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

Hi. It's Vincent Andrews, Morgan Stanley's chemicals analyst. And I'm pleased to have with us today, Simon Moore from Air Products. And we're going to do a Q&A, and then we'll be able to take your questions. But before we get started, I just want you to note this webcast is for Morgan Stanley clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley Research Disclosure website. At www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And before I introduce Simon, I just also want to remind you that on the web portal that you are accessing those webcast through, there should be a question box, and we encourage you to ask whatever questions you like and to ask them sooner rather than later. There's going to be a delay with them going through, but I will ask them anonymously as we always do. You can also feel free to e-mail them to me, and I can try to ask them at that way. And with that, welcome, Simon. Thank you for joining us today.

Thanks, Vincent. I'm very happy to be here virtually today. So thanks a lot to yourself and the rest of the Morgan Stanley team for putting us together. Looking forward to a good chat today.

Excellent. Well, I think we've got a fairly diverse group of investors on the webcast today, just given sort of the broad topic and theme of the conference. So I think it'd be helpful if just to start things off, if you could provide us sort of a background or an overview of Air Products for the folks on the line, who might be new to the company or just new to the concept of industrial gas.

Great, happy to. So first of all, Air Products is about $9 billion in sales. As we sometimes describe ourselves, we're a global company with a local presence. And what we mean by that is we've got 750 plants around the world because, typically, we'll build our plants very close to our customers. And that could literally be on the customer site, in what we call our onsite business connected via pipeline or even if we're trucking our products to the customer, they're going to be the plant located very closely. So what's important about that is we have a very global presence, but it's a local global presence, meaning we're really not importing or exporting. We got about 19,000 employees around the world that we have been very, very proud of, particularly this past year, with all of the challenges that everybody has dealt with. We've -- our team has kept our plants running. We've kept our customers supplied, in some cases, with critical products and really just driven an excellent job. I think when we talk about our business, we talk about the onsite business, which is a bit more than half of Air Products. Again, that's the part of the business where we build a large plant, could cost $50 million, $100 million. Quite frankly, these days, it could cost $1 billion or $2 billion. We build a large plant right at the customer's site and the customer commits to a long-term fixed payment to us, could be 15 years, could be 20 years. We're not responsible for the raw material cost or the raw material availability, and we're not responsible for the volume the customer takes or the price, meaning essentially, we typically get a fixed monthly fee. As a result of that, we are responsible for executing the project, running the plant efficiently, keeping the onstream availability. And with that, we get a very, very stable set of cash flows. We also have a merchant business where we truck a product to customers in -- stored as a tank at their site or small packaged gas cylinders. But again, for Air Products, really the onsite opportunities are the most exciting going forward. We're very, very focused on this existing business we have, continuing to drive the efficiencies in that business. But we're particularly excited about the growth opportunities we have, which I suspect we'll chat a little bit more about as we go through our time here, Vincent. So we've been on a journey for Air Products. We were fortunate to have Seifi Ghasemi join us as Chairman and CEO about 6 or 7 years ago. As you can see from our margin profile, we've done significant work to improve the margin over the first 4 years or so. And now really, really well positioned with a very, very strong balance sheet, some would say, underutilized balance sheet, but with a lot of capacity to put to work and some tremendous growth opportunities going forward.

Okay. Maybe let's dig into hydrogen a little bit. Let's talk about the core hydrogen business that you have and then sort of how it's evolving from gray to blue to green and your intention to play in all 3.

