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

Excellent. All right. Well, good morning, everyone. Thanks for taking the time with us again. We're back with our latest hydrogen conference here. So I appreciate everyone jumping on the line early with us. I'm Julien Dumoulin-Smith, Head of U.S. Power Utilities and Clean Energy Research. I'm joined by my colleague, Steve Byrne today, Head of U.S. Chemicals Research, all at BofA Securities. We're very pleased to have you guys today. We've got a packed schedule looking across the Energy, Chemicals, and frankly wider, shall we say, renewable energy and clean energy landscape today. We've got a lot of companies. We really want to encourage your participation to this morning. So as you see things pop up, ping us on email or chat or on the platform here, whatever works for you all. We've got a lot of different perspectives. Steve and I will both happily entertain those questions. But in an effort to kick things up directly here, I will pass over to Steve, who is going to introduce and engage with the Air Products team this morning. So stay tuned folks, and buckle up.

Thanks, Julien. So this is Steve Byrne. I cover chemicals. I'm a long-time chemical guy, just like our guest speaker is. Kind of looks like my brother. We are very, very delighted to kick off today's conference with Air Products. It's very, very appropriate. It's hard to imagine that just 1.5 years ago, when Julien and I kicked off our first hydrogen conference, this is our fourth, but our first one 1.5 years ago, Air Products were not even yet announced. The big Saudi NEOM project. And since then they've announced the greenfield Blue Hydrogen project in Louisiana and the Blue Hydrogen project up in Alberta, and so we have 3 mega projects to talk through. But I'm delighted to kick this off with Air Products. So our guest speaker is Simon Moore. Simon has been with Air Products, I'll just say, a long time. But he cut his teeth at the company in the merchant business out on the West Coast. Then I believe he transferred to Allentown, where he was involved in on-site hydrogen projects. Then he subsequently moved to Houston to get involved in the hydrogen pipeline system. Then he moved to Taiwan and was Global Director of Electronic Materials, went back to Allentown in 2010 to run IR, and then subsequently picked up corporate relations and then sustainability in 2020. So this is right in his wheelhouse. He is a mechanical engineer by training from Penn State. I just thought I'd throw that in there. But listen, we've got a lot to talk about here. I'd love to get into the nitty-gritty of how a POX plant differs from an autothermal. Simon, I'm sure you could get us into the weeds on that, but I would really like to hear your kind of high-level view. Where is Air Products headed in hydrogen? And how would you see the various markets? Why don't you just kick this off high level, and then we'll drill in from there.

Well, great. Well, thanks. Thank you very much, Julien. Thank you, Steve. Thank you. Thanks to the rest of the BofA team for allowing us to be here today, and thanks to everybody who's joined the conference. As you said, Steve, it's hard to imagine how much the world has evolved in this direction in the last 1.5 years. When we announced the NEOM project in July of 2020, we, our Board, Seifi, everybody was absolutely convinced this is the right thing to do. And literally, every day that you wake up, turn on your computer, there's another piece of news, which helps us become even more confident this is the right way to go. So let me just give a quick introduction, and then I'll look forward to getting into the details. Air Products has been in the hydrogen business for decades. I mean hydrogen is here and now for us. This is not a future potential opportunity, although the opportunity is changing. Every single day, we produce hydrogen. We distribute hydrogen via pipeline, via trucks as a gas, via trucks as a liquid. And today, every day, we dispense hydrogen into vehicles from our patent dispensing system. So we know hydrogen, and we are a leader in the world of hydrogen today. And we're going to maintain that leadership position as we go forward. And as clearly the world focuses on energy transition, focuses on lower carbon forms of energy and sees hydrogen as a critical part of that solution, Air Products is playing a leadership role. We've announced fully committed FID executing, whatever words you want to put it out, $9 billion worth of projects that are going to help drive the energy transition. So quite frankly, for Air Products, we're incredibly excited about this opportunity. We continue to support and focus on our base business, but this position that we have combining our experience, our portfolio of technologies and the bold steps that we're taking to create a first-mover advantage, really, we think, gives us a very, very strong position going forward. And I don't have to tell you that one of the challenges these days is everybody wants to be in the hydrogen business. And I think it's really important for investors, with the help of good analysts, to be able to distinguish the companies that really have credibility in this space versus the companies that are putting on a press release that says the word hydrogen. So maybe Steve, we'll want to jump into wherever you'd like to spend some time.

