Hexagon Composites ASA (HEX) Earnings Call Transcript & Summary

Good morning, and welcome to Hexagon Agility's webcast Navigating the road to zero emissions in Europe. My name is Karen Romer, and I'm the SVP, Communications for Hexagon. And this morning, we're broadcasting live from Oslo and Brussels. Transporters have sleepless nights asking questions about what fuel to run the vehicles on. The next 60 minutes will focus on the journey to lower emissions in Europe and the future fuel mix. My colleagues, Eric Bippus and Ashley Remillard will present their views on navigating the road to zero emissions in Europe. Dr. Rebernik, CEO of Cryoshelter, will present advancements in cryogenic technology and what it means for bio-LNG in Europe. This will be followed by a panel discussion and then Q&A from you, the audience. I strongly encourage you all to help shape the conversation today by actively submitting your questions in the Q&A window at the bottom of your screen. This can be done throughout the broadcast, and we'll be addressing your questions in the second half of the hour. I'm now pleased to introduce our moderator for today's discussion. We're honored to have Harmen Dekker, the CEO of European Biogas Association who is joining us live from Brussels. Harmen has worked for almost 15 years within the sustainability sector and is devoted to the mitigation of climate change. Before joining EBA, he was involved in several -- for several years, in the biogas sector, where he focused on the expansion of biomethane and the implementation of bio-LNG. Harmen, over to you.

Karen, many thanks, and I'm delighted to be here on such an important topic as transport. So let's set a scene for today's session. And maybe we can move to the next slide. So we are today at a pivotal moment. And as summer is receding at our part of the hemisphere, I'm wondering how quickly do we forget the high temperatures, the flooding, the heatwaves we have and actually still currently in heatwave curve going on in France. How quickly are we forgetting this when we are going into the fall and the winter. There is no time to waste. Climate change is there, and we need to act now. And the question is, are we doing enough? There are more than 3,000 companies already worldwide, which is the positive news, committed to emission reduction. There is regulation coming up both in the U.S. as well as in the EU with regard to making sure that we can curb the emissions. Investor activism is there, which is positive. It's very positive and consumers are getting interested as well. And then, of course, we have the global pandemic. And we have the situation in Russia and all is making us aware of the situation we have today that we have to do something about one on the energy security side, but also making sure that if we are going to change that, that we are going to change this in a sustainable way. Yet, we have to do more. We are not going fast enough. So let's focus on the transport side and what we can do there because -- and that is the next slide, please, if we look at the transport side, transportation is almost responsible for 20% of the global CO2 emissions. And we are able to make a fast impact, and we'll come to that a little bit later. When we look at the sales of trucks in the EU, we have more than 300,000 trucks still to be sold in 2020, which are diesel trucks. And it is physically impossible to change all those trucks because every year, there will be new trucks to be sold in 2050 to only electricity or hydrogen fuel cell trucks. So I wonder is politics, especially in the EU, turning a blind eye because they are focused on tailpipe emission. And I know where it's coming from. In 2018, we were thinking electricity could solve everything. We could solve everything with electricity-driven transport and -- actually not only the transport but also the homes and the industry. By now, we know better. Electricity is not the holy grail. We need every solution. And actually, today, we see also the negative effects with a crisis in Ukraine, we are actually implementing new coal electricity-driven installations. We are importing or having shale gas in there. We are looking for oil solutions to make sure that we can produce electricity. So which solutions can be offered in the heavy-duty vehicle segment, especially within the transport sector? And can we do more? And can we do it faster? And that is what we are about to discuss here today. And I'm absolutely delighted to introduce the speakers today of Hexagon. And the first -- to introduce all the speakers here, we have an excellent lineup with Eric Bippus. He is Senior Vice President, Global Sales and Marketing of Hexagon Agility with more than 25 years of experience in the heavy-duty vehicle sector, as well joining us is Ashley remotely, Vice President, Legal and Governmental Affairs, having already a lot of experience within this area and also in the litigation and counseling. And then last but not least, Dr. Rebernik, CEO of Cryoshelter. And he will tell more on his experiences with Cryoshelter, but also it's curious to know that he has experience with BMW, when he was doing his PhD on gaseous fuels and more particularly on hydrogen. But let me first go to Eric. I'm very curious to hear about what you're going to say with regard to Cryoshelter. Over to you.