Yes, great. This is a great -- I like the way you asked that question, Vincent. Because really, it reminds us that this focus on sustainability, this focus on clean energy is not new, and it's not new for Air Products. And it's not new that, that focus creates business opportunities. About close to 25% of our business today is hydrogen, the vast majority of that hydrogen is used in the refining industry. And it's used to clean up a barrel of oil and create cleaner transportation fuels. And some of this has been driven over the last couple of decades by a reduction in the amount of allowable sulfur in the transportation fuels in the gasoline and diesel. So we have a big part. A couple of billion dollars of sales a year of Air Products is providing hydrogen to the refining industry that allows them to make cleaner transportation fuels, and that has grown up over the last couple of decades. So you can see some analogies to the situation we're in today. We really got the hydrogen business started for the industrial gas companies about 25 years ago. Before that, all the refiners did their own hydrogen, and we were able to convince the refiners to outsource the hydrogen to Air Products, and we've maintained our leadership position there. So that's our business today, so-called gray hydrogen, hydrogen made for natural gas, with 1 exception, the CO2 that's emitted from these projects. Let me talk about that exception for a second. In Port Arthur, Texas, we have 2 large hydrogen plants. And about 7 or 8 years ago, we went in and retrofitted to add a carbon capture system to those plants. That's been running -- it's running today, it's been running since then, capturing about 1 million tons a year of CO2. And I think that's really, really important because this is what we've so-called blue hydrogen, which is hydrogen produced from hydrocarbons, but with a much smaller carbon footprint. The carbon is captured. So we have proven experience in retrofitting a plant, it's critical that we maintain the reliability and the efficiency of the hydrogen plant once you retrofit it with the carbon capture project, and we've done that. And so that's an example of what we see as maybe kind of the next phase, which is the refineries are going to continue to need hydrogen. We believe that in certain jurisdictions, there'll be support for retrofitting a carbon capture project on our existing hydrogen plants, which will be beneficial for our customers. So again, experience in Port Arthur and an opportunity to retrofit those as well as build new plants with carbon capture. And then obviously, there's a lot of attention on the very, very exciting carbon-free or green hydrogen where we've announced, by far, the world's largest project, the NEOM project in Saudi Arabia. And we really, really are excited about that game-changing project for the world. And I'm guessing you'll have another couple of questions on that project, so let me stop there. So...

Yes, I'll throw you a curveball. Before we get into NEOM, why don't we just set the table on hydrogen mobility, and sort of what your thought is at a high level, what you -- what initiatives and things you already have in place. And then we get to NEOM.

Sure. Well, look, I mean, Air Products has been a leader in the hydrogen for mobility business for many years. We have over 100 stations and projects that are supplying hydrogen to vehicles today. And really, the interest in this, I don't need to tell anybody on this call, has tremendously accelerated in the last couple of years, in the last year. So as we look out there today, our perspective is that hydrogen is the right solution for heavier vehicles. And I think that there is a growing consensus, although not unanimous, that in general, smaller vehicles, passenger vehicles, at least in the near term, might be better served as battery electric vehicles. And in the larger vehicles, though, the weight penalty of the battery becomes a real challenge. And so for buses and trucks, I think there's a growing consensus that a hydrogen-powered fuel cell vehicle is the right solution. So when we look at transportation, if you will, over-the-road transportation, we're focused on the opportunity around buses and trucks. Now that's the primary focus for the NEOM project, which, again, I know we'll talk about in a second. But I just want to, if I could, talk about some of the other opportunities for hydrogen that are out there. So even in the transportation space, obviously, there's folks thinking about hydrogen for trains, for ships. We even see some conversation about airplanes. So there's a lot of other opportunities for hydrogen even in the transportation space, and then we can move out of transportation into what might be considered industrial applications, and this is beyond today's applications. Many steel companies in the world are looking hard at the opportunity to decarbonize their steel production and use hydrogen for that as an example. There's certainly utilities around the world who are thinking about decarbonizing their natural gas lines, perhaps in part by blending some hydrogen in there. So again, if we start with the primary focus of NEOM, which is buses and trucks, we can broaden that to some other transportation opportunities and then broaden that further to some other industrial opportunities. And so sometimes people ask, although you didn't, Vincent, how big do we think this market could be? And to be honest with you, the answer is, I don't know, really, really, really big. And so whether we threw out a number of $50 billion, $100 billion, $1 trillion, you see a lot of different numbers thrown around, just recognizing that the scope of the opportunity set, we're convinced it's really, really big. And so we're moving aggressively to be a leader in this opportunity going forward.