So you got these 3 mega projects, Simon. Maybe you could provide some high-level comments on how you see them different? They are quite different with the Mega Green project in Saudi and you have the 2 big projects, 1 in Canada and 1 in Louisiana that's now underway. Different regions, but talk us through a little bit about how you view them differently and where is there more opportunity.

Yes. Great, Steve. I'll hit them on a high level, and I'm sure we'll come back to them. I think maybe 2 key things. First of all, it's about lower carbon intensity hydrogen. It's actually not necessarily about green versus blue, it's about lowering the carbon intensity. And I'll explain that as I kind of talk about the project. The other thing that's important to recognize is sometimes we get asked the question is it green or blue. And our answer is it's green and blue. And again, back to this idea that we've got a portfolio of experiences and technologies that we can bring together in the right configuration for the right opportunity. So with that, let me describe the 3 projects. So the first project is the NEOM project in the northwest corner of Saudi Arabia. And essentially, that's renewable energy to hydrogen. So so-called green hydrogen. And then, in an innovative step, we're going to turn that hydrogen into ammonia, so we can move it around the world in a more efficient manner, dissociate or crack that ammonia back to hydrogen near the point of use and be able to supply truly green hydrogen for transportation markets primarily around the world. So it's a significant project. It's about $5 billion investment with ourselves and 2 other partners in the production side, and then roughly $2 billion of Air Products commitment downstream. So again, it's a joint venture on the production side, but it's Air Products responsible for going downstream. And we're primarily focused on the transportation market there, the heavy transportation, buses and trucks around the world. So again, the renewable energy component of that is included in the project. So that's literally going from sun and wind and seawater to hydrogen delivered into a vehicle in a city somewhere perhaps in Europe to power their clean energy revolution. So then we turn to the Canada project, which is the next one we announced. And again, we'll talk a little bit about this, Steve, it's the carbon intensity, it's not necessarily green versus blue, because the project in Alberta is blue hydrogen by definition because it's based on hydrocarbons, it's based on natural gas, but it has a net-zero footprint. So we do that because we're using an innovative gasification technology there that allows us to capture 95% of the CO2 that's produced and sequester that CO2. With that project then, we'll have some of that low carbon footprint hydrogen go into our pipeline network to support our existing and future customer growth. Some of that hydrogen gets used to make liquid hydrogen, which is designed for the heavy truck transportation market in that Alberta area. And then some of that hydrogen is actually getting used to make electric power. So we're going to use hydrogen in a turbine to make power, which is pretty exciting, and then that very low carbon power offsets the remaining CO2 emissions. So again, you have a so-called blue project, but it is net zero. It has net zero CO2 footprint and it's taking natural gas and it's producing pipeline hydrogen, liquid hydrogen and also electric power. Then if we look at the Louisiana project, again, there are some similarities to Canada, but there's some slight differences. First of all, it's much bigger. It's a $4.5 billion project, which is kind of amazing, Steve. You've been following the industrial gas industry and Air Products for a long time back when a $100 million project was a big deal. So to be even talking about $4.5 billion is incredibly exciting. But in that project, again, take natural gas, put it in the gasifier, which again allows us to capture and sequester 95% of the CO2 and produce hydrogen. Again, this plant is in Louisiana, it be will connected to our U.S. Gulf Coast hydrogen network, our pipeline network, which is the world's largest. So again, we'll be able to take that very low carbon footprint hydrogen and get that to our customers on the pipeline, both potentially existing customers with expansions and new customers. But we're also going to take some of that hydrogen. And again, like the NEOM project, we're going to turn it into ammonia and be able to distribute that ammonia around the world to, again, support that transportation market. So I think in summary, you see 3 key projects, which are all supportive of the world's appetite for lower carbon hydrogen. They have slightly different configurations. And again, it goes back to the idea there's not 1 solution that fits here. You have to have access and experience to a broad portfolio of technologies to be able to bring them together in the right way. So let me hold there and see where you want to go from there, Steve.