Thank you, Harmen. Very excited to be here, and good morning from Oslo, Norway. On behalf of Hexagon Agility and the Hexagon family of companies, we're very excited to talk about this topic. It's very important to us, core to what we believe. We're also excited to be here with our new partners in Cryoshelter and Dr. Rebernik to talk about how we're expanding our technology portfolio to make sure that we focus on exactly what we're talking about, driving heavy-duty transport in Europe to a zero-emission future. So first, let's talk about the Hexagon Group. Our core, we're very passionate about what we believe, and we believe that clean air is not a privilege. Clean air is absolutely a right. And our mission is making sure that we can push our technology across the world through energy transformation and integrity to drive to ensure that all have access to clean air. And sticking with our mission statement, we've been expanding our global footprint and our EUR 354 million worth of revenue over 2021 is spread across 23 global locations, supported by 1,700 employees with over 6 decades of experience in the marketplace. We have a strong partner in Mitsui & Co. who facilitates not only an investor in our business, but also facilitating global relationships in our business. So let's talk about Hexagon and really the 2 businesses within the Hexagon Group that focus on the heavy-duty transport sector. The focus for today's topic will be around Hexagon Agility and our portfolio, focusing on near zero, and I will say, below zero emission solutions for the heavy-duty transport sector. Core to our manufacturing and product portfolio is our Type 4 composite technology cylinders anywhere from 200 bar to 250 bar that we package into compressed natural gas, bio natural gas solutions for heavy-duty transport. Our sister company, Hexagon Purus, focuses on zero-tailpipe emission solutions, such as -- with the same technology of Type 4 composite. However, those cylinders go up to 700 bar also packaged in hydrogen systems, but they also offer complete BEV-integrated solutions for heavy -- medium and heavy-duty transport. So when you look at the Hexagon approach to the heavy -- medium and heavy-duty sector, it's truly an agnostic approach. We have all fuel solutions for today and well into the future depending on usage type. The application areas that we apply our product are heavy-duty truck, medium-duty truck, Refuse, Transit, Mobile pipeline, where we take stranded gas that may be at a farm or maybe at a landfill, get it to a pipeline or processing so that it could be used in vehicle transport. We're also active in marine and rail. Over the last 6 decades and what we have on the road now is 70,000 heavy-duty commercial vehicles with one of our Clean Energy solutions globally. So focusing on today's topic in the European marketplace and CO2 emissions, you heard Harmen mention that 20% of CO2 emissions come from heavy-duty transport. And this illustration here, you can see that of all transport, including aviation and rail, on-road accounts for about 72% of total emissions with that heavy-duty truck piece being 19% to 20%. And important in that is the high particulate matter that comes from heavy-duty trucking, which we know is a major carcinogen for illness and air pollution. So sticking with the theme of heavy-duty transport and saying, okay, what do we expect it to do. This is supplied from the EC. We expect heavy-duty ton kilometers over the next 30 years to go up by 55%, meaning there's going to be more trucks on the road hauling more goods. So it's absolutely imperative that we focus on solutions for this sector, and it is the hardest to solve sector because of energy requirements to do that and the long distance that goods are transferred. So you heard Harmen talk about biomethane and the solution for heavy-duty transport. And there is a solution that is being utilized both in the European market and in North America, and that is biomethane. It's identical. It's a methane molecule, CH4. And methane from COP26 1.5 years ago when the global leaders came together around the world, one of the big things that they focused on was methane capture. We need to make sure that we limit the amount of methane that gets into the atmosphere. Because it's anywhere from 25 to 30x more potent as a heating agent to the atmosphere than even carbon -- CO2. It's made from -- not from crops, but from waste, waste byproducts could be manure, it could be landfill waste, could be wastewater and wastewater sludge. So what are we doing by focusing on biomethane for heavy-duty transport? We're really solving 2 major problems around methane capture. We know that the UN has stated that they expect by 2050, the global population to grow by 25%. What does that mean? More people means more waste. The World Bank expects municipal waste to grow by 69%, and we've already identified the fact that decomposing matter from whether it be manure or from waste represents 26% of fugitive methane getting into the atmosphere, which is where biomethane comes into play. We can capture that methane before it gets in the atmosphere, process it and utilize it in heavy-duty transport. So we spoke about the grid and the cleanliness of fuel and the very, very importance of looking at a well-to-wheel emission. If we simply look at tailpipe emissions, we're only looking at part of what's going on in the environment. We know there's big changes going on with recent geopolitical events. But what we're illustrating here is the fact that if you look at diesel, which is the red line in the middle of the graph, that is the baseline emissions. I think 663 grams per kilometer. If you look at biomethane from manure, which is very high in content of methane, you can get as much as a negative 745 grams per kilometer or 200% improvement over diesel. The thing that's shocking is if you look at an EV today, if we were to push heavy-duty transport to go to EV and these are 2019 standards before the current geopolitical crisis where we now know that more and more electrical plants are being fired up with coal, you can see the negative effects versus biomethane that electric heavy-duty transport would have. So with that, to talk about a little bit of the regulatory environment, both in Europe and North America, I'd like to hand it over to Ashley Remillard. Ashley?

