyone. Steve Byrne, Chemicals Analyst at Bank of America, and I am delighted to host Air Products for the session here this afternoon. Joining me from Air Products is Simon Moore. And Simon has been with Air Products for a long time. He cut his teeth as a sales rep in the merchant gases business, I'm going back into the '90s. Then he switched over to, I believe it was the hydrogen business. Then after that, he moved into the tonnage business. And then after that, he moved to Taiwan and took on the semiconductor fabs as a customer in the electronic materials business. And then perhaps he saw something coming about a potential spin a few years down the road, I don't know about that, but he then moved back to headquarters and has been in the role of heading Investor Relations. He also handles corporate and government relations and the most recent role that he's been given by the company is sustainability. So welcome, Simon. Glad to have you.

Well, Steve, thank you very much. I didn't know you were going to go in the way, way back in the file there, but I appreciate the background. Really want to thank you, Steve, and the rest of the Bank of America team for reporting this on today. Thanks for everybody who's joining us virtually. Steve and I were just reminiscing that at least for me, our last conference was live with you, Steve, a long, long time ago. So hopefully, sooner rather than later, we're back to getting together live. But again, thanks for the opportunity to be with you here today.

Very good. Thank you, Simon. So the NEOM project has been mentioned a couple of times this morning, and I thought maybe we could start off our discussion on that. It's been 6 months. How would you characterize the response rate following the announcement of that project from prospective customers? How would you characterize that? And has that trend continued to accelerate? Or maybe has it slowed down?

Well, great question. And I don't need to tell you, Steve or anybody on the phone today, that the amount of interest in the world in lower carbon, carbon-free, green hydrogen has just accelerated. It's been accelerating over the last year or 2 and has really accelerated in the last 6 months, and I think there's a couple of reasons for that. Obviously, the world, people, want to be more focused on cleaner energy, lower-carbon energy. And at the same time, I honestly believe, Steve, that our project announcement made this more real for people. So if you think about being, let's say, a government official somewhere and you were thinking about whether you were confident enough to make a commitment about carbon-free hydrogen, green hydrogen, up until 6 months ago, you might have had -- you weren't maybe sure where that hydrogen was going to come from. And with our project announcement, I think we raised the confidence level of everybody that, "Hey, we can really do this. This is very possible." So I think that's the backdrop. And as you can imagine, in that backdrop, combined with the reality of having this product available for folks in 4 or 5 years, it really has accelerated the conversations we're having. As you know, Steve, our primary market focus for the output of this plant is hydrogen for the transportation market for mobility, specifically for the bus and truck market. We think that, that makes the most sense for the hydrogen opportunity here. And so most of the buses, especially the city buses in the world are organized and managed by some type of bus authority, maybe a government agency or at least a quasi-government agency. So we had been having and have absolutely accelerated the conversations with those types of folks, places around the world, who are very, very interested in green, carbon-free hydrogen, being what's going to drive their bus fleet into the future. So absolutely has accelerated, and I expect that that's going to continue.

And so would you say most of the groups that you're speaking with are government related? Or are there private enterprises that are also in discussions with you?

Well, as you can imagine, it is a mix. But again, a classic market. One of the strongest opportunities we see are the city bus fleets. And why is that? Well, to be honest with you, most of the city bus fleets, they don't travel, of course, cross-country. They stay focused on the city they're in. They tend to have a depot or a couple of depots maybe that the buses come back to. So from a fueling infrastructure standpoint, it's very, very efficient. And of course, guess what, the cities are where a lot of the pollution in the world is. And a lot of the leaders, the political leaders in some of these cities, are the ones who are really on the forefront of saying, "Hey, I want to take concrete steps to kind of get the CO2 out, not only of my city but out of the world." So again, different bus authorities are set up in different frameworks around different cities in the world, but they're generally, again, government or sort of government-enabled agencies. And those are the -- some of the folks who we're talking to. Certainly, on the trucking side, it's a little bit more of a mix of some city trucks and some more private enterprises. But to be clear, we're not looking to build out sort of retail hydrogen stations across a highway anywhere. We're focused on where there is a concentration of the vehicles to build a fueling infrastructure.