I think I'd like to get into your view about where the sources of demand are. I think that was a really good discussion of these 3 projects more of -- as a source of hydrogen or low-carbon footprint hydrogen. But I'd like to hear your view on the sources of demand. And perhaps timing-wise, what do you think might be more near term versus long term? You made a few comments in your remarks about ammonia being shipped. Where do you see that fitting into the time line versus hydrogen fuel cell transportation, which could be in both Edmonton and Louisiana. But then you got this pipeline. How many customers does Air Products have on that pipeline down in Louisiana and Texas? And are there any of them that are not targeting a reduction in their carbon footprint? And does that translate back into potential demand for low-carbon hydrogen? So there's a lot of opportunities, but you're in the trenches of those discussions. Where would you see those sources of demand occurring over this, say, next 10-year period?

Great, Steve. Great question, a lot there, and let's unpack that. So I think there are a lot of markets. So let's start with the one that we probably talk about the most. Transportation. When we talk about transportation, we're really talking about heavy transportation. It's our view, and I think there's kind of a growing consensus that for light vehicles, perhaps battery electric vehicles will continue to be the right solution. But when you get to heavy transportation, the challenge, quite frankly, is the weight of the batteries starts to use up a significant amount of payload. So whether we're talking about city buses or heavy trucks or trains or maybe airplanes, I think the hydrogen fuel cell vehicle becomes the right solution. And as I'm sure everybody knows, at the end of the day, in both those cases, you're talking about an electric vehicle. It's just in the case of a battery electric vehicle, you make the electricity somewhere else, you store it on the vehicle in a battery and then it's an electrical powered vehicle. When we actually talk about a hydrogen vehicle, it is an electric vehicle, but all you're doing is you're producing the electricity onboard the vehicle through a fuel cell via hydrogen. So again, we're talking about electric vehicles in both cases in terms of the motors and the drivetrains and those sorts of things, it's really just what's the source of that electricity. So let me make a comment on the size of that transportation market. It is massive. One way to frame that is, if you take a look at the NEOM project, which I said is roughly $7 billion of total investments, a game-changing project. As you know, Steve, orders of magnitude bigger than anything anybody else has announced or doing, that can produce enough hydrogen for about 20,000 city buses, 20,000. There's about 3 million city buses in the world. So when we think about this, I mean, I talked about trains and planes and trucks and buses. I mean, there's a tiny slice of one of those submarkets of the heavy transportation market, and so that's one of the reasons why we're so excited. And by the way, we are excited about these 3 projects, but I would anticipate, well, we're certainly working on other potential projects as well. So the transportation market, yes, it's a little bit about time line. I mean, again, we're starting to see action on this now, Steve. One of the things to recognize is, okay, the NEOM product will be in the marketplace in 2026. But if you were the bus fleet manager of a city bus fleet, you don't want to wait till 2026, throw away all your old buses and buy a bunch of new ones then. You want to start a trial program and you want to make a slow transition. Maybe just as your buses get old, you buy hydrogen buses. And what's great about this is we can accommodate that today with hydrogen for the buses. Now perhaps today, depending on your part of the world, it's probably going to be gray hydrogen. But as we say, at the end of the day, the bus doesn't know what color hydrogen it is. So what's great about this is we can begin to see people start to transition with the idea that it's very easy to switch over to a different type of hydrogen when that low carbon hydrogen is available. And Steve, we're seeing this today. We're seeing tremendous interest from trucking fleets, bus fleets around the world. Now most of these are translating into trial programs, so it's very miniscule from a current results standpoint, but what's important is that's a leading indicator. Again, nobody is going to wake up one day and just switch everything. They're going to run a trial program and have a transition. So from the transportation market, I mean, we see that kind of starting today, and we do see that as a key market in the middle to the later part of the decade. Now there's a whole another sector for hydrogen, which is maybe broadly called the industrial market. And that, I think, can talk about steel production, but also, as you said, chemical, petrochemical, refining markets, every one of those customers, you talk to many of those companies, are thinking about reducing their carbon footprint. Of course, they are, in today's world. So we do see there's opportunities for -- and that's one of the reasons why we built these projects, one on our Canada pipeline in Alberta, one on our Louisiana pipeline in the Gulf Coast, so we can easily reach those customers. One of the important things to keep in mind is you don't have to build a separate pipeline for low-carbon hydrogen. What I mean is we have a 700-mile pipeline network today in the U.S. Gulf Coast and a little bit less than 10% of that is blue hydrogen today. So the majority of it is gray hydrogen. But if I put some blue hydrogen at one end of the pipeline, I can just kind of account for taking out the same amount at the other end of the pipeline. So essentially, we can utilize that existing pipeline network for blue or gray or green without additional infrastructure. So I don't need to tell you where some of those opportunities are. Renewable diesel is certainly a market that has a lot of interest these days, and each of our customers is thinking about reducing their carbon intensity, so we see that opportunity. And then again, as I said, steel, other types of production. And then the final market opportunity, which might end up being the most interesting is what we might loosely call trinity energy market. That could be using hydrogen in turbines, that could be using ammonia in turbines -- really, you're using the hydrogen. You're just using ammonia as a transport mechanism. It could be blending hydrogen into natural gas pipelines. Put 10% of the hydrogen in there, it reduces the carbon intensity. And it's also potential that hydrogen has a role in energy storage. Obviously, with renewable energy, one of the key challenges is balancing the supply and demand of the power production, and hydrogen can play a key role in that. So again, Steve, sorry to kind of have a long answer there, but there's a lot of exciting markets. And again, I'll take you back to NEOM, as big as it is, only supports one small portion of a sub-slice of one of those market opportunities.

