Ingevity Corporation (NGVT) Earnings Call Transcript & Summary

Greetings, and welcome to the Innovative New Pathways for Activated Carbon Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Hamilton, Treasurer and Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Donna. Good morning, everyone. Welcome back to Ingevity's 2021 webinar series. As you may know, we are holding these webinars as a way to continue to inform and educate the financial communities about our businesses. Today, we'll be focusing on our Performance Materials segment, particularly the innovation areas we're targeting for continued growth. In order to follow along with today's presentation, you can download the slides from the Investors section of our website. You can find it by visiting ir.ingevity.com under Events and Presentations. You may also use the slide controls on the right side of the webcast player if you would like to advance the slides while listening to the audio live. Before we begin, I should note that today's webinar may contain forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are contained in our SEC filings, including our Form 10-K and our most recent Form 10-Q, which are also available for your review on our website. Our presenters today are Ed Woodcock, Executive Vice President and President of Performance Materials; and David Newton, Vice President of Corporate Strategy. Many of you on the call today already know Ed well, and we're happy to introduce you to David. These gentlemen have worked together as part of our Performance Materials business and corporate growth and innovation efforts for the last 4 years. Our agenda is on Slide 4. Ed will provide an overview of the activated carbon landscape, the attributes that differentiate our Nuchar products in the marketplace and our strategy to leverage these unique performance attributes to pursue new and exciting end uses for activated carbon. David will then discuss 2 of the applications that use our Absorbed Natural Gas or ANG technology. First, he'll discuss alternative fuel vehicles and then the bulk storage and transport of renewable natural gas. Ed will then highlight several high-value markets where we participate today or are considering participating in the near term. After the presentation, we'll open the line for questions. In addition to Ed and David, John Fortson, our President and CEO; and Mary Hall, our Executive Vice President and CFO, will be available to participate in the Q&A. We'd like to keep the Q&A at the end of the call focused on today's webinar topic. With that, I'll turn the call over to Ed.