Okay. That's probably a really good segue into telling us what NEOM is. Where is it? What in particular are you doing? And who are you doing it with? How much are you investing? Why don't we start there?

Yes, sure. And again, I like the way you started the question is, hey, it's not like we've not been doing any hydrogen for mobility, we've been doing some of this. But again, for Air Products for the industrial gas industry, quite frankly, for the world, NEOM is a game-changing project. So what is NEOM? I think it's easiest to think about this project in 2 parts. The first is the production assets, which is a project in NEOM, which is in the Northwest corner of Saudi Arabia. It's an approximately $5 billion investment. It's a 3-way joint venture with Air Products, our partner, ACWA Power, who is a well-respected power project developer in the Middle East. We do some other work with them as well. And then the third partner is actually the city of NEOM, i.e., the Saudi government. So those 3 players are going to invest about $5 billion in a production project. And what that project is going to do is essentially start with wind, sun and seawater and make carbon-free hydrogen and then turn that a carbon-free hydrogen into carbon-free ammonia. So the key steps along the way there are, of course: A wind farm; of course, a solar farm; desalination plants; an electrolyzer to produce the hydrogen from the water; an air separation plant to produce the nitrogen; and then you combine the hydrogen and nitrogen and make ammonia. So that project is going to produce ammonia in Saudi as a joint venture. And then Air Products is going to take all the ammonia from the project by ourselves, so no longer a joint venture, and we're going to take that ammonia, and we're going to move that around the world, dissociate it or crack it back in the hydrogen, compress that hydrogen and then dispense that hydrogen into the transportation market that we were just talking about. So let me just make a key point about the ammonia. While ammonia is the molecule that's being moved around, this is really a carbon-free hydrogen project. The only reason to turn the hydrogen into ammonia and then back to hydrogen, is that's a cost-effective way to transport the hydrogen around the world. So you could really think of this as a carbon-free hydrogen project. And again, downstream, if you will, of the production in Saudi, that will be 100% Air Products, taking that product to some of these end markets. And maybe an example of the end market, as you know, Vincent, right, a lot of the city buses in the world are managed by a government or a quasi-government type agency. So we're in the process of having conversations with these folks about, okay, your -- you've got pressure or desire or focus or need to decarbonize your bus fleet. Folks are interested in taking a look at hydrogen fuel cell buses and so we're going to provide them with a reliable stream of carbon-free hydrogen to support their bus transition. So we expect to be able to sign some long-term agreements with these folks. And so that's NEOM in a nutshell, if you will.

Maybe just to sort of get into the -- some of the economics and logistics on it. So there are 2 pieces, right? You've got the JV which seems structured very much like a traditional, what we think of in terms of an industrial gas project where you're building an asset, there's contracts, there's prices, everything is sort of predetermined. You've got an investment, a time line and all that stuff. So maybe just kind of tie that up a little bit. And then the second piece, which is outside of the JV, which you guys, Air Products, is going to own and operate yourselves, how are you going to piece that together? What are your return expectations? What needs to fall into place? And maybe just within both of those 2 bookends, how important is government involvement or subsidies or tax breaks or anything like that? Does that fit in here, if at all, or how?