So those comments generated 2 inbound questions, Simon, both on the transportation side of it. The first one being, how do you see the cost parity or the cost comparison between hydrogen as a fuel for a bus or a truck compared to the outlook for petroleum-based fuel? How would you characterize that cost differential? And does it require some kind of a legislative requirement for those countries to go down that path? So one question is on cost. The other one that I have for you that's also on that and that just came in relates to your own outlook for battery electric technology with respect to the heavy duty industry. Do you have any concern there that, that technology could advance to the point where the mass of the battery in a heavy-duty truck might not become as prohibitive as it is right now? So threw 2 at you there. Sorry about that.

No problem. Well, I think it's very interesting. You talk about cost and you talk about the cost of gasoline and diesel today. And we all recognize that, in general, the cost of those materials is not burdened with their true cost. So all along the supply chain of getting the oil out of the ground, refining the oil, getting it into the vehicles, and then the emissions from the vehicles emits significant CO2. And what, of course, is happening is the world says, "I don't want that anymore. I want to reduce the carbon footprint. So the specific mechanism around the world of how to do that is probably going to be different. In some cases, there'll be mandates for cities to eliminate hydrocarbon-based vehicles. In other cases, there might be an incentive program that California's low-carbon fuel standard creates a need to provide lower carbon fuels. In other cases, there might be a subsidy for the fuel itself. But what we're really saying is we have one alternative that's not burdened with the true cost of CO2. And quite frankly, almost every politician around the world is thinking about how to make that transition. So we're confident that when that industry truly reflects the cost of those materials, including the value of the CO2, then we will have a very, very competitive market. And so that's the way we think about it. At the end of the day, it's about truly reflecting the cost of the CO2, the environmental impact there. So that's how I think about the first question. And the second question is, look, I don't want to pretend that we are experts in the battery field. I'm sure there's a lot of smart people working very, very hard on improving batteries. And I'm equally sure that they will actually improve. But at the end of the day, the concept is, you're still going to be producing electricity somewhere else, and you're going to be storing it somehow on this vehicle. So to me, I would expect that maybe they get a little bit lighter, but you're still going to have a weight penalty associated with those battery vehicles. And therefore, hydrogen, on the heavy side, is going to be the winning solution. You might have seen, complementary to what we're doing about the production of hydrogen, we also are working very closely with our partner at Cummins to convert the Air Products fleet of trucks. We have 2,000 trucks, and we're in the process of converting those to hydrogen fuel cell vehicles. So I realize somebody might accuse us of talking our book, but at the same time, we've got to be competitive with the distribution of our merchant products, and there's a little bit of putting our money where our mouth is, we're committed to converting our fleet to hydrogen fuel cell vehicles. Now I think maybe just one last point. I don't think you can draw an exact bright line between light vehicles and heavy vehicles. You kind of know what they are at the end. So maybe in the middle somewhere, it moves around a little bit as both of the technologies strive to improve.

Another area I'd like to hear your view on Simon would be just the level of risk that Air Products is taking in these projects versus what we're more accustomed to from the company where you go after these really large projects that lead to long-term take-or-pay contracts, do you view this differently? Is this more risk, potentially higher return? Or is it more similar to the legacy model than we think it is?