And there is a mega project for sure. Just in Saudi alone, the estimate is $5 billion, and it's 4 or 5 years, as you said. Is there any rate-limiting step in that overall project that you can highlight for us? Are there pieces of it that might come on stream earlier? How would you characterize that? What shall we be looking for?

Yes. Well, I appreciate you saying that. It is an incredibly exciting project. And our team that is on the ground there and around the world is working hard to execute this project successfully. They've got a real challenge, and I'm very confident they are up to that challenge. So as you would do with any large project, there's an overall project schedule developed. Because to be honest with you, there's not that much point in having one part of the plant come on stream 2 years before another part of the plant. So the team is creating an overall master project schedule. They understand the critical path items, the key milestones, and we'll sort of stage the construction, so that we end up with the units on stream when we need them. So there's not really one specific part of it that's necessarily going to be on stream a lot before the other, other than wanting to optimize the construction there. So there's a lot of work going on, on that type of activity, laying out that schedule, beginning to the engineering, finalizing the commercial agreements, and again, very, very excited. I think 2025 will be here sooner than we realized.

And so I think that you've described it as a 4 gigawatt of renewable power. Thyssenkrupp was on this morning, and they indicated 2 gigawatts of electrolyzer capacity. So you got a little bit of a delta there, but I think you've also said 70% onstream and you are getting some power for the separation unit for the ammonia reactor. But it seems like there's the potential for maybe some excess power. I just wanted to hear your view on that, whether there might be some potential to debottleneck down the road and actually increase the production of ammonia.

Well, Steve, as usual, you've got your numbers just right on there, right? So as we've said, look, depending on how you look at this, you certainly can come up with the idea that there might be some "extra power" there. And I think what we've said so far is that we're very aware of that. We're very focused on that, but we really haven't made any comments about what exactly that's going to be used for. And so if it's okay, I think I just kind of have to leave it at that at this point.

So before getting downstream, I did want to ask just one kind of broad-level question for you on this NEOM project. When I compare it to Air Product's history of on-site projects, this one is really an outlier in my view in terms of not the size, not the scale, but the potential uncertainty with regard to contracts. And where is this product going to go? What are you going to sell it for? Is it reasonable to assume that the returns on this project warrant taking on that additional risk?

Great question, Steve. And I think it is instructful to -- or helpful to really split the project into 2 parts. So let's do that for a second. So if we talk about the production facility in NEOM, the $5 billion of investment for the 3 partners: ourselves; our partner, ACWA; and our partner, actually, the city of Neom, that is an on-site deal stay. We know what the capital cost is going to be. We've got to execute for that. And all of the output from that production joint venture, which, as you know, is ammonia as a carrier for the hydrogen, all of the output from that plant is sold to a customer under a known price and that customer takes all the product. So if you just draw the box around the facility in Saudi Arabia, that is a classic pure on-site deal. Now it turns out that Air Products is the customer of that project, and we are very happy to take all of the output from this. So I would say that $5 billion has a very classic on-site-type profile, and I know you said we'll get to the downstream in just a second, but then I think it's the downstream that Air Products is fully responsible, and that's where their potential is for significant returns related to what the ultimate economics are for the carbon-free hydrogen. But again, we think of that NEOM actual project in Saudi has really a business-wise, contract-wise a very pure on-site deal.

Okay. Let's talk a little bit about that $2 billion estimate for the downstream. That $2 billion must be a somewhat rough because you don't really have the -- how you're going to distribute that product that well-defined? Who are your customers? Where are they? Do you need storage tanks? How many trucks are you going to need to haul the product, how far? Is there just plenty of contingency built into that? Or maybe you can just come up, maybe you can help us understand that $2 billion number a little better? Is there any framework behind that, that you can help us understand that number and how it was derived?