Thank you, Eric. I'm happy to be here today. I'm going to provide an overview of the EU regulatory landscape. And the takeaway here to begin with is just that despite a focus in the EU on battery electric and hydrogen, biomethane does retain solid regulatory support, particularly in the heavy-duty sector. And we'll see that with REPowerEU, Fit for 55 and the EU Taxonomy, which I'll go through. But at this moment, as we sit here today, there's no restriction on the use of natural gas and heavy-duty vehicles. So a quick overview of REPowerEU. It is Europe's reaction to the Ukraine crisis and Europe's plan to reduce dependence on foreign and Russian fossil fuels. It's a 3-function approach. I think for our purposes today, the acceleration of clean energy is the most important part. That is a -- with that, they set a target for production of 35 billion cubic meters of biomethane within the EU by 2030 where the EU is today is down at 3 billion cubic meters. So in order to scale up to that 35 billion mark, it's estimated to require 83 million -- excuse me, EUR 83 billion in capital investment. For our product line, in particular, that is going to impact our mobile pipeline products because it will be useful in transporting some of that stranded gas. But it really represents a commitment from the EU to biomethane production. So the next regulation I want to talk about is the CO2 emission regulation. This was part of the Fit for 55 package. This is kind of the origin of the doomsday scenario for the internal combustion engine. It puts a 100% target for -- reduction target of 100% by 2035. However, it is limited to passenger cars and light commercial vehicles. It does not extend to the medium or heavy-duty sector. It was kind of -- it's working through the regulatory process. It was adopted by the EU Parliament in the June 2022 plenary, and it will move to the trialogue voting process actually beginning in September. The point I want to make here is what happens in the passenger vehicle space will be instructive in what happens in the heavy-duty space. There is kind of the sentiment with different countries, particularly Germany, Italy and some others that are very opposed to the ICE ban. It's going to have far-reaching implications. And so it will be very interesting to watch how that plays out in the trialogue process that's beginning any time. So the Red III, the renewable energy directive, this currently categorizes biomethane as an advanced biofuel, which will continue to facilitate investment. It also sets a target for renewable energy sources, increasing that target up to 40%. And then there's a target for greenhouse intensity reduction of 13%, and that is a doubling over the prior methodology. I think to point out here, REPowerEU, the new legislation that was just introduced, actually increases those targets. So because Fit for 55, which was introduced back in July of 2021, it's a little ahead of REPowerEU. So -- and there's a little bit of uncertainty about where those percentages will be and what exactly people are going to be -- the parliament's going to be voting on. But just -- the Fit for 55 proposal is still at 40%. For this one, the plenary vote is expected in September, this month of 2022. So this -- again, Fit for 55, it was a very comprehensive proposal. The advanced fuel infrastructure directive is a legislative, directive design to require -- to build out the natural gas infrastructure. And it requires one refueling station every 400 kilometers. And what's interesting is that in the Fit for 55 proposal, they actually removed the targets that were previously existed for CNG, but they kept it for LNG. And the principal reason there was intended for the heavy-duty sector -- to support the heavy-duty sector. So it shows kind of the longevity and the support for LNG in the EU market. And this one is kind of working through the process with a Council General Approach. So just a couple of statistics here. There are, at this point, 581 LNG fueling stations. And it's a very robust infrastructure, adequate to support LNG and bio-LNG in the heavy-duty sector. One thing to note, just within Europe, there's still a fairly low percentage of biomethane in the natural gas used in the transport sector that's only at 17%. There's a lot of potential there. In the U.S., we see 50% across the country and then actually over 90% RNG in California. So there's a lot of potential there to really increase that percentage in Europe as the biomethane production increases. So I think the most important thing, that was all kind of -- it's acknowledging, it's providing support for biomethane, but I think a real critical component of the EU regulatory landscape is the heavy-duty fleet emission regulation. This -- it was -- at this point, it's a little old. It was adopted back in 2019. It sets, binding reduction targets for OEMs. And critical here, it is a tailpipe-based approach. This is up -- this is a proposal, a regulation that is going to be revisited in November. And we expect that it will go through the regulatory process. And a critical part of it is changing that tailpipe paradigm and changing it to a well-to-wheel evaluation. I took this little snippet from the slide that Eric showed earlier. At this moment, under this regulation, geologic and manure based with very different CO2 emissions are treated the same. And this is where we really, as an industry, need to pivot away from the tailpipe and acknowledge the benefits of biomethane and how the negative carbon and the carbon reduction that it can achieve. So this is going to be a critical part over the next -- which I'll get to on the next slide, this heavy-duty fleet emission regulation is going to be a really important part in shaping the support of biomethane from a regulatory standpoint. So -- and just to kind of close out, as I mentioned, the next 24 months are critical, but the heavy-duty fleet emission regulation will come out, that proposal will come out in a couple of months and then as an industry we need to really engage in the regulatory process to shape that regulation and promote the well-to-wheel and just to educate the industry and regulators on the advantages and then the -- of biomethane and the emission reductions that it can achieve. And with that, I will turn it back to you, Eric. Thank you very much.