Yes. Great question, Steve. And I think let's unpack that. Because it's too simplistic to just put things in bucket A or bucket B. So let's take the Louisiana project, for example. On the Louisiana project, we're going to produce that hydrogen. It's going to be connected to our pipeline network. Some of that hydrogen is going to get sold through that pipeline network as a distribution methodology through the pipeline network. As you know, Steve, we have pipeline networks around the world. And generally speaking, the products that are sold through those networks are sold under long-term on-site-type agreements. And I don't know why we would expect that to change. If you were building a new renewable diesel facility and you wanted to run it for the next 10 years, I think you would want to have a reliable cost certain source of hydrogen. So although we haven't announced any specific customer relationships, I think it's fair to conclude that it's likely that some amount of that product through the pipeline network will be sold under the traditional on-site model. And actually, this isn't that unusual. I mean there's been plenty of asset additions we've made on the pipeline network in the past where we haven't revealed all of the customers. So I think that's one part of the market. And then I'll jump to Canada. We're talking about the liquid hydrogen facility in Canada. Well, we have a merchant business. Almost half of our business today is the merchant business. We just brought on stream a liquid hydrogen project in La Porte, Texas. And I got to say, Steve, nobody called me up and said, "Well, who are you going to sell that product to? They kind of understood that was the merchant market. And in the long term, that's going to be supported by transportation demand. Well, the Canada project is the same thing. We're building a liquid hydrogen facility up there. We believe the market supports that. And again, we see a lot of focus from the Alberta government on the heavy-duty transportation. So I think those 2 things should feel very familiar to our customers. Then let's talk about the transportation market. Again, we're going to make ammonia, we're going to move it around the world associated for hydrogen. But if you think about the customer base. If you're the city bus fleet manager and you've committed to turn all your buses into hydrogen fuel cell vehicles, I think you're going to likely want a long-term reliable supply of hydrogen. I don't think you're going to want to buy hydrogen on the spot market if you're the city bus fleet manager. So although we can't make any promises here, because we're working through this right now, it may be that we end up with some slightly longer-term agreements. I don't think -- I mean, one of the key points here is Air Products is not getting in the ammonia business. We are using ammonia as a methodology to transport the hydrogen. So I think if you look at the customer base, if you run a truck fleet and you convert to hydrogen in those trucks, I think you're going to want a long-term reliable supply of hydrogen. So I understand and appreciate that people would like to hear more about the specific customers. And without that, there's a certain level of skepticism. But I think if you take the time to think through the markets and the supply chains we're setting up, I think it's likely people will conclude. There'll be a mix of contracts, and it's going to look a lot more like part of our on-site business and part of our merchant business going forward. That's what we think.

All right. I just received a question that I really want to give in. I think it's a good one. And that has to do with your pursuit of a Class VI injection wells for carbon sequestration in Louisiana. This is, I would say, somewhat different than other initiatives, where you're actually pursuing getting this injection well permit yourself rather than relying on others to do that. That's very interesting. And so the question is, where are you at in this process? And would you offer a service to sequester carbon from other sources in addition to your own coming out of the Louisiana plant?

Well, a couple of questions there. So yes, you're absolutely right. I mean we're very, very excited about our relationship with the State of Louisiana. As you saw, when we announced this project, we literally had the Governor and Seifi standing shoulder to shoulder because the governor of Louisiana sees, for the future of Louisiana, carbon sequestration is important. They obviously have an economy that's pretty heavily dependent on hydrocarbons and sequestration is a way for the natural benefits that Louisiana has to be relevant in a lower carbon intensity world. So we've signed an agreement that was announced with the State of Louisiana to have the rights to the port space. So the first step is to make sure you have a rock solid agreement with whoever is responsible for the land. We have that and we're excited about the support from the State of Louisiana. During that call to announce this, the Governor of Louisiana said that they expect that Louisiana will get the rights from the EPA to be able to grant the well the permits themselves. So to be honest with you, if that happens, great. If it doesn't happen, that's fine from our standpoint. We obviously have done quite a bit of work on this. We're continuing that process, but we don't anticipate any issues or concerns associated with that. Clearly, if it turns out to be the state of Louisiana's responsibility, that just probably makes things a little bit easier. The specific question though is, I mean, I guess, what I'd say, Steve, is, as you can imagine, we are not setting up the CO2 sequestration site to only deal with the CO2 from this new plant. It's 5 million tons a year of CO2, which is very, very significant. But I mean, obviously, I don't think there's any surprise to say that we could see the potential for additional investments in the future. You and I have talked about the potential for Air Products to retrofit some of the existing steam methane reformers. So I would just say that I think we want to make sure that we have the capacity to be able to sequester additional CO2 in the future. Whether we would offer that to somebody else as a service, I would guess that would have to be some fairly unique set of circumstances, but we'll see. So...