Thanks, Bill, and good morning, everyone. If you'll turn to Slide #6, we'll start with an overview of the global activated carbon landscape. In general, the activated carbon market comprises a variety of different products used in different -- excuse me, used in diverse set of end-use applications. And often, the products used for a given application has much to do with its performance characteristics. Put simply, not all activated carbon is the same, and it doesn't always perform the same functions. Typically, what differentiates the various activated carbon products starts with the base carbonaceous raw material. The application where activated carbon is primarily used are water treatment, air and gasoline vapor purification, food, chemicals and pharmaceuticals. The 3 largest raw material inputs for activated carbon are coal, coconut shells and wood. As you may know, Ingevity is the world leader in gasoline vapor emission control technology by virtue of our manufacturing expertise with hardwood sawdust-based chemically-activated carbons. Most activated carbons are manufactured using a high-temperature thermal steam activation process and start with raw materials such as bituminous or lignite coal and coconut shells. This commonly used process produces a carbon structure with microporous that enable a capture and hold functionality of the absorbents. Typical uses for this functionality are in water purification, air and gas treatment and other applications where disposal or regeneration is required of the carbon after initial use. Alternatively, Ingevity's hardwood sawdust-based products are chemically activated to produce an optimal combination of small, medium and large-sized pores. This pore structure creates more pockets for gas molecules to be captured and stored, ultimately creating a larger internal surface area to operate. Additionally, medium- and large-sized pores enable the release of these captured gas vapors. As you see in the images at the lower left, it is our process that builds the optimal pore structure that enables our products to capture, hold and release vapors. It's the release capability that is unique and what makes our Nuchar carbons perfectly suited for use in high-value applications like automotive gasoline vapor emission control and serve as a foundation for other high-value and high-growth applications we'll discuss today. For the last 40 years, Ingevity has leveraged our carbon's unique performance characteristics, our unparalleled manufacturing process and product consistency and our large-scale production across the globe to become the experts in gas capture and release for the automotive industry. Turning to Slide #7. The uniqueness of Ingevity's activated carbon technology is our secret sauce and is the fundamental basis of our competitive advantage, where we are differentiated from other players. Our superior quality and consistency provide customers with the assurance they need in areas where performance is critical and nonnegotiable. Because of our long history with this particular manufacturing process, we are capable of producing high-performance activated carbon products that meet not only today's market needs but keep us ahead of emerging trends. We continue to innovate and grow our intellectual property pipeline. It is for these reasons that potential entrants into the business face an uphill battle. Getting into the acid activation carbon business requires significant capital and a long lead time to catch up on our technical expertise, engineering know-how and product quality. Beyond Ingevity's technology and business leadership and the unmatched performance characteristics of our carbons, the Nuchar portfolio is also sustainably derived in making significant positive impacts to combat some of the world's most concerning emissions. As shown on Slide 8, because our primary raw material is hardwood sawdust, a byproduct of the lumber and furniture making industries, our products are inherently sustainable. But it's not just that, the use of our products has a significant sustainability profile. According to a third-party greenhouse gas assessment conducted in 2020 for our 2019 production, the use of our carbons to recover gasoline vapors prevents over 5 million tons of CO2 emissions, which is more than 10x the amount of the CO2 released from its manufacturer. Additionally, we estimate that over 20,000 metric tons of volatile organic compounds are prevented from emissions into the atmosphere daily by Nuchar products in use today. That's the equivalent of 8 million gallons of gasoline. By preventing the release of these VOCs into the environment, Nuchar significantly diminishes their contribution to ozone and secondary organic aerosol formation. In the value-added performance characteristics and environmental benefits of our activated carbon doesn't stop at gasoline vapor emission control for vehicles. Next, we'll take a look at our strategy to identify and capitalize on new high-value markets. On Slide #9, you'll see an overarching view of our strategy to build and grow critical new pathways for our activated carbon technologies. First, we intend to capitalize on our manufacturing and technology expertise and the unique capture and release capabilities of our carbon to identify new end-uses. Second, this will enable us to diversify the business while maintaining an array of high-performance and high-margin end-use applications. Third, we'll keep focused on sustainability and ways our carbon can continue to purify, protect and enhance the world. Lastly, we will also carefully consider investing in additional strategic relationships and manufacturing capabilities to support growing demand and drive additional revenue. In summary, we have a strong history of success in product development and differentiation. Over the course of the last 4 decades, we have devoted significant resources to the creation of research and innovation centers to advance the science and art associated with our materials and their uniquely beneficial performance. We're extremely confident in our ability to continue to diversify and grow our Performance Materials business. Let's review a few areas we're currently exploring to help us do just that. Moving to Slide 10, you'll see an outline of 3 key high-margin, high-growth areas where we are focusing our efforts to diversify the business. First, over the last 5 years, we've spoken often about the commercialization efforts of our Absorbed Natural Gas or ANG vehicle technology for light-duty pickup trucks, vans and SUVs for fleet use. Data from Wards Intelligence indicates the annual addressable U.S. market is approximately 3 million fleet vehicles, equating to roughly $1 billion to $2 billion of potential revenue for Ingevity. Second, we are also targeting the use of our ANG technology for more efficient storage of gas vapors into large-scale bulk storage of traditional and even renewable natural gas. The unique molecule storage capability of our evaporative emission canister technology is equally adaptable for methane and renewable gas capture. Data from the Renewable Natural Gas Coalition, National Renewable Energy Laboratory and the U.S. Department of Energy estimates that there will be roughly 300 methane-producing sites in operation in the U.S. by 2025. All of these sites could benefit from our absorption technology to more efficiently capture, store and transport natural gas from these sites to end users for use as transportation fuel, electricity generation or even manufacturing renewable hydrogen. Current pilot data indicates the amount of Ingevity content required for these bulk solutions to be between $125,000 and $375,000. This represents a $40 million to $120 million addressable opportunity for our low-pressure bulk storage solutions. On the right side of this slide, you'll see that beyond capture and release, our activated carbon also enables surface functionality and porosity to remove undesirable substances found in water such as chloramines or in air where siloxane intake is impacting heavy-duty equipment. The unique large pore structure of our products also enables time to release of active pharmaceutical agents. I'll now turn the call over to David to begin our discussion of the exciting opportunity for our ANG vehicle technology for light duty fleets. David?