Great. Thanks, Ashley. So as you can see, decarbonization of the heavy transport must begin now. If we want to hit 2025, 2030 and even 2050 targets, we need to be changing the makeup of the heavy-duty transport park, install vehicles in the field. We believe that there's not a one-size-fits-all strategy. We believe there's multiple solutions to a clean, zero and negative-emission future. The path to decarbonization can be achieved in multiple different ways, and it can be leveraging technology that's available today, infrastructure is available today, technology is available today. OEMs have platforms available today for fleets to deploy. So what we're going to look at now is some whitepaper that was done by H2 Accelerate in cooperation with Volvo, Iveco, Scania, Total, Shell. And what they did was looked at the technologies available today and how they see that progressing over the future out to 2055. And as you can see, they see 2050 and beyond to be a multi-energy source strategy, meaning that there's that element of heavy-duty, long-haul transport that is very, very difficult to solve with a BEV or just fuel cell solution, and they see a need for bio-LNG and a very clean fuel source run through the ICE engine. Now what does that mean? When we look at today, what we'd like to do is take a look at the available clean energy solutions for the long-haul sector. And what we're going to do is we're going to do an apples-to-apples comparison, assuming that the payload haul does not change for each application. We know that diesel can get over 2,000 kilometers between fills. Today, when you look at the existing solutions without impeding upon payload, you really stress both in BEV and hydrogen solutions assuming that the infrastructure was even there to support either a recharge or a fill of hydrogen, but very, very limited from 300 to 400 kilometers in range. However, today's bio-LNG solution can get anywhere from 1,400, 1,500 kilometers of range, much, much closer to the diesel range. Now yes, you can get much longer range with BEV. You can get much longer range. We've proven that with our Hexagon Purus solutions, we can -- considerably longer range. But with today's technology, now you're impeding on your payload, it is not a diesel-like performance. And it becomes a much different experience because the ton kilometers hauled now requires more vehicles. So when Hexagon Agility looked at our portfolio and the Hexagon Group for that matter, looked at our portfolio and said, okay, how do we really want to support this European sector because of the specific needs of the European truck and limited space available to package energy, we looked at our portfolio and said we have compressed natural gas, renewable bio natural gas. We have full BEV solutions. We have compressed hydrogen solutions with our Purus portfolio. But we have a couple of holes, and those holes are around cryogenically stored fuel to support what the European market needs, which means high energy density in a very low space. And that's why we invested in Cryoshelter, and I'm excited to introduce Dr. Matthias Rebernik, who's going to talk to you about Cryoshelter. Matthias?

Thank you, Eric. Great to be here and introduce Cryoshelter. We are a company of 20 -- core team of 20 people with a network of highly specialized development partners located in Austria, where we also set up our pilot production plant in the heart of Europe. Cryoshelter was triggered by BMW's liquid hydrogen tank project in which I participated as a PhD student. And after finishing, I founded Cryoshelter, and I started work on a single subcomponent of cryogenic tank systems to find out that a comprehensive redesign is required to make them truly fit for automotive applications, especially for long-haul trucking applications. And this is what we have ready today. It's a bio-LNG tank for heavy-duty long-haul trucks, and we are currently also working on a liquid hydrogen solution building on the same technology platform. So what's unique about Cryoshelter? A few sentences about cryogenic storage. Cryogenic storage means storing gaseous fuels at temperatures low enough to turn them into liquids. The benefit is that you get a 600 to 800 fold increase in energy density. So that means -- let's say you can fit a lot of fuel in a small space and that's exactly what is needed for long-haul trucking. The challenge is to keep the fuel cold. So the physics of cryogenic storage dictate that if no fuel is consumed, so the truck is parked, then the fuel can only be kept in the tank for a limited amount of time. That period of time is determined by the insulation quality, and it is called the hold time. So the period of loss-free parking. And what is current -- so the -- after that period of time, some fuel will have to be released from the tank. And so this is the specification, the hold time is the specification within which the mission profile of the truck has to be in order for bio-LNG to be a feasible solution. Current cryogenic tank systems offer -- 4x2 truck offer a hold time of roughly 7 days when a tank is full. However, the hold time substantially decreases with the amount of fuel in the tank, reaching around 1 day when the tank is at reserve level. So what have we created? We have created a thinner insulation shell that makes maximum use of the available space in the truck, adding up to 30% in the same space, depending on the truck size and tank size. At the same time, even though it's thinner, we made it more effective, so we dramatically increased the insulation performance and with that, the hold time. We reach 5 days of hold time even at reserve level, and that's a very significant improvement. And when the tank is full, we reach 17 days of hold time. So what does that mean from a perspective of the fleets? If you look at the range driven, so the horizontal axis would show you the full tank at the beginning of the trip, offering those 7 days of hold time. However, the further you go, the shorter your hold time becomes reaching about 1 day at reserve level. So that means what if there is a weekend after the trip or even a long weekend after the trip, you'd have to figure out and take into account all of these factors for your mission profile. So essentially, what the industry currently is doing is the rule-of-thumb refill after every trip. And that's a big cost burden on the operation of bio-LNG trucks, and it limits the application to a rather small niche within the heavy-duty truck market. So if you look at what Cryoshelter offers, it's the full tank with a bigger range, say, up to 1,800 kilometers for a typical 4x2 application and still offering those 5 days when a truck is -- I mean, the tank is at reserve level. And those 17 days when the tank is full. So that means in regular operation, there's -- no matter if it's a weekend, long weekend, there is no planning required. You don't have to worry about any losses. And when a tank is full, so during a 2-week break in operation, Christmas would be a typical example. That's the only time you need to refill before the break. And that's a, we believe, game-changing expansion of the operational window for bio-LNG in long-haul duty truck. And with that, a much larger market segment within the heavy-duty truck market, can be served by bio-LNG. On top of that, we've also taken into consideration all the other total cost of ownership determining factors a tank can provide. So we've designed it for automotive production processes from scratch. That means we can supply automotive quality at competitive cost. We've also created a modular design, so that lets us build the tanks to your specifications. We have added a high-precision fuel content gauge, seems trivial, but it's not for cryogenic tank systems. We've added a fully electronic pressure management for tanks, so that optimizes the performance of a single tank. We've added an electronic link between multiple tanks that makes the optimum use of multiple tanks, especially if they're different size, on the left and the right side of the truck. And we've also arranged all the components, so they're easy to access for easy and low-cost maintenance. And last but not least, pilot production is being expanded to series production in Austria, in Europe and for Europe. So with that, thank you. Back to you, Eric.

