Exploring Hydrogen and Carbon Capture

Simon Moore Vice President of Investor Relations & Sustainability at Air Products joins Cowen’s Sustainability & Energy Transition Analyst Marc Bianchi to discuss the company’s role in hydrogen production in steam methane reforming (SMR) and gasification as it relates to hydrogen with carbon capture. 

Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Marc Bianchi:

Hey everyone, Marc Bianchi here from the Cowen Energy team on this installment of the Cowen Energy Transition podcast, I’m joined by Simon Moore who heads up sustainability as well as corporate and investor relations air Air Products. Industrial gas companies like Air Products occupy an interesting convergence of hydrogen and carbon capture where they have legacy experience in producing and handling hydrogen and CO2 for several decades and varying plans to leverage these capabilities into energy transition. Air Products is the most ambitious in these plans with three major low carbon hydrogen projects under development, including by far the largest green hydrogen project in Saudi Arabia. So Simon, thanks so much for joining us. Before we jump into the discussion, can you give us a few minutes on who you are, what your experience in the industry, and what your current role at APD involves?

Simon Moore:

Sure. Thanks Marc. First of all, let me say thank you to you and the rest of the Cowen team for giving us the opportunity to have this very interesting and exciting conversation today. So as you said, Air Products today is a leader in the hydrogen space. We got substantial production and distribution experience, and I know we’ll get into that and talk about it some more. But we’ve also been successfully operating a carbon capture system for the last eight years. And as you said, we’ve announced major projects, 10 billion of real projects that we’re executing. So as a company, I think we’re really, really proud of our position in hydrogen today and very excited about where it can go in the future.

                Marc, in terms of my role, I’ve got responsibility for investor relations. I’ve got responsibility for government relations globally as well as sustainability. You may think that’s a strange combination of things, but I think it’s actually indicative of the fact that these subjects are no longer separate topics. Sustainability is no longer, well, at least at Air Products, it’s not a separate thing over on its side. It’s absolutely part of our growth strategy, it drives our growth strategy. And of course, it’s top of mind for our investors. So having responsibility for all those areas allows us to bring those key components together.

Marc Bianchi:

So let’s start with your existing footprint in hydrogen. You’ve got a lot of hydrogen production already I think mainly through Steam Methane Reformation known as SMR, that process. And I suppose most hydrogen from fossil fuel produces around 10 tons of CO2 per ton of hydrogen. So there’s an obvious opportunity to capture some of that CO2 which you’re doing in some instances. So talk to us about what you currently have in hydrogen, CO2, and carbon capture.

Simon Moore:

Sure. Great question Marc. Well, again, a lot of people talk about hydrogen as if it’s something way out there in the future. And there’s certainly some very new and interesting applications that I think will grow of the future. But hydrogen is here today. I mean, hydrogen has been with us for decades. Air Products has really been a leader in the idea of the refining industry outsourcing their hydrogen production, that goes back 30 plus years. And one of the interesting things today is we talk about sustainability driving our growth strategy, but that’s really what the hydrogen business is about today. As you know, it is primarily used by the refining industry to clean up transportation fuels. So we have a business today that’s already hydrogen, it’s about 22% of Air Product sales, about 9,000 tons a day of hydrogen production. And it is going to help make environmental improvements for our refining customer.

                Now, again, as you said, most of our plants are steam methane reformers because to be frank, if there’s no value for the emitted CO2, that’s the most economic way to make hydrogen. That’s why the world does it that way today. What’s exciting for us is as the world focuses more and more on the real act of emitted CO2, we’ve got demonstrated expertise in carbon capture. And what I mean by that is we retrofitted two existing steam methane reformers in Port Arthur, Texas about eight years ago. So this idea of retrofitting, as you know Marc, when you want to retrofit something, that’s bear different than building it from new. But we were able to retrofit those facilities with a carbon capture system. And we’ve been operating that successfully for eight years capturing a million tons a year of CO2. And we’ve been able to do that while maintaining very, very high reliability hydrogen supply to our refining customers.