I got to ask you about renewable diesel, Simon. The projections for crushing capacity to produce renewable diesel is expected to go from one billion gallons to 5 billion gallons in just the next few years. And as you and I have talked about, at least by our math, that is a significant amount of hydrogen required to convert those triglycerides to diesel. Is that a source of demand that you're also seeing down in the U.S. Gulf? And just curious to hear your outlook for that particular end market as a demand source for hydrogen.

Well, Steve, as usual, you're right on it. Yes, it certainly is. So let's just step back. What are the basics? Here's, again, an example of a different way to transition the transportation fuels. It's not going to hydrogen as a transportation fuel, creating a hydrocarbon-based transportation fuel, but one that is from renewable sources. So again, I think fundamentally, it's just a different way to get to the same thing. When we look at renewable diesel, you and I have talked about this, it requires more hydrogen than a conventional refinery. It requires maybe 4x, 5x as much hydrogen per barrel of production than a conventional refinery does, so 5x as much. But important to emphasize, that's on a per barrel basis. I don't know whether the renewable diesel facilities will be as big as the conventional refineries. And they need hydrogen. The chemistry is the chemistry. Certainly, they could use gray hydrogen. But kind of if you're going to the effort to build a renewable diesel facility, I think it's pretty obvious that you probably would be able to value lower carbon footprint hydrogen to again create an overall lower carbon footprint for your renewable diesel. Now at least as far as I read in the public domain, there's a lot of projects being announced. I would guess that not all of those are going to get built, but we are convinced that some of those will get built. I mean some of those facilities have been announced by the major players in the industry today. So I guess a long-winded way of saying, Steve is, yes, we do see that as one of the potential opportunities for maybe gray hydrogen, but certainly blue or green hydrogen going forward.

And would it be reasonable for us to assume that you're in dialogue with those. It's not just that you're speculating that there could be increased demand for one of the colors of hydrogen down in the Gulf, but that these are potentially existing customers of yours right now that you could see increased demand. And where I'm heading with this is the Louisiana plant is a significant increase in your hydrogen production capacity. If our math is right, it's a 30% or 40% increase in your capacity down in the U.S. Gulf. Is that roughly the right range? And is that a reflection of what you see as incremental demand? This is not just going from gray to blue, this is incremental demand?

Yes, Steve, great question. I'm not sure I could describe it any better. You're exactly right. So a couple of things there. Again, let me turn it around. The point is, sure, Air Products would like to talk to these customers. If you're building a renewable diesel facility, you've got a lot of things to consider, but you absolutely are going to want to think about where am I going to get my hydrogen from? How am I going to get my hydrogen? And what's the carbon footprint of the hydrogen? So here comes Air Products, just announced the world's largest blue hydrogen facility. I'm thinking about citing my renewable diesel plant. I'm going to kind of want to know where that Air Products pipeline is. So my point is that not only do we want to have these conversations, but you can only imagine that customers want to have these conversations as well. And I don't mean to say that the conversations couldn't happen prior to the Louisiana announcement, but now that that's public, it makes it a little bit kind of easier and you could advance those discussions. Now let's talk about the project itself. Yes, you're absolutely right. We have order of magnitude about 1.9 billion standard cubic feet a day of production capacity on that U.S. Gulf Coast pipeline today with the other assets that we're building. And this is about 750 million. So you're absolutely right, a significant increase. But please remember that some of that 750 million of hydrogen is going to get converted to ammonia. Again, we've got kind of 2 market outlets for the product that's being produced there. So at the end of the day, the hydrogen that will go through the pipeline isn't quite as big as an increase, as you mentioned, because some of that hydrogen will go to the ammonia market. So...