Great. So again, I'll just pick up on what you said, kind of splitting into 2 pieces, exactly as you've said, the production really is a classic onsite deal. There's capital we've got to execute. We've got to operate the plan effectively. But all of the output of that production joint venture is being sold under a long-term contract at a fixed price. Now it's being sold to Air Products, but from a joint venture -- from a production standpoint, as you said, that's an onsite deal, known capital, got to execute and known, if you will, revenue, therefore, known returns associated with the project. So then Air Products, of course, buys this ammonia at a known price. We'll invest, and we would estimate something like $2 billion in the downstream infrastructure to move that ammonia, dissociate it, and then we signed the long-term agreements to provide the carbon-free hydrogen. So the first part of the project, the production joint venture, there's no subsidies associated with that. Of course, NEOM is an equal partner in this project. So the Saudi government through NEOM is investing in the project, but they're going to get the same return that the rest of us are going to get in that. So I wouldn't characterize that as any type of subsidy. And then if we go to the end-user standpoint, I think the point is that clearly, almost every day, every week, the world is moving more and more towards being focused on decarbonizing. So the methodology or the specific legislation in different jurisdictions is going to vary. But at the end of the day, there's going to be a significant incentive and in some cases, a significant mandate that people need to decarbonize their transportation fleet. So we are very, very excited about having a significant amount of carbon-free hydrogen available in 2025 as we're watching the world get more and more focused on this. So again, it's not so much a governance subsidy but in certain places in the world, of course, it's being mandated. It's being required, and we're going to be in a position to help folks meet their requirements for carbon-free hydrogen. Maybe if I could, just one more comment that kind of pertains to the market size. "Hey, Simon, you keep saying this is a really, really big project. It's really big." But just to frame it as well, the output of this facility could supply about 20,000 city buses. There's about 3 million city buses in the world. So while this is big and it is a game changer, and it really sets the stage that the world can be confident about carbon-free hydrogen, we don't need to win a huge portion of the world's city buses to sell out this facility. And again, as we previously talked, the buses are only one of the market opportunities that we see out there.

So maybe also just -- I think you mentioned it, but it goes without saying, this is going to be a low-cost asset at the low end of the cost curve. I doubt you're going to want to give us the exact figures, but I'm just getting into the debate over sort of -- your sort of location in a low-cost -- low-cost region, low-cost methodology versus co-location, and how that's going to translate into how you're going to market this product. Do you have a target areas where you think this strategy has been particularly effective? And obviously, there's no one size fits all across the entire industry, but how do you see this fitting into the world's needs?

Yes, great question. I mean, look, just to be simplistic, it's a production cost versus distribution cost trade-off. And we've thought very, very hard about this, so let me unpack that for a second. Obviously, you could take it to the extreme, and you could build a solar field in your backyard and build a little plant and make your own hydrogen right in your backyard for your vehicle. I don't know about you, but I've still got snow on the ground in my backyard, so that tells me the solar field is not going to be very efficient. So what you're really looking for is a place where you have a low-cost production cost -- or low cost production. And what that's really driven by is places in the world where, I know this sounds so simple, it's hardly worth saying, but where the sun shines a lot and the wind blows a lot, and you have a lot of water. Of course, you've got to desalinate the water. So Saudi, of course, the sun shines a lot, and particularly this location at NEOM, very, very robust wind. And so you get tremendous utilization of the capital you've invested in the power production assets. So that's what creates, in our opinion, a low-cost production source. Obviously, we incur additional cost to essentially move that carbon-free hydrogen to the point in the world where it's needed. But on an overall basis, we think that absolutely delivers the low-cost carbon-free hydrogen. So essentially, in a very simplistic way, you're trying to take that, if you will, low-cost sun and low-cost wind and how you're going to move that to the point where it's needed. Because again, in a lot of these cities and a lot of places in the world, obviously, you could build a wind farm, you could build a solar field, but you're in the middle of a city. So that's going to be complicated, and it may not be as attractive from a sun and a wind standpoint. Now Vincent, I also want to acknowledge that we're very, very excited about our NEOM project, the location, the scale, the first-mover advantage. We really think this gives us a tremendous leg up. But at the same time, we're talking about a fundamental change of how the world moves itself and things. And so to suggest that Air Products could do all of this would be ridiculous, would be absurd. So we are proud of the leadership position we think NEOM puts us in, but we absolutely expect others will do projects. Some might look like ours, some may be distributed and closer to the point of use, but we took a hard look at this, and we think NEOM is a good low-cost way to get the carbon-free hydrogen where it needs to be.