Thank you, Dr. Rebernik. Okay. So let's take a look at what this means from a volume standpoint. What can we look at for the future? We have a couple of projections here that we'd like to share with you, one from Oxford Institute of Energy studies where they projected a low mid- and high case NGVA America. And then the exciting thing, all of these projections that got close to 450,000 units by 2025 or 2030. In July of 2021, the EU Parliament issued a study and said, by 2030, we expect natural gas vehicles on the road to meet the emission requirements to be a low-case scenario of almost 0.5 million, 475,000 to approaching 700,000 vehicles on the road. So in summary, let's take a look at what we've covered today so far. We've determined that biomethane is by far the lowest emitting and gram-per-mile solution anywhere from 80% reduction in -- compared to diesel, if off of agricultural biomass, if off of manure as much as 200%. We take a look at the availability of the product. So today, we know that, as I actually said, there's 95% availability in countries such as Sweden or state of California of biomethane in the pipeline for heavy-duty transport, meaning we know it can be done. There's other markets, such as the U.K., Netherlands and other locations throughout Europe that have 100% filling stations, but there's still a long way to go. You can't run the fleet operation if you can't fill your truck. Europe has done a great job of filling out their natural gas filling infrastructure, 3,500 CNG stations, but in reference to today's heavy-duty long-haul transport, 581 and growing. We've determined also based on the last study that we just looked at that biomethane is going to be relevant beyond 2050. And finally, we can't -- a fleet also -- in addition to filling the vehicle, you have to be able to buy the application with the product. So Scania, Iveco, Volvo Freightliner in the U.S., the PACCAR group all have applications for heavy-duty transport that are ready today. So it is a mature technology. Fleets can acquire it today. We know that it's going to be relevant. There's a sufficient amount of biomass available. We know that more of that is going into the pipeline, and there's filling infrastructure to support the business value proposition. So Harmen, you can see why we're very excited about the future of biomethane. We absolutely want to support this as much as we can in Europe. We're excited about the addition of Cryoshelter to the Hexagon family. We think we really filled the final piece of the puzzle for an energy-agnostic future. And with that, I'll turn it back over to you.

Thank you, Eric. And of course, thank you, Dr. Rebernik and Ashley for those great presentations and also to give an overview on what is possible. I take note that more fuels or renewable fuels are possible, then today. The ICE is not the problem. It is all about what you put into it and what kind of renewable fuel should be there.

So I would like to see if I can ask you and grill you with some questions I still have. And at the same time, we would like to encourage the audience to also put in the questions via the chat, which Karen pointed out earlier, and then we can hopefully address them later in this still half an hour left, which we have. Eric, let me start with you. When we look at Hexagon's portfolio, I'm a little bit curious because your company is primarily concerned with the storage of energy. And if you look at that, it is preferably, [indiscernible], but preferably through [ gaseous ] fuels. Why is this so? What is your strategic approach behind this?

Yes, sure. Great question. So our DNA has been in the composite cylinder technology, whether it's storing [indiscernible] for aerospace, some of our early DNA. But as we evolved our business portfolio, we really focused on composite storage technology around Type 4 cylinders, and then 2 companies merged a few years back, and we took this composite cylinder technology with system design technology. Now we could take these pressure vessels, install them into systems, complete systems, working with OEMs, working with fleets to understand what their requirements are to design a portfolio of products that allowed us to leverage engineering, leverage competency. The challenge you have is there's not just one solution. So we're constantly looking at and saying, okay, our DNA historically has been propane. It's been compressed natural gas, now renewable natural gas or biomethane that we're talking about today, the evolution of hydrogen, which is still evolving. And then people say, well, what about BEV on the Purus side. Well, once again, that same core competency that we have of packaging energy, whether it be a gaseous form or electric form and containing that in a very compact vessel so that we have a limited amount of space to work with and delivering that energy [indiscernible] propulsion, which could be a fuel cell electric vehicle, electric drivetrain or in the case of today's conversation, an internal combustion engine. That's our core competency in our DNA. And we support the OEMs and fleets very closely.

All right. I'm pleased to see, of course, that you have this technology-agnostic approach looking at really storing the energy in the most efficient way. That's encouraging, especially, of course, for the biomethane producers as well within Europe. And talking about this energy storage, with a lot of interest, I listened to your presentation, Dr. Rebernik, with regard to insulation. Now I'm definitely not the expert, but the insulation part, I did understood. But are there other technology features, which makes this Cryoshelter products unique?

Yes. Thank you. We have added -- besides the insulation, we've added a number of technology features to manage the complex fuel and get all the complexity -- take care of all the complexity and have the user have a simple user experience. We have most of all implemented an electronic pressure management. So we are able to keep the pressure in the tank always at the sweet spot that maximizes the whole time, that maximizes the power delivery with increasing engine horsepower, the tank needs to be able to supply more. And we've taken basically what today are mechanical systems to electronically controlled systems and optimize the performance of a single tank. And as I've mentioned, the key potential also lies in electronically linking 2 tanks. Most of the long-haul trucks will have 2 tanks, and there is a significant improvement potential that we have one to optimize the performance of those 2 tanks.