Well, yes, very insightful. And I'd say it this way, I'll give you another variable that you didn't mention. Do we end up with a smaller number of larger customers or a large number of smaller customers? And if you end up building a smaller number, a larger -- smaller number of larger capacity, kind of hydrogen dissociation and pumping stations and delivery stations, then probably the overall capital is going to be a little bit lower. So I'm not sure that I describe it necessarily as sort of uncertainty. We've made an assumption about what our expectations of the number of stations we will build, the number of dissociator units, the hydrogen storage, the dispensing stations, and that -- we feel very good about that capital estimate for that amount. But if it turns out we end up with a smaller number of bigger customers, we probably spend less capital and vice versa. But we will be quoting prices for the carbon-free hydrogen commensurate with not only our cost of ammonia from the NEOM project but obviously the capital associated with supplying product to that customer. So to some degree, if you will, the selling price of the hydrogen is going to be reflective of the capital costs associated with delivering to that customer.

Okay. I wanted to maybe drill into that a little bit. So to dispense this ammonia at these bus depots, you need to convert it back into hydrogen through a disassociation process. How sophisticated is that unit operation? Is that a risk in your view? Is that fairly well understood and all incorporated into your capital estimate?

Yes. I think it's a -- you've described it very, very well. We don't view that as, let's say, a technical risk. Ammonia disassociation has been going on for decades. There's places in the world where people use disassociated ammonia as their source of hydrogen, if there's not a lot of hydrogen around; that's separate from it being carbon-free. So we think the technology is very, very well proven. We do think that, quite frankly, we're going to bring some scale to this. We're going to bring a -- perhaps there's an opportunity for us to bring our project execution skills to bear, and perhaps we can improve the capital cost of those units, but we don't see that as a technical risk.

Is there a reason to consider building that distribution channel earlier than 2025 and sourcing those units with blue or gray ammonia and start this development and get those cities to start replacing their buses with fuel cell buses. Is there a merit to that approach?

Absolutely. And I'll be -- I'll take it one step further, Steve. It's not just, is there a merit to approach? That's what the customers are going to want, right? They're not going to want to sit there using zero hydrogen until 2025 and then flick a switch to go to 100% hydrogen. That's not a really reasonable approach. As you said, they replace their buses on some regular cycle. So what we're seeing is there's great interest in people, let's say, getting going. And what that might mean is, they, of course, have to buy some hydrogen buses. So we do see opportunities. I mean, we supply hydrogen into the transportation market today. So we do see opportunities for, let's say, again, the typical city bus manager wants to get going, wants to order some hydrogen buses and they can be supplied. And quite frankly, whether that supply is better done with gray hydrogen today, which could be done, right, we could just deliver a gray hydrogen, and it could be dispensed or we want to build -- it makes sense to build the whole dissociator and bring in gray ammonia, those are both very, very possible. But I do absolutely see that people are going to -- it only makes logical sense that people will want to get going on this. And then obviously, they recognize they're going to move to the carbon-free hydrogen when it's available, but I do expect there'll be some work ahead of time.

So earlier this morning, CF Industries presented, and they've stepped into this green ammonia. And they have described the potential demand with 4 legs and none of those 4 legs are the outlook for your green ammonia. And I just wanted to hear your view on that. So more specifically, they are targeting ammonia as a fuel for ships, ammonia as a feedstock blend for utilities and then maybe some industrial applications and then maybe in some ag markets would be another one. Is it reasonable to assume that the pathway that you're heading down maybe is a little more complicated because there's transportation and there's disassociation, but in your view, higher returns?