                So to be frank, that operating expertise is really, really important because it might be great to capture the CO2 off of a hydrogen plant. But if by doing that you negatively impact the efficiency or the reliability of the hydrogen plant, that’s not going to work out very, very well for anybody. So I know we’ll talk about the potential for the future, but one of the things that Air Products is most excited about is we have a portfolio of technologies, and we have a portfolio of experiences. And we can bring those together in the unique circumstances that fit the situation the best to create the best solution for our customers and for any of the projects that we’re doing.

Marc Bianchi:

Okay, great. And when we start about capturing CO2 off of a hydrogen production process, I think with SMR, you guys have said that you can economically capture 50% of the CO2 off an SMR. But my understanding is it’s physically possible though maybe not economically possible, physically possible to capture 95% from the whole SMR process. What needs to be added to get up to that 95% level and what needs to happen for it to become economical?

Simon Moore:

Well, warning for the listeners, we’re about to go into just a little bit of chemistry, but we won’t go into this too far. Well, really Marc the best way to think about a steam methane reformer is there’s two different streams of flow through the SMR. There’s what we call the process side. And that’s where we’re actually making the hydrogen and the natural gas over catalyst mixed with steam makes the hydrogen. There’s CO2 in there, you’re going to separate that to get the purity of hydrogen you want. So that process side is a relatively high concentration, high pressure stream of CO2. And so that’s the one that’s very relatively easy to capture, so called capture ready CO2. And so when we say that really you can only economically capture 50%, quite frankly you can do anything given enough money and enough energy. But it’s really the CO2 in the process side that is practical and economic to capture, and that’s in the neighborhood of 50% of the CO2.

                The other side of this is essentially a combustion stream. We’re combusting natural gas and air outside of the process to create the heat that allows that chemical reaction to take place. And so what you end up there is you end up with a stream that has CO2 in it but it’s a very dilute stream of CO2, it’s at low pressure. And one of the reasons it’s so dilute is of course when you combust something thing in air, the oxygen is what combust but then nitrogen just gets carried through. So really that other side of the stream is just like any other combustion stream where it’s quite dilute and low pressure and therefore much more expensive. So again, of course you can capture 95% of the CO2 off a steam methane reformer, but it’s much, much more economic to do that first 50% off the process side. And I won’t jump to the next question, but I think we’re foreshadowing a little bit of why gasifiers make great sense when you are focused on capturing a significant amount of the CO2.

Marc Bianchi:

Yeah, no, that is the logical next question, right? So you’ve got your two Greenfield projects, you’re using Auto Thermal Reforming, ATR and Partial Oxidation POX rather than SMR to capture up to 95% of the CO2. Can you give an overview of these two projects briefly and how the POX and ATR are able to capture 95% economically?

Simon Moore:

Yeah, great. And again, they’re different processes. So I would say the ATR and the POX for the purposes of this conversation, let’s call them the same process gasification, there’s some subtle differences. But at the end of the day, gasification is the hydrocarbon, in this case, natural gas and oxygen coming together, and there’s no nitrogen in that process. So we talked about combusting the hydrocarbon in air in the steam methane reformer example which creates a dilute stream of CO2 with a lot of nitrogen in it. Here, it is very simple Marc, I only have process side, I don’t actually have a combustion side. And so what comes out the back is a pretty concentrated stream of CO2.

                And of course, you’re going to want to separate that CO2 anyway because you’re typically looking for the hydrogen or the CO in the syngas. And so that’s what makes it much, much more economical. That’s also why you essentially have an air separation unit as part of this process because you need to produce that oxygen. So again, if you don’t care about CO2 capture, quite frankly, you keep using steam methane reformers. If you do care about CO2 capture and want to capture greater than 95%, you absolutely need to look at gasification of the hydrocarbon. And as you said, that’s exactly what we’re doing in the billion dollar Canada project and the four and a half billion dollar Louisiana project.

Marc Bianchi:

Why ATR in Canada and POX in the US? I mean, is there anything specific about the projects that lend themselves more to one or the other?