Thanks, Ed, and good morning. I'll begin on Slide #12. As we discussed on our last Performance Materials webinar on vehicle electrification and hybrid technologies, today's vehicle landscape is diverse, and auto manufacturers are laser-focused on the continued need to reduce carbon emissions and enhance fuel efficiency. This has led to viable alternative fuel technologies for most, but not all vehicle classes. Options for the light-duty segment have lagged those available for the passenger car and heavy-duty segments because their size, weight and typical distance driven make them a challenging vehicle class to electrify. On the left side of the slide, you'll see we've summarized the proven alt-fuel technologies serving vehicles by size. Hybrid technologies and electrification are well suited to small platform vehicles like passenger cars due to their below average weight, today's battery costs and the typically short distance of their daily range. The heaviest vehicles represent a disproportionate share of the fuel consumed by vehicle class due to their weight and fuel economy. Significant subsidies and grants are available for these vehicle classes and are a primary reason why traditional and largely uneconomical alternative fuel solutions are most commonly used. Across all vehicle classes, hydrogen fuel cells remain a potential clean fuel pathway. However, lack of low-cost access to refueling and the continued need for hydrogen technologies to be presented as commercially viable forces, automakers and consumers to take the same wait-and-see approach hydrogen has experienced for the past decade. Historically, options for the light-duty vehicles or LDVs, like pickup trucks, vans and SUVs have fallen short because the infrastructure and economics of electrification and CNG proved to be challenging, particularly in the areas of weight, cost and usability. And yet these are the types of vehicles consumers and most importantly, fleet users buy and use the most. The right side of the slide sizes up the LDV market. These trucks, vans and SUVs are the vehicle of choice for public and private fleets across the U.S. These stakeholders are looking to meet ESG goals using their existing assets, something that cannot be done with electrification today. What's more, fleet owners don't have the time to wait for electric pickup trucks and vans to become economical. They need viable options today. This is where our ANG vehicle technology has emerged as a simple, readily available and affordable solution. Let's move to Slide 13 to better understand what makes our ANG solution unique and valuable for today's fleet trucks and vans. On Slide 13, we often say that the absorption science behind our ANG technology is counterintuitive. Our activated carbon fills a cylinder nested in the bed of a truck and can store more gas than a traditional empty CNG tank at the same pressure. The unique characteristics of our carbon reduced the storage pressure of natural gas without sacrificing the volume of gas stored. Without our ANG technology, simply lowering the storage pressure of a traditional CNG tank would sacrifice too much valuable gas volume and render those tanks ineffective. ANG allows an optimized volume of gas storage at the lower pressures. In this case, 900 psi as opposed to CNG's 3,600 psi to unlock the significant cost savings associated with the smaller compression equipment and fueling infrastructure. Low pressure ANG provides fleet owners with an immediate solution using abundantly available natural gas while also being cost effective, less energy-intensive and more environmentally friendly. Operating at 900 psi overcomes existing market impediments of high-pressure CNG stations that typically carry a $1 million price tag to construct and are lacking in convenient locations in the U.S. Additionally, fleets must make a wholesale conversion of their fleet, at times almost a 200-vehicle requirement to justify the upfront expense and recuperate the capital costs of centralized high-pressure refueling stations. Without the need for high pressure, ANG means a simple, affordable and portable fueling appliance can be used anywhere on the existing natural gas pipeline throughout the United States. This allows fleets to tap into the known environmental benefits of natural gas and even ultra-clean renewable natural gas or RNG at their place of business. Today, our turnkey ANG platform consisting of an ANG-powered truck and low-pressure fueling appliance is being piloted both public and private fleets across the U.S. to reduce their carbon footprint through lower tailpipe GHG emissions and cleaner engine operation. Let's move to Slide 14 and look more closely at the addressable market for ANG vehicles and scalable revenue potential for Ingevity's carbon. Turning to Slide 14. The volume of Nuchar in the single cylinder onboard each vehicle is roughly equivalent to that in 100 carbon-containing ORVR canisters excluding the honeycomb scrubber on a typical U.S. internal combustion engine, light-duty truck today. With Wards Intelligence data showing 3 million light-duty trucks are bought annually for fleet use, the addressable market for ANG fleet vehicles is roughly $1 billion to $2 billion. While we've been developing ANG technology over the last 8 years, our plan to fully commercialize these vehicles and