Well, good question. I mean, I can't speak to their business. Ammonia isn't "per se a business that we have knowledge about." We're focused on the hydrogen opportunity. And you are absolutely right, there's a wide variety of opportunities for hydrogen as the world thinks about this energy transition. So we're talking about hydrogen for mobility focused on the bus and truck market. Because to be honest with you, that's really what we're focused on around the NEOM project. But as we've talked, Steve, and you know and other folks know is there's other mobility opportunities. You see ships, you see trains, people even talk about airplanes, we'll see what happens there. So I think those opportunities exist, and we're going to continue to work on those and take a look at those. But they're really, in our mind, there are hydrogen opportunities, "Do you choose to use ammonia as the carrier to get the hydrogen there?" That's going to depend. So that's the transportation market. And then there's what -- because I think some people refer to as sort of the industrial market. And whether that's cement or steel, using hydrogen in the production process, that's an opportunity. We think that likely looks like kind of a traditional on-site hydrogen plants, and again, whether that's green or blue. Then when you think about hydrogen just simply as an energy source, decarbonizing natural gas pipelines, right, you can blend in hydrogen to a modest amount with a natural gas pipeline and use that. So I think that we see those as hydrogen markets. And then there's just a question of what's the best way to distribute and get the hydrogen there, and in some cases, it's going to be ammonia; and in some cases, it won't be. But I also want to make the most fundamental point that this size of this opportunity is absolutely massive. I often get asked how big do we think this market is? And our answer is really, really big. Because to be honest with you, whether you think this is a $100 billion or $200 billion market in 10 years or 15 years, it doesn't change things. It's really, really big. So the reason I share that is not only could Air Products not do all of this, no company on the planet has the capacity or capability to do all this. So there is going to be other companies who are going to have to be involved in making the carbon-free, green hydrogen or ammonia, and whether we view those as competitors or not, Air Products focus is to position ourselves our expertise across the full supply chain, all the way from making the hydrogen, distributing the hydrogen and then having the technology to deliver the hydrogen into the vehicle, that's where we think it's going to create a competitive advantage for us. But by no means, could we possibly do all of this. So there's going to need to be other companies involved for hydrogen to take off the way we expected to.

I'm getting flooded with questions from participants, and one of them I want to bring up because it seems relevant here and that is about the NEOM project: were there any issues that you're having with Jazan affect the viability of NEOM?

So in one word, no. We don't see that. And let me expand on that a little bit. One of the things that's important to keep in mind is, Jazan, it's a little bit of a different project in many ways. But one of the ways, it's an acquisition. So I think as a known is, Saudi Aramco is building the Jazan refinery. Originally, Saudi Aramco was going to build and own and operate the gasifiers and the power block. So that was the original framework. Those units are going to run. They've been constructed. They're in the process of being started up. So they're going to run. So it's not a question of does the project happen or not, it's a question of who owns and operates the gasifier and the power block. And so because of that and because it's an acquisition, you could see some changes around the dynamics of that, even as we thought we were fairly close to the finish line. I contrast that with NEOM, which is not a question of who owns it, it's a fundamental project, which is very, very important to Saudi -- to Saudi Arabia. It's very important to the rest of us as well and it's a new-build project. So we're going to have the final commercial agreement sorted out before we go spend $5 billion. If I take it back to Jazan, we have worked hard on that project, but we haven't spent any capital, and we would like the project to go forward. But if it doesn't, we're not losing any money, let's say. So again, I think they're very, very different from each other. The actual entities that we're working within Saudi, Saudi Aramco and NEOM are not one and the same, either, but it's more fundamentally a different kind of project. So we don't see an impact there.

Another question that I just got related to this is a reference to your balance sheet strength and the potential for you to build 2 of these. Perhaps you could comment on where you see it might go from here, where and when?

Sure. Well, as I think you know and then maybe just to remind folks, as big as NEOM is, as game-changing a project as it is, it can only supply about 20,000 buses. And depending on whose counting you look at, I've seen numbers of 3 million city buses in the world. I've seen numbers of 220 million buses, trucks and vans. So we're talking about a project that can supply 20,000 out of whatever you want to say, maybe 200 million vehicles. Again, back to the point is, we expect that we will do additional projects. We absolutely expect and anticipate. And to be honest with you, the world will need projects done by other people. So as you point out, we very much have the balance sheet capacity. We have the expertise. We have the project execution capability. So we could certainly see additional projects being built in and around NEOM. We are certainly looking at and working on other potential projects in other places in the world. As you know, we're pretty likely not to talk a whole lot about those until we have a deal that we're ready to announce. But just rest assured that it's not like we're waiting until 2025 till we think about our next step. We're absolutely working on other opportunities as we speak today.

And another question that I just got online was with reference to these bus depots. Those cities that you're in discussions with could be considering battery electric vehicle buses since those buses are coming back to the terminal in the evening. They could get recharged for the next day. Do you have a view on how those cities are comparing those 2 technologies, the fuel cell electric vehicle, the battery electric vehicle? And how the pricing of your ammonia-dissociated hydrogen to those bus terminals might affect that decision?