And when we think about sort of target destinations, are we thinking of large cities that are closer to the coast? Or is there a strategy for bringing product inland or is that other just sweet spots, but other opportunities as well?

Well, I mean, I don't mean to be flip about this, but I mean, that's kind of up to the city bus managers, right? So to the extent that there's countries or regions, states, provinces, whatever the regulatory framework is, and they need to do this, we're very happy to talk to them. And so we are seeing -- as you can imagine, we were having a lot of these conversations before we announced NEOM last July, and we're having a significant number of these conversations today. Maybe just to fill that out a little bit. What we're seeing is, obviously, NEOM will be on stream in 2025. But it's not realistic for a city bus fleet to just throw away all its diesel buses in 2024 and bring on a whole new fleet. So what we're already seeing is people are saying, okay, I'm going to go buy 5 or maybe 10 hydrogen-powered buses. What I'd like you to do is install a station now that I can dispense this hydrogen. I appreciate it's gray hydrogen today, it's not carbon-free, but that allows me, if you will, as the city bus manager to try this out a little bit. I got to get comfortable this is going to work. And at the same time, I'm going to have to start rolling my fleet over. So while that may not be hugely impactful to our P&L today, it's clearly a necessary step to get to the point where people are fully adopting this. And so those conversations are happening literally every day around the world, people are very interested in this. And of course, given our NEOM announcement, if people are interested in this, they're going to call Air Products and at least have a conversation. So again, another example of the first-mover advantage this creates for us.

The answer is there might be there's enough room for both, just given the overall TAM. But how do you think about the blue hydrogen sort of TAM versus the green hydrogen TAM? And you kind of referenced some of this earlier, where there is going to be a bit of a transition from gray to blue, then to green in certain areas just as the infrastructure builds out. But there's also obviously an economic component, and presumably, it's going to be cheaper to make blue than it's going to be to make green for some period of time. So maybe you could just talk about how you sort of assess those different market opportunities. And then if you have a view on sort of how the economics could evolve and how those cost spreads could collapse, that would be probably pretty interesting too.

Yes. Great. Well, as you know, as we talked about, we make a lot of gray hydrogen today. We make a big chunk of blue hydrogen in Port Arthur, and we're in the process of making a lot of carbon-free hydrogen. So I guess I share that because I mean, we have a pretty good view of these costs. So I think we believe there's market opportunities in all of these places. So not everywhere in the world is going to run to adopt a program that supports the economics of carbon capture. So we think there will continue to be gray hydrogen, gray syngas, perhaps gasifier opportunities out there. We do see that there's going to be places in the world where the existing hydrogen infrastructure will be used to support petroleum refineries, but the framework would like to see the carbon captured off of those. So we can retrofit our carbon capture project on our existing hydrogen plants and continue to supply the refineries. And then, of course, the other extreme is the carbon-free hydrogen. And there's a lot of conversation about the cost differences among those. I guess we view this as they're different products. So to be honest with you, what does hydrogen cost if you're a massive customer off of our Houston-based pipeline network from world-class natural gas steam methane reformers with no carbon capture? Well, that's a certain product but the carbon-free hydrogen that we're bringing from NEOM to deliver into the middle of your city to provide your vehicles with no carbon footprint, to be honest with you, it's the same molecule because hydrogen is, hydrogen, but they're completely different products with different drivers and different economics. So I'm not sure that the -- comparing of the cost of those 2 is super critical.

Can you give a reference to pipelines? Can we talk a little bit just about the infrastructure and how this will -- how this hydrogen is going to move around? What can you do with your existing pipeline? Is it just really the same molecule, so you can blend them together and you just have to allocate percentage that's blue versus green versus gray, that then comes out and you have the ability to -- is fungible? Some natural gas utilities have suggested that pipelines can be adapted toward green hydrogen or hydrogen can be blended in with natural gas. Is that viable? Or sort of where do you see the logistical bottlenecks and/or opportunities just given your expansive networks?