penetrate the $1 billion light-duty fleet market is three-pronged. First, we've already begun and will continue to leverage state-based alternative fuel subsidies and grants. You may have seen our announcement in May of this year, announcing that we were awarded over $250,000 in funding from the Pennsylvania Department of Environmental Protection as a part of the 2020 Alternative Fuels Incentive Grant or AFIG program. The grant is being used to demonstrate the economic and environmental benefits of the ANG platform with 8 fleets throughout Pennsylvania. Representing the first use of ANG technology in the state, the AFIG award will cover half of the incremental cost to equip 28 Ford Super Duty F-250 trucks and Ford Transit vans with ANG technology and install complementary low-pressure fueling appliances for participants as well as the costs associated with data collection and analysis. Participating fleets will cover the remaining 50% of the ANG vehicle upfit and fueling appliance costs. The award represents an important endorsement of ANG and is a significant leap as we continue to demonstrate the benefits of the platform and the use of natural gas as a transportation fuel in fleets across the U.S. We will continue to grow ANG awareness via additional state and federal grant and subsidy opportunities. Second, we will continue collaborating with OEMs to adapt ANG technology on future light-duty vehicle platforms beyond the 2021 and 2022 model year Ford F-250 and Ford Transit vans. ANG has been certified on Ford platforms since 2018, and we have an opportunity to partner more closely with General Motors, Toyota and others as they design the future of their alternative fuel offerings. Lastly, we remain focused on growing ANG awareness, adoption and sales through additional fleet partnerships. The 8 names you see on the right side of the slide are just a handful of our partners today and represent a diverse group of public and private pilot partners benefiting from ANG fleet trucks. Moving forward, potential future beneficiaries of ANG technology are any of the trucks, SUVs and vans you see on the roads today, driven by government fleets, last-mile delivery and service businesses and utility, telecom and cable providers. On the next slide, we'll take a closer look at the key milestones in our development of ANG as we work towards commercialization and revenue generation in this space. Slide 15 shows a 5-year timeline of ANG's development and our strategic approach to go-to-market status. Our focus early on in 2017 was building proof-of-concept and actual installation of the first generation of our ANG cylinders on the Ford F-150 platform. We then focused on testing the technology on-site with our own truck fleet, identified a compatible low-pressure fueling appliance and began collecting on-road use data through an employee driving program. We launched our pilot phase for ANG in 2019 with the grand opening of our North Charleston-based fueling station and welcomed SoCalGas, part of Sempra Utilities, as our first demonstration partner. Over the last few years, our focus has been marketing growth, growing the number of participating pilot fleet partners, increasing awareness of the technology through grants and other subsidized funding as well as continuing to certify the ANG platform on the latest model year Ford trucks. We also strategically acquired the assets of ANGP, Inc. in order to leverage our in-house technical and marketing capabilities to grow ANG adoption. We've also leveraged the growing global focus on a zero-carbon future by demonstrating the use of carbon-negative RNG as a transportation fuel for ANG vehicles at our Ingevity fueling station. Looking to 2022 and beyond, growth will be our continued focus. As mentioned earlier, we are working to broaden the number of vehicle platforms on which ANG is certified as well as increasing access and growing the use of RNG as a transportation fuel. In fact, using RNG to fuel ANG powered vehicles is the only carbon-negative alternative fuel solution for light-duty trucks today. In order to explore and capitalize on the use of our absorption technology in the rapidly expanding RNG industry, we also recently announced a strategic partnership with RNG solutions provider, GreenGasUSA. We are collaborating with the GreenGas team to leverage their expertise in the compression and transport of CNG to begin applying and accelerating the use of our ANG technology in the storage and transport of gas. We'll now discuss the significant opportunities for our activated carbon beyond light-duty vehicles into clean energy markets such as RNG transport and storage. Turning to Slide 17. Ingevity 2.0 includes our commitment to explore value-added applications for our activated carbon beyond automotive gasoline vapor emission control and into growing markets like RNG. Waste methane or biogas is an emerging renewable energy source and becoming a more prominent component of the U.S. energy landscape. As a part of our ongoing partnership with the GreenGas team, we recognize the inherent challenges associated with collecting, purifying and transporting biogas and integrating it within the overall natural gas infrastructure in place today. Specifically, the high cost of entry for many biogas producing sources includes the cost of compression and operating