Yes, great question. And really, I mean, this is why we see this as a differentiated market because I'll go the other way. Think about the passenger vehicle market, the vehicles aren't so big, so the weight penalty of the battery is not so impactful and you need a very broad distribution setup, right? We'd have to have a lot of stations. So for that reason, we actually think that per passenger vehicles, as you said, it's going to be battery electric vehicles. But then when we turn to look at buses and trucks, the larger size of the vehicle, the inherent advantage of hydrogen and not being very heavy becomes more apparent. A large truck, a lot of its payload has to get used up with battery storage to be very, very successful. But there's another key point. If the purpose of this is to create carbon-free transportation, and you're going to use a battery-powered electric vehicle, then how and where are you going to get the renewable energy from? If you're in a part of the world, where, quite frankly, the sun doesn't shine as much or the wind doesn't blow as much, you're going to have relatively high-cost renewable power to support that supply chain. So first of all, you have an inherent technical advantage for hydrogen in large vehicles. And essentially, the movements of the ammonia with the carbon-free hydrogen to this site essentially allows you to, in a low-cost way, bring that renewable energy into the middle of the city. So I'm sure not every city on the planet is going to use hydrogen, but that's -- those are the reasons why we see and we see the city bus fleet managers being very focused on hydrogen for the larger vehicle.

And so to your point, Simon, those cities that have access to renewable power, they might end up with an on-site electrolyzer, that's not your stick. That's not what you're going after. You're going after those locations, where you're bringing that renewable power to them essentially.

Yes, exactly. And of course, anybody can have renewable power. It's a matter of what it costs, right? The sun shines somewhat everywhere in the world. But we really believe that it's much more economical to do what we're doing, take advantage of the, if you will, the high-quality of the sun and the high-quality of the wind in that portion of Saudi Arabia in NEOM, and essentially, you're almost -- think of it almost as you're moving that low-cost production from where you're producing it to the city where it's needed and that's why we're excited about the project.

I know that NEOM is a monster project for you, but I didn't want to bring up the concept of blue hydrogen. You have a very large hydrogen pipeline network in various parts of the world, particularly on the Gulf Coast, where I'm fairly familiar with it. Talk to us about your view on creating some blue hydrogen out of that network?

Great. Great question. And if I could, I'm going to -- we actually see there's going to be market growth opportunities in all of these 3 flavors. And if I could just for a second, if we talk about gray hydrogen, right, the massive -- the majority of that market today is on-site hydrogen to the refining industry. So we think that, that's going to continue for a very, very long time to come. We also see the potential even for gray hydrogen to be used for transportation. That's what's done today. And I think there will be places in the world where a city will say, "I don't want CO2 emitted in my city, but I'm happy to buy gray hydrogen." In other words, I'm not that worried about CO2 being emitted somewhere else in the world or somewhere else in the country. So we do see there will be the potential for some gray hydrogen for transportation. We also very much see blue hydrogen, which is essentially hydrogen made from hydrocarbons but the CO2 is captured. And I think we see that in 2 different ways. One is the same market that we're serving today, so hydrogen for the refineries deciding that it makes sense for us to retrofit carbon capture onto an existing hydrogen plant. So essentially, the hydrogen plant continues to make hydrogen, continues to go to the refineries. They continue to make hydrocarbon-based transportation fuels, but we have added the carbon-capture equipment to reduce the CO2 footprint kind of on behalf of our customers. We also see that there will be new market opportunities for blue hydrogen. Again, some in the transportation arena, where some cities or some countries may say, "Look, I do want low-carbon hydrogen, but I don't mind the fact that it's made from a hydrocarbon. I don't have to have it be all the way green. So I'm comfortable with, let's say, a steam methane reformer making hydrogen with carbon capture and then that hydrogen is what's used to power the vehicles or a gasifier." So again, we've talked a lot about the green hydrogen side as some may say that's the ultimate, but we absolutely see there's going to be markets for all 3 of these, and we're going to be very, very focused on them. As you know, Steve, we have a leadership position in hydrogen today. We have the largest carbon capture project on a hydrogen plant at our facility in Port Arthur, Texas, where we currently capture about 1 million tons a year of CO2. That was actually a retrofit to an existing hydrogen plant. So we have the execution and operational expertise to do this and continue to do this. And we certainly, with our NEOM project, are demonstrating that we want to maintain our leadership in the green hydrogen. So we see opportunities across all those three and we want to be the provider of choice in all those areas.