And let's talk about that ammonia project for just a moment here. Where do you see the likely sources of demand for that ammonia? These would be regions that want to move towards a green energy, but is it fair to say these would be regions where renewable power conditions are not amenable to producing it locally? So where would you see those potentially target locations? And I throw this out because late this afternoon, we have Mitsubishi speaking, and so we're going to hear about their view about Japan's interest in going down the path of blue and green ammonia. But where do you see the potential opportunities for ammonia? You obviously have it in NEOM -- or will have it there, and you're including it in your Louisiana project, so you have a view of where this demand could be coming from.

Great question, Steve. Well, again, let me make it real clear. We're not getting in the ammonia business. We're in the hydrogen business. So fundamentally, when we say demand for ammonia, it's really a discussion about where is the demand for hydrogen going to come from? And then okay, ammonia is really a supply chain mechanism to get it there. But so to answer the question, I mean there's market opportunities developing around the world. But if we think about the transportation market, I think Europe is a place that comes to people's mind kind of first because, quite frankly, as you said, for a lot of Europe, wind and solar is not necessarily going to be the right solution there. They absolutely, both EU as a whole, Europe as a whole, individual countries, are making commitments to move towards hydrogen as part of the energy transition. So they've decided they want hydrogen for the transportation market, for the heavy market. Okay. Do I make that hydrogen in Germany, let's say, or do I import it? Germany is specifically taking steps to recognize it's not in their best interest to make all that hydrogen in Germany. It's not super efficient from a renewable energy standpoint, so they actually have legislation being developed that will support the import of, I'll say, hydrogen. Okay. Then it's up to the supplier to figure out how to get it in there the best way. We could ship containers of gaseous hydrogen in, but that would be very, very expensive. So again, we use the ammonia to move that hydrogen, say, from Saudi or Louisiana and then dissociate or crack it back to hydrogen. Now certainly, you made a reference to Japan. Japan is pretty open about the idea of using ammonia directly in their power plants. And I think that's an interesting market opportunity. If that develops, and that's an opportunity for us, sure. But I think really, the basis of our projects is around using ammonia as a transport mechanism for the hydrogen. If another market develops and somebody wants to buy some of that ammonia and it's going to go into the power market, fine, but I wouldn't say that's our primary focus. So...

And maybe I'll squeeze in one more here, and it's about NEOM and you had this recent press release about 2 gigawatts of electrolyzer capacity contract now with Thyssenkrupp. My understanding is that plant was targeted to produce 1.2 million tons of ammonia. But if you take 2 gigawatts of electrolyzer power, if it can run continuously, it would seem like there's upside of that 1.2 million, maybe as much as 50% more than that. Am I reading into that correctly? Is there potentially increased capacity in this project than what was previously announced?

Well, Steve, I mean, look, as you said, we've announced 1.2 million tons per year of ammonia capacity. And you cannot get 100% utilization out of all electrolyzers. They have maintenance associated with them. You've got things you got to do to them. And actually, if you think about it, it's really the output of the whole supply chain. I got to have the renewable power working. So look, we're focused on the 1.2 million tons a year. I think the important thing an investor should hear about this announcement is, I have had a lot of questions over the last year as, "Give me an update on NEOM. What's happening? What are you guys doing? Are things progressing?" And sometimes it's kind of hard to answer that question because there aren't really milestones to point to. This is a very real milestone. This is by far the biggest purchase agreement for this project and Air Products, on behalf of our joint venture partners, has signed a full ironclad contract to buy this electrolyzer. As you know, 2 gigawatts of electrolyzers is by far the biggest order. So this isn't an MOU. This isn't a letter of intent. This is a firm contract to buy these. So Steve, I'm sure we'll talk about other milestones along the way, but I'm not sure there could be a more definitive milestone than our firm commitment to buy these. And again, I think investors should hear and see that as Air Products is fully committed to these real projects that's going to help hydrogen be a key part of the energy transition for the world going forward.

Very good, Simon. To those of you on the line, there were some questions I didn't get to. Feel free to send me more and I can circle up with Simon to try to get you some feedback. But listen, we're running out of time here, Simon, but, listen, I really appreciate kicking this conference off with you, a lot of moving parts here with Air Products, and my best to you. Have a nice holiday, but thanks for being with us today.

Thanks, Steve. Thanks, everybody. Stay safe. Have a great holiday. Talk to everybody later. Bye.