All right. So the technology part in linking them is very important as well and this is shaping, say, the future market, which is good. But I'm also curious those Cryoshelter products, are they going to be manufactured in Europe as well?

Absolutely. And the manufacturing is currently in Austria, and it will be expanded to full series production in Austria. And also, it's very important that we have created a system that can be manufactured with a high -- very high degree of automation that assures a high level of quality and at very competitive cost in Europe. And I think that's also a good place to be in these times of geopolitical tensions across the globe.

Yes, local production is always good. So I think that this is good. Now Ashley, sorry, that you were the latest in line for this. But I do have a question. Of course, the EBA is being focused on advocating within Europe. But you coming from the U.S., I'm, of course, very, very curious what is happening in the United States as well. So from a regulatory perspective, how is this done in the U.S. to support the growth and utilization of biomethane?

That's a great question. Thanks, Harmen. So in the U.S., we also have biomethane. It's very popular across the country. And the reason -- part of the reason at least is because of credit program that we have in the U.S. where environmental credits are generated when biomethane is used as a transportation fuel. So the credits are transacted between producers, brokers and what we call obligated parties in order to reduce the carbon intensity of the fuel pool. And what it's called, it's called a RIN, is the acronym. It's a renewable identification number. They're credits with financial value that are issued under this program, and it's basically a currency. It's a tradable commodity, that -- and each RIN is proof that the equivalent of a gallon of biomethane has been injected into the pipeline. And in California, this is -- it's called the low-carbon-fuel standard. Different states across the U.S. have this program, but it's been extremely effective in promoting the use and the production and the injection into the pipeline of biomethane. And then on the fleet side, customers, such as UPS, Amazon, Waste Management, they take advantage of that program to reach their sustainability pledges and goals. So it's been a really effective program in the U.S. that we would love to see it in Europe. I do know domestically, I think Germany has a program in the U.K. But I think EU-wide, it's a place where Europe could really benefit from a similar type of program.

All right, I'll hold you to that. And probably, I'm going to ask you some time when we're talking about REPowerEU within the European Commission and the target on biomethane to see if we can learn from the United States on this. And you said something else as well, which really [ tricked ] me. And maybe you can briefly look into this and help us out. This Inflation Reduction Act recently, can you tell us a little bit about that because that was a little bit of a mystery to me?

Sure. So the Inflation Reduction Act was recently passed in the U.S. It's kind of the biggest climate legislation that's passed in probably more than a decade. And the kind of for our industry what the most important parts are it was included in an extension of what we call the alternative fuel tax credit, which is the 50% -- I'm sorry, EUR 0.50 per gallon biomethane, well, it's not all natural gas, but including biomethane tax credit. And that extends through January 1, 2024. It also includes a production tax credit that goes from 2025 through 2027 that applies to biomethane and then there's an investment tax credit that includes biogas and capital investments in biogas that -- where if construction begins before 2025, then you can take advantage of that credit. There's a lot I could say about that. But if you have any questions, let me know, but that's kind of a quick overview.

All right. Okay. I certainly will have, but this is already a great overview and great to learn that the United States is moving ahead with this and that Europe can learn from that as well. So I'll circle back to that outside of course, this to that. Now I have -- before maybe we go also to the audience, I have two remaining questions. And probably Eric, you are the one which is the best to answer. First is about the [ surface ] of the Cryoshelter products. I know that the Head of business unit, Head of the Cryoshelter Agility is in the U.S. How do you service all this in Europe?

Sure. Great question. So our focus has been really expanding our global footprint. Last year, we opened our Munich commercial office. In that office, we have application engineering support, aftermarket sales support. So as we work with partners, whether it be a fleet partner or an OEM, we have the ability to service that vehicle or fleet of vehicles from the European market. The Munich office is also very close to Graz, where Cryoshelter is based out of. So there's a very close cohesion. And whether we're working with fleets for a product or we're working with OEMs to homologate the product in new designs, we will do that from the European continent. Our strategy is serve the market within the market and manufacture within the market as well.

All right. Okay. So it all comes back to local production, local service and putting all pieces of the puzzles together to make a one goal. So to close off, from my end on the questions, and then I'll come back to you, Karen. But I'm wondering how does, in your view, Eric, biomethane competes today and in the future compared to battery electric vehicles and hydrogen?

Yes. It's a great question, and we get asked that all the time. One of the -- I think the top question we get when we're talking to an end user, not an OEM, but a fleet that actually has to say, okay, I've got to make a change. We have a sustainability pledge that we're going to adhere to, to lower our carbon intensity score, Eric, what do we do? And our answer is, act now. So we're very, very careful in making sure that the product that we deploy or we offer the fleets is relevant and they can run their operation the way they run it today or very close to that. We do -- we're not a startup. We've been around for 60 years. We have very, very long customer relationships with multinational corporations. So it's imperative to us that we do the right thing. And in many cases, there's a road map because many fleets have multiple different usage patterns. They have a long-haul truck, which is, I need 400 to 500 miles in the United States to go from distribution center to distribution center. Then they have a fleet of regional haul going to intercity around the city, maybe 250 miles, 300 miles. And then they have final-mile package delivery. In each case, there's a better solution than just saying one solution can cover it. Now many times, they will say, okay, I'm going to install infrastructure, and I'm going to go with compressed natural gas across the board. But we have the ability unique in the market to offer a road map to a clean future so that based on the application of the customer, we can do the right thing.