And one of those drivers that you mentioned would be your refinery customer choosing to go down a path of blue hydrogen. Do you see that as necessitated by some government policy before that would happen?

Well, I think that's a very interesting question. And I think there are government policies that are going to -- maybe not force that to happen, but create the economic incentives for it to happen. And you see some of these projects, we talked about some of these in some places in Europe, in Canada, some parts of the United States. Their frameworks are in place. Maybe the legislative action has been taken and it's in the process of being translated into specific rules and regulations. And we think that there is going to be value created for this captured CO2 or cost avoided for our customers, that's going to be an opportunity for us. And maybe if I could just for a second explain kind of the business model here is that in our on-site deals, we, of course, produce the CO2 at the hydrogen plant, and in most of the facilities, except for the one in Port Arthur, that CO2 is emitted. But the risk responsibility, the financial risk of that CO2 emissions lies with our customers in our contracts. So they are responsible, if, say, a CO2 tax or some CO2 credits have to be purchased, so really that's where we'll go to the customer and say, "Look, we've got a great idea. We have the CO2. We have the technology to capture it. We'll be willing to do this. In exchange, we'd like you to commit to pay us a fixed monthly fee and it will essentially reduce the pass-through CO2 costs that you're seeing." So for us, it's an opportunity to extend the on-site business model one more dimension into carbon capture in that secure, high-return, low-volatility on-site business model that we like. Now it is also possible that our refining customers may choose that they would like to have the CO2 footprint reduced even if it's not regulatorily mandated. We're obviously aware that all of the energy and oil companies are thinking very hard about their CO2 footprints. But quite frankly, that's a choice for them to make, and we're available to help them if they would want to do that.

Your U.S. Gulf hydrogen pipeline supplies to probably dozens of customers. What capacity does it have in excess to produce additional hydrogen that you would carbon capture and create as a blue or say you find some end markets that are willing to buy the gray hydrogen for transportation? So is there the capacity of that pipeline to flex and supply this incremental demand? Or would you see these as potentially competing with some existing customers and potentially tighten your current market?

Well, it's a good question. And the team down on the U.S. Gulf Coast is what we're speaking of. We, of course, have hydrogen pipelines in other places, but it is a very large dynamic system. As you said, over 20 sources of hydrogen and dozens and dozens of customers. So of course, our goal is to try to match supply and demand as best we can. So we don't have significant quantities of just extra hydrogen. Now there is some variability in demand based on operational conditions with our customers. So there's times when we've got a little bit of extra hydrogen. But obviously, our business model has not been to build significant quantities of extra hydrogen. But obviously, it's a dynamic system, and we can add capacity as needed to produce additional hydrogen. But I wouldn't suggest people think of it as a whole bunch of extra hydrogen that we would utilize in this market.

I got another question online that I'd like to hear your views on. And it's basically the cost of transporting hydrogen out of NEOM versus ammonia, and it brings me back to this professor from Wales that we hosted a call with a couple of weeks ago and he had some pretty compelling data on the -- basically the cost per kilogram per kilometer whether you're hauling gaseous, high-pressure hydrogen, liquid hydrogen or ammonia. But the question is, is it economically feasible to haul and transport hydrogen out of the NEOM project versus ammonia? And how would you respond to that?