Simon Moore:

Well, Marc again, I think for the of purposes, it’s almost easier to think of them as slightly different shades of the same idea. They’re both gasification technologies, they do have some fairly subtle differences. We obviously, again, having this portfolio of technologies available to us, we evaluated each of them, and they were the best fit for those projects. But for example, let me just build on this, this idea of bringing the right technology solution to bear. As you said, both of these projects are going to put low carbon hydrogen into our pipeline networks. But in the case of Canada, we’re also going to take some of that hydrogen and liquefy it because we think that there is a pretty significant opportunity in the trucking market, in the mobility market in that area. And for relatively modest distances, liquefying the hydrogen is a great distribution solution.

                But then if we look at the Louisiana project, again, in addition to putting hydrogen in the pipeline network, there we’re seeing that being distributed over broader areas, further distances. And in that case just like our Neom project, we’re going to take some of that hydrogen, turn it into ammonia because that broader, longer distribution chain for that ammonia or for that hydrogen is much more economical to do via ammonia and then we’ll crack it back to hydrogen at the other end. So I just use that as another example of a portfolio of technologies being able to choose the one that fits best in each project.

Marc Bianchi:

So it certainly seems like gasification is maybe the way forward if we’re capturing CO2 or doing low carbon hydrogen from fossil fuel. Why is APD well positioned here? I mean, I know you have lots of gasification projects all over the world, but it seems like several companies can do gasification or get their hands on gasification technology. Why do you think you have an advantage here?

Simon Moore:

Well, again, Marc, in this case, we actually own some of the key gasification technologies ourself. As you might recollect over the last couple of years, we went out and bought two of the leading gasification technologies, so we owned them ourselves. But that’s also complimented with our operating experience. We’ve operated a natural gas POX plant in La Porte, Texas for decades. So we have hands on operating experience with that. So it’s the combination I think of the technology, the proven experience to execute these projects, and again, the proven experience to operate these plants in a very, very reliable manner.

                That’s what’s going to give us an advantage to these projects. But let me also say Marc, we’re competitive people, we’d like to win every project that there is out there. But for the world to be successful in the energy transition that it wants to go on, the role that hydrogen is going to play in this energy transition, there will absolutely have to be other projects done by other people. No company on the planet could do all of these projects themselves. So to some degree, we look forward to others doing these projects as well.

Marc Bianchi:

Great. Maybe switching over to retrofits and the opportunity to take CO2 out of existing processes. Just before we get into that, can you explain the liability or the responsibility of CO2 as it exists, and if there’s a distinction between maybe your onsite business versus your merchant and package business first?

Simon Moore:

Yeah. Great question Marc. So again, we’ll talk about the business first, then we’ll maybe come back and talk about the actual doing of this. So our business model for our onsite business and the vast majority of our hydrogen is in the onsite business model, as I said, going to the refining industry. In that business model, the customer has the financial risk of any CO2 emissions. So for example, if we are in a place in the world where all of a sudden there was a CO2 tax where you had to buy offsets, we would have to do that as the owner and operator of the hydrogen plant emitting the CO2, but we would pass those CO2 costs on directly to the customer. So this is not a downside risk for Air Products, we’re not exposed to a significant amount of CO2 credits or offsets. But what it does, as you can imagine, it creates a situation where we’ll go to our customers, and we have great relationships with these customers.

                And we’ll say, hey, look, we’re emitting this CO2, and now there is cost, let’s say, for that CO2 being admitted. Ad we can keep going to buy the offsets or the tax, passing them onto you as the customer, but maybe there’s a better answer here. Why don’t we go in and retrofit this facility and build a carbon capture system? And, oh, by the way, I’ll show you what we did in Port Arthur eight years ago. And then we will extend our onsite business model. We will say to the customer, we’ll put up the capital, we’ll operate this, we’ll pay for it essentially, but we want you to sign up for a long term fixed price agreement. So we see this as, again, not a downside risk but a business opportunity to expand our onsite business. So again, Marc, the customer has the responsibility and the customer will get the risk and reward of us putting in a carbon capture system.