Okay. Thank you for that. And maybe if I may add, I started off my, say, call to action, showing that 3,000 companies already committed to climate or the greenhouse gas mitigations. This means that they have to register of course, on the scope emissions and the scope emissions for fleet owners is [ Scope 3, ] meaning that they have to make sure that they register it, and this will make an impact. And with biomethane, of course, you have this below-zero impact, which really helps. Not that I'm out of questions, but I'm sure there are some questions from the audience. Karen, do we have any interesting questions from there?

Yes, we do. And I just want to remind the audience to that to please send your questions in by using the window underneath the presentation or the faces that you see on screen. So we do have a question, actually, for Harmen, it's for you. So the question is demand for biogas and biomethane is set to grow from 3 billion cubic meters to 35 BCM by 2030. Is there sufficient capacity to growth -- for growth to reach this goal?

Yes. And that is actually a question we get all the time as well as very good question because that concerns about feedstock. Is there enough sustainable feedstock to do so. So simple answer to the question is yes, there is. By 2050, we will have a potential of 151 billion cubic meters. So can we reach 35 billion cubic meters by 2030? Yes, and we can do the sustainable -- in a sustainable way. So the feedstocks vary. So we look at waste, we look at manure, we look at marginal lens of all we can use. And the positive thing is, is actually it does not only concern the energy part, but we are also helping, say, agro-ecological transition. So if we do it right and we can do it right with good numbers, then it is sustainable and the feedstock is available to do so.

Excellent. And just a follow-on question to that, who are the companies constructing the biogas digesters?

Right. That is a big variety of companies. So in the past, we had a lot of the companies where farmers who had on-site build, farm-size build biogas plants. By now, we see also that biogas plants are being built by project developers close to industries where there is waste, close to municipal solid waste productions, close to even wastewater production plants. So it is -- it's ventured out from the agro-ecological part to a real -- actually a big industry. We have now over 20,000 biogas plants within Europe, and EBA is representing 8,000 stakeholders right now. So it is quite diverse and still growing.

Thank you. Great. And actually, Matthias, this question would be for you. What synergies are there in the production of storage for natural gas and hydrogen in your technology?

Yes, that's a great question. So it's actually building on the same technology platform, the 2 fuels when stored cryogenically, they're similar. Hydrogen, however, has much more challenging properties. And that means we use the same base set up and add some technology components. We add some more insulation. And then basically, then we are able to get close to the same performance as we've just presented for bio-LNG. It's never going to be exactly the same, but very close.

Eric, I think this is for you. Could you once again explain why RNG is considered negative emissions?

Sure. Sure. Very simply, depending on the biomass source, whether it be from agricultural crop waste, or manure, which is very high in methane content, the grams per mile, as I remember correctly, it was negative 745 grams because you're capturing that methane from escaping into the atmosphere and then burning it through a combustion engine. Therefore, eliminating that from escaping into the atmosphere. And if you remember, a statistic that we shared, methane is 25 to 30x more potent than CO2, as a heating agent for the atmosphere. So it's absolutely critical that, that methane capture takes place. But there are differences between the biomass source, whether it be high methane content or a little bit lower. But in each case, it's a negative...

And the follow-on question to that is wouldn't it be even better to utilize the RNG for electricity production with the CCS?

That's an argument that's out there, absolutely for sure. We hear that all the time. But the question is, number one, the infrastructure, you still need the electrical grid. There's electrical losses then they take place from taking that biomethane and putting it through an electrical plant, transmitting it in line, putting it into the electric vehicle that then has range limitations, you can possibly need more vehicles on the road to cover the same route miles. Why not just immediately route that biomethane into the truck, displace that diesel immediately, and you know you have an application that can have diesel-like performance. So although we don't like to talk about ROI and return on investment and TCO, at the end of the day, the fleets are for-profit businesses. They have to make sure that what they deploy as a technology, they can deploy in mass. And today, with today's technology, today's grid and support biomethane directly to the vehicle is much more efficient.

Great. And then we have a -- sorry, give me one second here. We're here today to make new technologies -- I think this is maybe split between Eric and Ashley, to make 2 technologies known or you're here today to make 2 technologies known and promote cooperation. Is there a specific topic for which Hexagon want support from within the industry? That was a nice question.

Well, I'll start, and then I'll let Ashley talk from a regulatory standpoint. But yes, certainly, we encourage fleets and OEMs to reach out to us to understand what we can offer from a technology standpoint. There's still a lot of trepidation of people moving forward to say, okay, what is the perfect solution for me to deploy across my fleet, across the industry. And really, there's many companies, even beyond Hexagon, they can work as consultant partners to understand the fleet-usage pattern to say, okay, we do have a solution that can work for you. And the advantage we have with biomethane certainly is the fact that it's readily available in the European market. We believe we have the best solution from a range and diesel-like performance standpoint and then from a usage-pattern standpoint. Ashley, maybe you want to comment on some of the regulatory things that we'd like to see.