expenses of storing the gas at traditionally high pressures, typically above 4,000 psi. For this reason, we know there is a substantial opportunity for our ANG technology to revolutionize the way biogas is collected and transported by reducing the capital cost of compression and lowering operating expenses when storing gas at unconventionally low pressures. We are prioritizing 2 near-term opportunities to combine the industry-leading sustainability benefits of RNG with the low-pressure benefits of our ANG technology. First, we will accelerate the application of our ANG technology for the storage and transport of natural gas. We are currently engaged with GreenGas to launch a pilot program to deploy the first use of an activated carbon bulk storage tank to demonstrate the system's efficacy. Second, our collaboration will facilitate the use of RNG as a part of our ANG vehicle platform by offering our fleet customers broader access to the GHG reduction benefits of RNG when used as a transportation fuel. Finally, and as we've stated before, we are uniquely positioned to leverage our expertise as an operating and technology partner for GreenGas. Our investment gives us a foothold in the rapidly expanding RNG industry, an industry in which we see tremendous overlap with Ingevity's purpose to purify, protect and enhance the world as we continue to pursue strategic partnerships and investments across the RNG value chain, we believe GreenGas has a substantial runway ahead of them, and we are excited to work with their outstanding management team to further grow this business. As we turn to Slide 18, you'll see one tangible way our ANG solution can address the high compression and storage costs inherent in the renewable gas space as it exists today, whether at a landfill, agricultural farm or wastewater treatment facility, biogas operations are all about capturing, storing and transporting the methane from source to use. In this process, one critical operating requirement is that 100% of the gas be captured as this represents the harmful emissions the industry seeks to address as well as revenue potential for monetizing the captured vapors. The most common method of storing biogas today is the high-pressure trailers designed to transport the gas down the road. These tanks were not designed as stationary storage but are the most cost-effective method for ensuring all the available gas is captured at the site and not admitted into the atmosphere. Given these trailers will need to leave the site to transport the gas to a customer or interstate pipeline, a second redundant trailer is required to collect the gas produced while the first trailer is traveling on the road. Typically, most sites don't need 2 full trailers on site, resulting in an underutilized storage asset when sitting idle. At a typical cost of $500,000 per trailer, this becomes a capital burden and is precisely the opportunity that we are working to address with ANG. For an ANG system, we'll design the tanks to optimize the gas requirements on the biogas site and allow for a reduced number of these expensive trailers. This not only allows the producer to eliminate a capital expense, but by storing the gas on site at 1 quarter of the standard pressure, the operator will save on electrical, operating and maintenance costs associated with high-pressure storage. This also increases the efficiency of the trailer and allows the asset to fill its original purpose of moving the gas rather than sitting idle as storage. Longer term, we are looking at ways ANG technology can enable low-pressure storage that links independent RNG producing sites to experience the benefits of lower cost and more efficient gas storage and transport. Smaller RNG producing sites within a certain geographic radius of one another could participate in a network service. Rather than flare raw biogas from their operations, each site would purchase an affordable ANG storage tank to keep on-site and collect this gas. The collected gas would then feed into a single trailer that daily aggregates gas from the sites on the network and then either transports it to an interstate pipeline or directly to any end-use customer looking to convert from fossil to renewable natural gas. This is an emerging application and opportunity for our ANG solution, and we are thrilled to be actively piloting the first demonstration of large-scale storage tanks with GreenGas in South Carolina and well-known testing facility Gas Technology Institute in the Chicago area. As a part of the demonstration, we'll better understand the thermal management requirements for ANG in this application, the optimal size and shape of our bulk storage tanks and ultimately, the preferred operating parameters for maximum benefit to the producer. We estimate that there could be between $125,000 to $375,000 of our activated carbon within each tank. With roughly 300 renewable gas sites expected in the U.S. by 2025, and an opportunity to at least reduce a single $500,000 capital expense per site, we estimate the total addressable opportunity for low-pressure bulk storage solutions to be between $40 million to $120 million. We're committed to ensuring our activated carbon technologies are a key component of this emerging market opportunity. I'll now turn the call back over to Ed to conclude our presentation. Ed?