Sure. So again, a couple of different things there. An existing hydrogen pipeline, of course, that can be used to move hydrogen to a place where, say, the city needed it. But to be honest with you, that works if the pipeline kind of goes where it needs to go. And guess what, most of these pipeline networks are in refining centers, which aren't necessarily the middle of the cities. As an example, we have a hydrogen dispensing station in California that's connected to our hydrogen pipeline. But the volume that goes through there is really, really pretty small. So I think what you described will be a fairly limited window of opportunity when it makes sense to use that pipeline, sure, that's the lowest cost way to distribute it. But while we have the world's largest pipeline network in the U.S. Gulf Coast, it's 600 miles, which is not big by total pipeline infrastructure standpoint. So then you talk about, does it make sense to build or convert a pipeline to move hydrogen, and again, I think that's just going to be situationally specific because the volumes even for a large city are not massive. And so again, it takes us back to why we're using ammonia to transport this. But separate from that is the thing I mentioned and you just mentioned as well, which is the idea, can a natural gas utility blend hydrogen into their natural gas pipeline. I think I've certainly seen a lot of people agree that up to 10% hydrogen in the natural gas pipeline doesn't impact the use of the natural gas. So they could just do this. If you're a customer of that natural gas plant in your home, you wouldn't even know it, you'd just have some hydrogen coming in there as well, and that's a large opportunity. But that's not so much repurposing the pipeline. It's a partial decarbonization of it. So a lot of interesting opportunities in this space.

Okay. Maybe switching gears a little bit to electrolyzer technology. What choices have you made so far? How did you evaluate the different modes or types that are out there? And what -- how do you think the sort of evolution of the technology will be as it relates to production capabilities and costs over time?

Yes, great question. So obviously, we spend a lot of time thinking about that. You could argue that the electrolyzer is a pretty important component in the NEOM project. So it's not only the technology, but it's the who's your partner. And it was really, really important to Air Products to have access to technology. In other situations, we've chosen to buy technology, not electrolyzer. But in this case, we didn't need to buy the technology, but we really, really wanted to make sure we had good access. So we've entered into an arrangement with thyssenkrupp, who is, in our opinion, the leader in the electrolyzer space. They've been doing this for a long time. They have the expertise, experience and capability to ramp up the production. We keep talking about NEOM being at least 1 or 2 orders of magnitude bigger than anything that's ever been done. Well, guess what, the electrolyzer manufacturer needs to significantly ramp up their capacity to make the electrolyzer cells themselves. So one of the reasons why we are very happy about our relationship with thyssenkrupp is they have the capability to do that. We continue to evaluate, they continue to evaluate different types of technologies. But we think for this large-scale project and the ability to scale up now, very, very pleased with their technology and very pleased with the arrangement we have with them.

Okay. And maybe there are a few other areas kind of around the periphery of it all. One is just sort of relative safety of hydrogen versus other hydrocarbons, whether it's gasoline or diesel or what have you. But how does that need to be sort of dealt with in the overall infrastructure and rollout and to sort of consumer confidence in having all this come to fruition?

Yes. Great point. And I think fundamentally, our opinion is hydrogen absolutely is safe and can be safe when it's handled the right way. And we say that as a company that makes the most hydrogen every day, transports the most hydrogen via pipeline via truck. When the systems are designed safely, hydrogen is absolutely safe. And we are very active in the various organizations around the world to help make sure that there's good safety standards put together. We talked about our dispensing station, where we have some patented positions, but we've made those patents available to become industry standards to support the safe dispensing of hydrogen in there. So we need to continue to have that conversation. Look, hydrogen is a different molecule than gasoline or diesel, so it has different properties. But again, our view is that hydrogen is very, very safe when used appropriately.

And how should we -- if we look across all of hydrogen, regardless of the color, how should we be thinking about water consumption? And what is it -- what can you do sort of across your operations to reduce overall water use?