                And then in terms of the ability to do that, I think it only makes intuitive sense that the people that are operating the hydrogen plant should be the ones to go in and retrofit and also operate the carbon capture system. As I said early on, anytime you add another piece of kit, another piece of process equipment to the back of a plant, you got to make sure you don’t screw up the reliability or the efficiency. You also asked about our merchant business, but I think it’s important to recognize that really the hydrogen is almost all in the onsite business, there’s very little hydrogen in our merchant business today. And obviously in that business, you have the opportunity to reprice on a more regular basis so you’re not stuck at a long term contract, even if there was some CO2 cost that was associated there.

Marc Bianchi:

And fair to say almost in any situation that really you’re not going to be replacing an SMR with a gasification in those instances, it just doesn’t make economic sense.

Simon Moore:

Well, I think Marc, I would say it’s kind of like your car. So you buy your car and in year one it’s great, and the maintenance costs are very, very low. But by the time you get to year 10 or 15 on your car, it’s not as efficient and it’s breaking down and the maintenance costs get higher. In our experience, there’s not a single point in time where you’d say, okay, I want to replace this thing. What happens is just like any other plant slowly over time they become less efficient and more maintenance heavy. Now, if I had a 30-year old steam methane reformer and there was no value for CO2, maybe I keep running that for another five years. But if I had a 30-year old steam methane reformer, I’m not sure I’m going to retrofit with that with a carbon capture system.

                So I think what it could do is it could shift the balance a little bit. As you’re evaluating when does it make sense to replace an asset, if you have to spend a significant amount of money to retrofit the existing plant, I do think that might mean you might replace a little bit sooner. And when you do replace it, you replace it with a gasifier. Kind of hypothetical, but in terms of a brand new well operated hydrogen plant, you would certainly retrofit that before you would shut it down and replace it.

Marc Bianchi:

Yep. Makes total sense. Maybe let’s switch over and talk a bit about the capture side of things. What kind of technology are you using in your capture projects right now? What’s the technology that’s being contemplated if different at all for these new projects that you have in backlog. Is there some [inaudible 00:18:12] so that you’re using, which I think is the most broadly adopted technique or is there another process? And if so, are there any notable differences in capture technology that would make you choose one over another?

Simon Moore:

Yeah, great question Marc. Well, there are a variety of technologies. But what’s good about this is these are not brand new technologies. So let’s take our existing hydrogen plants. When we make hydrogen, it’s got CO2 in it. Our customers don’t want CO2 in the hydrogen, so we already have to get that CO2 out of the hydrogen stream so that we can deliver that high purity hydrogen to our customers. So many, many chemical processes have the need to get the CO2 out of the product stream. So my point is it’s a pretty well developed technology. At our Port Arthur project, we use VSA, Vacuums Swing Absorption technology to absorb the CO2, then that’s captured. As you pointed out, more commonly it’s [inaudible 00:19:12] based system. So there are differences in those technologies and they have pros and cons and different applications. But it’s not like we need to quite frankly develop a new carbon capture technology, that technology exists and can be deployed.

                I think the other thing that is important to talk about is, okay, great, you capture this CO2, what are you going to do with it? You can’t just capture a million tons a year of CO2, you got to have something to do with it. What drives many of these projects is not just the ability to retrofit the plant and capture it, but are you in a place where you can do something with this CO2? Our Port Arthur project, the CO2 is used for enhanced oil recovery. The Louisiana project and the Canada project will be able to utilize the infrastructure and the geology there to sequester the CO2. And I’m sure we’ll talk a little bit more about sequestering it, but I think sometimes people underestimate what sequestration means. I’ll just headline this by saying sequestering the CO2 generally means putting it about a mile under the Earth’s surface. So this isn’t quite like digging a hole in your backyard and a little hose of CO2 going in there. This is a pretty serious operation to get the CO2 to a place in the geology where we’re confident it’ll stay there forever.