Thanks, David. In our last section, that begins on Slide 19, we'll provide an overview of 5 exciting additional growth areas and opportunities for our Nuchar product. Slide 20 is a summary of 5 additional markets for our activated carbon, where we either participate strategically today or that we consider to be potential future opportunities. On the left portion of the slide, highlighted in green, you'll see we're already active in the air filtration and process purification market. In the air filtration application, it is our honeycomb's unique performance characteristics that make them highly suited for air quality improvements and as a base media used in the control of viruses like COVID-19 in schools, restaurants, entertainment venues, offices and hospitals. For over 100 years, Nuchar has been sold into water, food, beverage and chemical purification markets, where our carbon is valued for its ability to remove naturally occurring contaminants. This enables us to maximize our manufacturing output and increase the productivity of our manufacturing assets. We are also looking closely at 3 additional high-value markets for our technologies. First, we have a unique process that adds surface functionality to our carbon that acts as a catalyst for chloramine destruction in potable water. Studies recommend chloramine removal before drinking due to toxicity concerns. The carbon is used in treatment canisters at the point of use in homes and businesses. Drug delivery is also an attractive market, we have our eyes on. Here, our carbon has the potential to act as a carrier for other active ingredients and medication, enabling timed release of the drug to prolong its effectiveness or that of treatment protocols. Lastly, siloxane removal is an area of interest for us. Released from everyday products like deodorants, cosmetics, when they break down at landfills, siloxane typically is drawn into the air intake system into the engines of the heavy-duty equipment and causes them to quickly deteriorate resulting in downtime and expensive engine rebuilds. Nuchar could be used in air intake systems of these machines to capture siloxane molecules before they foul the engines. We'll close with Slide #21. We will continue to capitalize on our manufacturing and technology expertise and the unique capture and release capabilities of our carbon to identify new end users that enable us to diversify our Performance Materials business while maintaining array of high-performance and high-margin end-use applications. We will remain intently focused on sustainability in novel ways our carbon can continue to purify, protect and enhance the world. To this end, we will leverage our strong history in product development and continue to invest in research and innovation that advances the unique beneficial performance of our materials. We look forward to providing updates on future investments and strategic relationships and manufacturing capabilities that will support growing demand and revenue growth for our world-leading activated carbons. We are extremely confident in our ability to continue to diversify and grow our Performance Materials business. With that, we'll turn the call over to the moderator to begin the Q&A.