Yes, great question. So obviously, as we affectionately say, the Hs have to come from somewhere, right? So if I don't want them to come from a hydro car, then kind of H2O is where the hydrogens have to come from. So there's the consumption of water as a source of hydrogen, and that's true, whether it's an electrolyzer or some other production methodology. So take a look at NEOM, part of the reason to locate NEOM, where it is, is it's right on the coast. It's right on the sea, so you have seawater. Okay, you're going to incur some additional costs to desalinate that seawater, but that creates a very -- of course, very large and very available source of water. So we continue to look at this. But every time we do a project, there's the local permits you have to go through. You have to get the water permits, if it's not using seawater and those sorts of things. So again, we've been working on this for a long time. We work very carefully to improve the efficiency of water use in our plants. But again, just to come back to, the Hs have to come from somewhere so.

Okay. Yes. And just -- I kind of want to get into this on carbon capture. I know it's a little bit of a side dish versus what we've been talking about. But I do get asked a fair amount about what role Air Products can play from a carbon capture perspective. You talked about what you have at your facility in Port Arthur. But maybe just help people understand sort of what you bring to the table at your onsite facilities, where you're at a customer already. And your contracts are set up so that if there is a carbon cost or issue at that facility, it's not on your income statement or balance sheet, it goes back to your to your customer. So why would that encourage them necessarily to want to invest in carbon sequestration? And why would you be the logical person to do it for them?

Great. Well, thanks for the question, and part of the answer, so I appreciate that. But again, from a business standpoint, as you said, if we have a big hydrogen plant and you're a refining customer, we've agreed that if there's a cost for CO2 emissions that we have to incur, we will pass that along to you and you'll reimburse that to us. So that's the structure of our contracts so we don't have the downside risk. Where we see the upside opportunity is that, let's say, the price of CO2 gets to a certain number of x, and we're passing that through to the customer. We can go to the customer and say, look, we can keep doing this if you want us to but maybe a better solution is that why don't we spend the capital on the operating cost to retrofit a carbon capture project to our hydrogen plant. You agree under the onsite business model to pay us a fixed monthly fee and as a result, you, the customer will reimburse us for less CO2 credits. So essentially, that keeps the CO2 price risk with the end refining customer, allows us to extend the onsite business model. So we're actively working on projects in some key geographies around the world. And we really do see an opportunity for this, both in retrofits and the potential for new projects that include carbon capture.

But do you think there's a big opportunity as well for you guys to participate in off -- sort of, call it, offsite, just not onsite, in a third-party?

Well, we'll see. I mean, I think our primary focus is our own plants. I mean, if you had an example where the customer had a hydrogen plant and you had one, I'm sure you could do it together. That makes sense. But I think we see a tremendous business opportunity, primarily focused on our own existing plants for right now.

Okay. Let me see what the questions have come in here. I have one asking whether you think a green hydrogen cost of 1.5 kg is achievable by 2025 or not.

Well, I think the answer to that is that we're going to be in a position to provide green hydrogen. We're going to have a certain cost but I think there's going to be a tremendous demand for this carbon-free hydrogen, and we're going to be in a strong position to provide it. So we haven't commented on what our targeted selling prices is or specifically the return other than to suggest that it's -- or not suggest, say it's higher than our committed return. So I think we've -- to be honest with you, we've stayed away from commenting on the specific cost act that we see or where it might go. Lots of folks out there making projections. I think we're stepping up, and we're going to have carbon-free hydrogen that's going to be very much demand by the world by 2025.

Okay. Fair -- fair enough. Another question here is just -- and I think this is more of an industry question rather than an Air Products-specific question. But what is the additional cost for blue hydrogen versus gray hydrogen on the Gulf Coast?