Marc Bianchi:

Yep. Okay. It sounds like the capture process itself is fairly commoditized or well established. As you think about the whole blue hydrogen process, is there much opportunity for cost reduction maybe either on the gasification side or further downstream when you think about the next 5 to 10 years,

Simon Moore:

Well, it’s a great point Marc. And I think there’s always optimization. We got a bunch of smart people who work really, really hard on optimizing this. So the CO2 extraction technologies exist, but they haven’t been used in exactly this same configuration. So they will work, but can you optimize, can you reduce the capital cost a little bit? Can you reduce the operating costs? There are definitely opportunities for doing that, and quite frankly, we see some of those opportunities being developed by the first mover advantage we’re creating. The fact that we are doing, as we said, 10 billion of real projects today, we are going to have very, very successful projects. And then we’ll take those learnings and be able to benefit future projects from that.

Marc Bianchi:

So most of what we’ve talked about is in North America, you guys have a fairly large portfolio of gasification outside North America, in Asia and around the world. Those seem like opportunities for capture installation. What’s the outlook there? Do you see a lot of installation for those markets? Does there need to be some sort of a carbon price instituted in those markets? What’s the way forward there?

Simon Moore:

Great question. And I’ll just maybe touch on Europe real quick before I jump over to Asia. Obviously, we have hydrogen facilities in Europe as well. We have them in the Rotterdam area, and there’s actually a project that we hope happens called the Portos Project which could have a few of us capture the CO2 from our facilities and put it in a common CO2 pipe and sequester it under the North Sea. My point just was pointing out there’s some activity potential there. So as you said, Marc, when we turn to Asia, most of the gasification there is not natural gas, it tends to be solids, typically coal. But everything we talked about is still true. Everything we talked about about the capture ready aspect of the CO2 stream from a gasifier is still true whether the feed stock is a natural gas hydrocarbon or a coal hydrocarbon.

                So we absolutely do see the opportunity potentially for retrofits of gasifier projects but certainly new gasifier projects that would incorporate carbon capture. Because, again, if we go back to the fundamentals, why do some of these countries want to look at gasification? As we’ve talked before, it’s primarily because it allows them to use the natural resources they have, in many cases, coal. It allows them to use the coal in a much more environmentally friendly way than just burning the coal. Gasification is much more environmentally friendly than coal. And it creates a CO2 stream that’s relatively concentrated, relatively easy to capture. Now, as we said in the last question, it’s got to be in a place where you can do something with that CO2 but certainly there are places where there are gasification projects, we certainly have the potential to sequester the CO2.

                So quite frankly, in the long run, we think being able to go to some of these customers with, again, a full solution now which includes, of course, the ASU, the gasifier itself, the syngas clean up and the carbon capture actually makes this offering even potentially more attractive in the long term. But as you said, the rules and regulations need to be in place to create economic value for the capturing of that CO2. And at this point, I think that’s still under development. We’ve certainly heard China’s very serious ambitions about reducing their carbon footprint. But I think it is in the process in a place like China for those ambitions to be translated into the specific regulatory frameworks that will create the value for the captured CO2. So I think it’s an exciting opportunity in the long term, and a lot of folks are working very hard on that. There’s a lot of interest.

Marc Bianchi:

There’s been some criticism of blue hydrogen where some claim that, sure, you’re capturing all this CO2 in the production process, but there’s a lot of fugitive methane that exists in the whole supply chain if you start from the well where the natural gas is coming from and on the pipeline and so forth. All this methane which has a much higher CO2 equivalent than just CO2 itself is getting out there. And after you put that through a project that might be 95% capture looks more like 40 or 50% capture. So you’ve got a couple of projects where you’re claiming 95% or even zero on blue hydrogen. How are you handling the methane issue there?

Simon Moore:

Great Marc, it’s a great question. This probably should be a podcast by itself I think. First of all, let me just point out that there’s been at least one recent study probably six months ago that was, to be blunt, full of flaws. Very unreasonable assumptions made to support that study. There’s been many other studies that would say that there’s much, much less CO2 especially from a gasification project with carbon capture. But be that as it may, let me address your question. We’re talking about our plant, so we’re talking about the emissions from our facility, the CO2. So it would be the scope one and scope two in the terminology of sustainability. So either the scope one, the direct CO2 emissions or quite frankly also the electric power used, the CO2 emissions associated with that, the scope one and scope two.