[Operator Instructions] Our first question is coming from Vincent Anderson of Stifel.

Appreciate the presentation here. Lot to unpack. I'm trying to just kind of start off with understanding the trade-off on fleet vehicles. I think you said gas needs to be stored at 3,600 psi to reach the energy density of diesel. So how does ANG compare with the addition of Nuchar 900 psi being 1/4. Does Nuchar get you back to half the energy density, higher, lower?

Yes. Thanks, Vincent. The ANG solution is in a bi-fuel vehicle. And we've designed the volume of gas storage in the ANG tank to sufficiently provide the daily range for a vehicle, knowing that the benefit of the ANG technology is that it allows easy access to the refueling appliance because of that lower pressure. So we're optimizing the volume of gas on the vehicle to ensure that the vehicle at those lower pressures can sufficiently serve its entire daily range. So the comparison between ANG and higher pressure CNG is a bit different because most CNG vehicles are mono-fuel and not bi-fuel.

Understood. Yes. And that kind of feeds into my next question, which is, I think we got a lot of this in pieces, but if we just try to parse out the ROI decision for a fleet customer, do you have an idea right now of, one, how much of the additional cost is related to the retrofit versus if it had come off the OEM line fully functional? Second, the on-vehicle equipment cost difference between CNG and ANG? And then I think you already gave us a rough number for CNG fueling infrastructure, but anything you wanted to add there?

Typically, the minimum hurdle for a fleet from a pure ROI is 5 years. And today, we're targeting a $10,000 upfit of the total system for the vehicle. One important element I think you noted in your question is that as the OEMs take a greater role in designing and implementing these upfit systems, there are significant scale economies that will drive that $10,000 upfit down in terms of the component costs and the cost of installation. The other benefit that is really driving the ROI of the system is the use of renewable natural gas because of its cost benefits compared to traditional fossil or natural gas. And our target is, if we can drive the ROI down between 2 and 4 years, we'll start to see significant fleet adoption as a part of that ROI benefit.

Understood. And if I could just ask one more higher-level question on Slide 18. Maybe I'm misinterpreting this. I'm trying to understand why the value proposition is to basically take a capital cost that right now, the transportation provider, I believe, is bearing with the CNG tanks and then move part of that cost to the project site in the form of fixed storage vessel, why not simply replace the mobile CNG tank with the mobile ANG tank and then you're only really working with basically selling to one customer in terms of that switching costs?

Yes. You've hit on an important element of the development of these RNG sites, which is the relationship between the developer and the virtual pipeline supplier. As we look at the total cost of getting the new RNG producing sites into the network, those capital costs, whether they're borne by the virtual service provider or the developer are an important part of making these sites economically attractive. Long term, you're right in that developing the A&G solution as a virtual pipeline offering is an important part of our portfolio. Today, we're targeting stationary storage to ensure that these RNG producing sites can economically get in the game, if you will, and that value proposition is what we've attempted to describe on Slide 18.

[Operator Instructions]

Okay. If no more questions, we thank you all for joining us today. We invite you to join us...

Excuse me, sir, we did have a couple of lines enter the queue, if you'd like to take them? Our next question is coming from Paretosh Misra of Berenberg.

Just curious across these applications that you have described, is the product 100% same versus the -- what you're selling to the automotive customers? That's number one. And number two, I don't know what's the right way to think of pricing, is it maybe dollar per pound or dollar per liter. But is the pricing variable and I guess, any incremental cost that's going in, any incremental operating costs that these products are going to require?

Yes. Paretosh, the carbons that are used in the ANG application are high capacity, 15 BWC products that we use as well in the automotive industry. So there's a great, great, opportunity for us to use our existing assets to be able to fill the demand for the ANG systems.

And longer term, I think your second question was relative to pricing, so we see the opportunity to expand margins over time as the total unit cost is driven down for these applications. And as Ed mentioned, because it's our unique 15 BWC carbons that are in these systems, we believe there's an opportunity for us to create value consistent with that, which we've created within the automotive space as we expand margins over time.

Got it. Got it. And then just making sure I understand the slide where you talk about the kind of the opportunity per vehicle. You're comparing with, like a typical U.S. Tier 3 vehicle minus the honeycomb, right, like that, that's the contrast here and you're showing like, what are those 100 such pieces versus what you use in the -- for the automotive customers?

Yes, Paretosh. This is Ed. That's just a representative on the volume of carbon used in the ANG vehicle is equivalent to, say, a U.S. ORVR canister in the U.S. today. So 1 ANG vehicle is equal to about 100 U.S. ORVR vehicles.

Thank you. At this time, I'd like to turn the floor back over to Mr. Hamilton for closing comments.

Okay. Thank you for joining us today. We invite you to join us next on July 29 for our second quarter earnings webcast and conference call and again on August 25 for the next webinar in our series that will focus on our outlook for pine chemicals and the rosin industry. We appreciate your continued interest in Ingevity.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and have a wonderful day.