Yes. So the real answer is, it depends, which I realize is not a very satisfactory answer because it depends what you do with the CO2. So the capturing of it is one thing, but if you need to sequester it, let's say, you have to run a pipeline to this the point of the geology where you can sequester it, and you're going to have to drill a hole in the ground, well, that's a significantly higher cost, and if you could just put it in a CO2-enhanced oil recovery. So we do believe there are places in the world today where the regulatory framework is already in place to support carbon capture, and we're actively working on projects in those areas. But that's not everywhere in the world, obviously. Not everybody has that framework today. So it depends on the project specifics and even if it does have economic benefit, it's still a fair bit of work and effort to get the project permitted. So again, very focused on this. We've talked about some of the areas in the world that we're trying to put these projects together, and we're hopeful that we'll be able to do some carbon capture projects in the future.

Okay. As a reminder, if you want to ask a question, please put it through the web portal. I'll take this last question, combine it with one of my own, which is just to ask you to talk a bit about -- you laid out NEOM, that's your big foray into this. But there's been talk about how scalable that asset footprint is going to be to a Phase 2 or a Phase 3, but we also talked a bit during the course of this discussion that there are other ways to be in green hydrogen. And so maybe you could just talk about and help people understand your capacity between now and 2025 to get involved in other types of blue or green hydrogen projects, whether or not they resemble NEOM or in addition to NEOM or not.

Yes, great question. So I mean, just to be clear, we're not waiting for NEOM to come onstream before we're comfortable doing something else. There are some opportunities around the world that we're working on now. Obviously, there's nothing to talk about until we announce anything. So that's the dynamic that we find ourselves in. But we're actively working on projects and if we find the right project opportunity, we are comfortable moving ahead with additional carbon-free hydrogen before NEOM comes onstream. Again, it's got to be the right set of dynamics around that project. So we're actively working on this. And again, you go back to the conversation about the market size, and we just see that literally every week almost, there's more and more interest in this carbon-free hydrogen, more and more regulatory frameworks getting put in place, so they're going to acquire this. And so we're excited about those opportunities. As you said, Seifi's talked about we certainly could see an NEOM 2 or even in NEOM 3 maybe at some point. But we're not we're not wholly looking in Saudi, we're certainly interested in looking at other opportunities around the world as well. But as we've talked a few times, it's a little bit difficult to -- we have nothing to say until we have something to say, I guess, I'd summarize.

Okay. And another question has come in just to sort of help us understand how you think sort of about the geographic opportunity? The U.S. is clearly a very different market versus Europe versus Asia in terms of sort of where the political winds are coming from at this point. So how do you all sort of look around the world and assess sort of where you want to put the incremental dollar as it relates to sort of how those different geographies are likely to evolve?

Yes, a great question. But I mean, to be honest with you, one of the benefits of the NEOM project is I don't have to know for sure exactly where it's going to end up. We have the capability to kind of move that around. And again, that's different than if I've got to decide, am I going to plop this money down right next to the city and try to supply them and depend wholly on that city. We've got some flexibility about where we move the NEOM molecules. We see everywhere in the world, a growing interest in reducing the carbon footprint. But of course, you, Vincent and everybody on the call here sees that interest being manifested in different ways. Of course, there's different countries or states or regions or provinces that are further advanced in their thought process. So I think we continue to have a lot of conversations around the world. We'll see kind of where exactly these regulations get translated into specific requirements that create the need for this. But that's one of the benefits of the NEOM project, is we can be flexible about where it ends up.

Okay. I think that's probably a good place to leave it for today. No. Somebody just got in under the wire here. Will the surge of proposed Australian projects be realized? Or are there roadblocks in Western Australia to anticipate? What do you think, Simon?

Well, that's a great question. And I think you actually should ask somebody who's announced a project in Western Australia, what they think about that. I don't have an opinion. We haven't announced a project, so I'm going to have to leave it at that.

Okay. That's fair. That's fair enough. Thank you, everyone, and thank you, Simon, for joining us today.

Great. Thanks, Vincent. Thanks to the rest of the team. Everybody, stay safe. Talk to you later. Bye.