                So to be clear, that’s what we’re talking about when we talk about the Canada project having a net zero footprint and the Louisiana project capturing more than 95%. I think when you start to go outside of the bounds of the plant, you’re absolutely right, you kind of go upstream to the production of the natural gas. And whether it’s energy consumed to produce that natural gas or some methane leakage, of course, that’s outside of the direct control of us operating the plant, but there is some CO2 footprint there. We can talk about a flawed study that overstated it, but certainly there is some. But I think when you do that, Marc, you also need to look downstream. And you need to think about what is the benefit of the output of this facility? So if we take a look at, let’s say, the liquid hydrogen, the net zero liquid hydrogen that’s going to come off our Canada facility, we expect that to be heavily utilized in the heavy truck market.

                So those are trucks that are burning diesel fuel today with significant CO2 emissions. And so again, I think if you want to take into account some CO2 emissions upstream, you’ve really got to have an eye towards a balanced view of the benefit of that hydrogen downstream where it would replace trucks that absolutely would have a significant CO2 footprint. And then finally, Marc, I think we’ve said this many times, we don’t think this is an either or question, it’s not green versus blue. What the world needs is as much lower carbon footprint hydrogen as is possible. And we think it would be very difficult for a practical transition to only include green hydrogen. We see that there will be green hydrogen opportunities. As you pointed out, we’re doing the world’s largest green hydrogen project at Neom in Saudi Arabia. But at the same time, we do see the very, very successful blue hydrogen projects. So again, from our standpoint, it’s an and not an or.

Marc Bianchi:

Okay, great. On the Louisiana project, you own a sequestration. My understanding is you own the port space and you’re going to be sequestering the CO2 yourself. How did you de-risk that whole part of the process, because you haven’t done that before to my understanding? I mean, Port Arthur, for example, Denbury is taking it and doing something with it and you don’t have to worry about that part of the process. So how did you guys get comfortable around that? How did you de-risk it without any prior expertise necessarily?

Simon Moore:

Great, thanks Marc. Well, it turns out not a lot of people have a lot of CO2 sequestration experience and hasn’t been done very much. And as you pointed out, the Port Arthur project, Denbury uses it for enhanced storm recovery. So we’re very, very comfortable being fully responsible for this. As you pointed out, we Air Products signed a contract for the port space with the state of Louisiana. So let’s talk about what this is. Again, we talked about the CO2 recovery or the capture step. You’ve got CO2 compression, you’ve got CO2 pipeline. We operate hundreds and hundreds of miles of pipeline around the world, we know how to do that. And then there’s the point to be blunt of digging a hole in the ground. I say that in a little trivial way, but it’s a mile deep in the ground.

                So Marc, we’re not going to have Air Products employees learn how to dig deep holes in the ground. We’ll hire contractors, subcontractors. Some of the names in this space who know how to dig these deep holes in the ground will ultimately be responsible for that, but we’re going to hire expertise to do that. We also, as you can imagine, we’ve talked very often in the last two years about enhancing the resources within Air Products. So we’ve brought in some folks who have some experience in the sequestration space. But again, we’re not looking to learn how to dig holes in the ground, but we’re very comfortable taking that overall responsibility for the project.

Marc Bianchi:

Are you going to be taking third party CO2 at this project? Along those lines, should we expect to see further sequestration projects from APD and taking third party CO2? I mean, you are in the business of selling CO2, maybe you’d be in the business of taking it off other people’s hands.

Simon Moore:

Well, that’s a great question Marc. What we’ve announced so far is we’re going to sequester the CO2 off of this project. As you’re well aware, we have a awful lot of hydrogen plants on the US Gulf Coast, some of which are not too far away from there. We had a conversation earlier about the possibility of retrofitting, certainly that’s something that we’ve got an eye on. But I would say our primary focus is our CO2, either our existing CO2 or new projects. Let me talk about the Portos Project. Again, there’s four or five of us are going to get together and create some synergies, reduce the average cost of the capital by doing this together. So I think when it makes sense for two streams to be combined, we’re certainly open to that. But I don’t think we’re looking to, per se, create a business out of carbon capture for other people’s CO2.