Yes. I mean I guess I would just like to emphasize the more voices we can get that are discussing and encouraging and educating legislators about biomethane, the better. I think there's still a lack of understanding about what biomethane is, about how it is -- how it achieves carbon-negative emissions. There's this very critical time in the EU regulatory process that we need to shift that paradigm away from tailpipe to well-to-wheel. So the more kind of partners, industry stakeholders that we can have starting from the [indiscernible] about the advantages of biomethane, the better. And I think now is a really critical time for everyone to get involved and to -- I mean, either through the EBA, the European Biogas Association or people who contact us, but it's education and just advocacy of biomethane that we really need that is critical right now.

I'll just add one more thing, the OEMs. The OEMs in Europe have excellent natural gas engine platforms that can accept biomethane immediately. And we encourage the OEMs also to influence that decision as well. This market is absolutely suited to handle that. We're not waiting on new technology. It's available today.

Great. And I think for you, Eric, how do you see the total natural gas demand going to be including the conventional natural gas? So the -- conventional natural gas within the total demand.

Yes, and we expect it to be a blend indefinitely as biomethane becomes more available obviously, like we witnessed in the United States, California has grown, I think, double digit every year for the last 4 or 5 years to the point that they're 95% biomethane in the pipeline supplying heavy-duty vehicles. Across the United States, it's up to 50% or 53% still significant growth. And we know in Europe, it's at 17%, approximately what Ashley mentioned. So as biomethane production increases, and as Harmen stated earlier, that there's plenty of biomass available, we expect that blend to take place. Now the current geopolitical environment has created a huge demand for natural gas, for oil, for everything to support multi-networks. But we expect leveling off and a decrease in the natural gas pump price in the European market as LNG comes in from offshore. You see a lot of LNG production being put in place in Europe, which are all good signs that Europe understands what it needs to do to embrace this fuel.

Thank you. Again for you, Eric. Can you clarify the overlap between your core Type 4 tanks and the Cryoshelter tank? If the Cryoshelter is as efficient as presented, will it cannibalize your core business of Type 4 tanks?

Great question, and that's a question that we debated internally. And our focus is always doing the right thing. So if we know that there's a technology out there that has better energy density and for a specific market, it's better suited, we're going to pursue it, which is why we pursued Cryoshelter to invest in the business. That being said, there's two huge differences between the North American and European market, which for us well into the future, says there's a place for both technologies. The LNG technology is very scalable, high energy density for the European market. We have very, very tight specifications, tight length specification. So any institute or centimeter that you encroach into the payload to package energy is less payload that you can haul. So that's a loss. So we knew that we needed for our European marketplace, the cryogenic technology. Do we think it will cannibalize? Probably not so much in North America. It depends on the growth that we see there. And like I said, it's a very scalable technology in the European market that we absolutely expect LNG on the continent to be the dominant technology.

We have a question about carbon fiber. So is the carbon fiber shortage a potential road bump to carbon fiber reinforced composite tanks growth?

Yes. Anytime you see fluctuations in supply and demand. Now we know that there's a lot of capacity that's being put in place. That takes a bit of time to ramp up, but there's sufficient demand that we have right now on carbon fiber. And certainly, we're communicating with the carbon fiber industry as aerospace uses more of it as well. Everything is being light-weighted, so more carbon fiber being used across multiple product portfolios. There's a lot of attention from a supply chain standpoint on carbon fiber. But certainly, LNG is a mitigating factor to the fact that if there is any shortage of supply, which we don't anticipate at all that we have the ability to fall back on LNG as well as a solution.

Great. Again, for you, Eric, for fleet operators of heavy-duty trucks in Europe and the U.S., is there a difference in fuel costs between CNG, biomethane, LNG and diesel?

Yes. Absolutely. Absolutely. And it depends by market, especially in the European market, where you see huge variations. We are always asked, what's the pump price in Europe versus the pump price in North America. And it really depends on what country you're talking about. There's huge deviations in pump price. Certainly, right now with everything that's going on in Europe, you see elevation in diesel price, you see elevation of natural gas price at the pump, but it very much does vary by country in Europe. In the States, typically compressed natural gas is slightly less expensive. There's good pipeline gas, compressed natural gas in the United States. So you see a slight premium for liquefied, but in the European market, there's a very good liquefied distribution network in regards to filling stations, actually far better than in the United States. Therefore, we expect, like I said, a leveling off of the liquid natural gas prices. But it is a slight premium.

Excellent. I'm just going to check and scan if we see a further questions from the audience. So please remember to use the window below the screen or the bottom of the screen for your questions. I think otherwise, we have covered what's been sent in. We've gotten some great discussion going with the help of Harmen, and we're closing in on the end of the hour. If there are further questions, you can feel free to send them in the same box, we'll pick them up and respond to you at your e-mail address. So please include your e-mail address. And I think, I'd just like to say on behalf of Hexagon, thank you very much, Harmen, for taking the time to host today's event. Thank you, team Hexagon and Cryoshelter for the presentations. And thank you, everybody, for joining us here today. We look forward to seeing you another time.