Well, Steve, that is our business, right? I mean, literally, right now today, Air Products is moving, gaseous hydrogen in places around the world via truck. Right now, we're moving gaseous hydrogen via pipeline. Right now, we're moving liquid hydrogen. And so I guess my point is, we have a lot of expertise and a deep understanding of the relative costs of those. We obviously looked at that very, very hard around the NEOM project and concluded that for that distribution chain, that supply chain converting it to ammonia, moving it as ammonia and dissociating it made sense. Maybe just -- let me add a couple of comments as to why. So obviously, as everybody knows, if you want to transport high-pressure gas, it's very expensive because you have very heavy steel tubes to hold that high-pressure and move it. Now we do that today because it makes sense for relatively small customers over relatively small distances. So we do that today when it fits. We have liquid hydrogen plants in a number of places around the world. So if you think about moving from gaseous hydrogen transport to liquid hydrogen transport, the challenge is that the liquid hydrogen is expensive. You need capital to liquefy the plant. Hydrogen is also very, very cold. So you have to, if you will, invest a lot of energy in that hydrogen to make it cold enough. And then because it's so cold, when you transport it in special vehicles or special tanks, you do have some heat leaks, some of it boils off over time. And then in ammonia, of course, you're incurring extra costs associated with making the ammonia and disassociated ammonia, but again, you have a much more economical distribution. So you really need to make sure you're looking at the full cost, including what do I have to add in capital and operating cost to either make liquid hydrogen ammonia and do the trade-off. So I don't mean to say that turning hydrogen into ammonia is always the right thing to do. If you have a relatively short-haul and you have gaseous hydrogen, it's not a huge demand, we can deliver it by tube trailer, which is the gaseous hydrogen truck deliver. And by the way, we do that today to a number of hydrogen fueling stations around the world. So I think that there will continue to be different answers in different situations. What we're excited about is, we've got expertise in all of those.

And when you make that decision to haul liquid -- to liquefy the hydrogen and haul it in a liquid truck. Can you comment on roughly what is that distance that makes that economically favorable?

Well, I mean, I think it's not only distance but also size of the customer. If you have a very large customer, then it makes more sense to do the liquid hydrogen. And again, we don't have liquid-hydrogen facilities in all of the places. So for example, in the United States, we transport liquid hydrogen all over the place. But let me give you another example. Let's say we make liquid-hydrogen plants on the U.S. Gulf Coast, and I've got a gaseous hydrogen customer up in the northern part of the United States. I might actually move liquid hydrogen to the Northern United States and then put it in a gaseous truck for distribution in that local area. So you can also have kind of a hybrid supply chain as well.

Another question that I got online here is about the water consumption that NEOM -- can you comment on what you expect that freshwater consumption rate to be? And is that going to be an issue for that plant?

Well, again, one of the reasons why Seifi said, it took years to put this together is there's a lot of different factors that go into finding the right location. Often people talk about, "Well, you could be in the middle of the desert and you could build a plant like this." Well, as you're kind of pointing out with your question, Steve, there's not often a lot of water in the middle of the desert for electrolysis. In this case, we're on the coast. So the NEOM facility is going to take seawater. It's going to include desalination of that seawater and that's going to be the water supply. So specifically, in this case, the answer is no, there is no issue. Included in that $5 billion kit is desalination to do that. But again, that's one of the other very important factors as you think about where you want to build a facility like this.

So it's been almost 6 months that you came out with the NEOM announcement, and you really put green ammonia on the plant. I -- since then, 2 of the biggest ammonia producers in the world have been talking about green ammonia. Would you say that their discussions about it and their interest in getting into it is adding credibility to this initiative? Is it bringing more customers into the discussion? I would be assuming that your costs would be lower than their's. And so might make it even more compelling for you.

Well, I think you hit on it, Steve. I mean, fundamentally, this is a massive transformation of how the world gets its energy for mobility and other. We're talking about an energy transition for the globe. So we believe that, that's going to be successful. It's going to take a lot of different companies doing parts of this, right? We can have all the carbon-free hydrogen in the world, but if there's no vehicles, it doesn't matter, right? So there's got to be the vehicles developed, right? And so again, I think just to the point is, we see that there's going to be lots of different companies involved in parts of this. There has to be for this to be successful. And again, we see that there's going to be other companies involved, but we're very, very excited about Air Products' experience and expertise in kind of the first-mover advantage that we're creating with NEOM, which will allow us to maintain a leadership position going forward.

Well, very good, Simon. We're out of time, and I want to thank you, sir, for being with us today and very much enjoyed the discussion.

Steve, as always, it's great to talk to you. You're very well informed. Great questions. Thanks to the team. And the only thing I hope is the next time we do this, we're sitting on a stage together somewhere. So with that, have a great day. Everybody, stay safe.

Thank you. Same to you.