Marc Bianchi:

Okay, great. Well, we’ve spent a lot of time talking about your blue hydrogen and your carbon capture. I want to switch over and talk about green hydrogen for a minute. So maybe Simon before I get into my question, just spend a minute explaining Neom to the listeners. What’s involved there, the sizes, the timeline, just kind of a general overview if you could.

Simon Moore:

Great. Well, this is orders of magnitude bigger than anything anybody has done in this space. Ourselves and our partners are going to build a very large facility in Neom in the northwest corner of Saudi Arabia. And as we laugh, Marc, we’re going to start with sun, wind, and seawater. So we are building a solar farm, we are building a wind farm, we are building a desalination plant. That renewable energy will be used to drive the electrolyzer to make the hydrogen from the water. It will also drive the ASU. So we’ll have high hydrogen, and we’ll have nitrogen. And we think that the advantage of doing this project there is because of the very, if you will, high quality sun and wind, we get tremendous leverage on our capital costs. So ultimately we get a very low cost of power there. But now we’ve got hydrogen and nitrogen in the Northwest corner of Saudi Arabia, which is not where we need it.

                So we got to move that hydrogen economically to the right place in the world. As I said, we’ve got a lot of experience doing this. So in this case, we’re going to turn that hydrogen and nitrogen into ammonia and then be able to utilize the existing infrastructure to move ammonia around the world. And then take that to a port and take it to a space where it’s going to be used, disassociate that ammonia back to hydrogen. And we see tremendous market opportunities in the heavy transportation market, trucks, buses, potentially trains. So the total project, there’s three partners doing the production side, Air Products is just doing the downstream side. As we communicated, that’s about $7 billion of investment which will have about 650 tons a day of truly zero carbon hydrogen on stream and available in 2026. And I probably don’t need to tell you or anybody listening thing today the amount of interest in that zero carbon hydrogen is just tremendous. We see a lot of announcements every day from cities or communities or government putting in place programs to support the transition to the zero carbon hydrogen.

Marc Bianchi:

That’s a great overview. And it’s funny too, I’ll just mention, we see other announcements about green hydrogen project and they’re in the tens of tons per day. So this is quite a bit larger on a scale that APD is pursuing. So you constantly get questions about the cost structure and the off-takes and everything that would go along with this project. And you understandably don’t discuss that because those are very important strategic things that you don’t want to share. But the thing that sticks out to me about this project outside of those obvious questions are that it’s very different from everything else that we’ve seen you do or at least the way I think about it. Particularly, if I look at the blue hydrogen projects that we were talking about in North America, they’re employing technology that you have a lot of reference for with gasification, carbon capture, you’ve already done. They’re located on pipelines that you already serve existing customers for, whereas Neom is a totally different animal.

                It’s a new technology, it’s in a different part of the world where the customers don’t exist. You talked about the complexity of the downstream side of it with ammonia. What were some of the initial concerns that the company needed to overcome when deciding to move forward with this? What was the diligence process like? And then with that, I know this is a long question, but what might be problematic for new entrants here because there’s a lot of these gigawatt plus export projects that are on the drawing board?

Simon Moore:

Marc, I couldn’t have said it better than you did, there’s a lot of things on the drawing board. There’s a lot of things that have been referenced in press releases as we all know, but let’s talk about this. One of the most exciting things about this project for us, it’s innovative in the sense of bringing these things together and using ammonia as a transport mechanism and the magnitude in size. But when you start to look at each of the different technologies, these are not brand new technologies, we’re not testing technologies there. So let’s talk about that. A solar field, a wind farm, we have got a partner in this project Aquapower who is a major Middle East power project developer. By the way, they’re our partner in a number of other projects. So we know them well. They bring that expertise in our projects.

                Now it’s being done as a joint venture, but I think that’s a great example. Electrolyzer technology critical to these projects, but you don’t have to make your own technology. We’ve got a relationship with ThyssenKrupp who is going to supply the electrolyzers, the pieces of kit to this facility. And obviously, although this is a little bit of a new application for electrolyzers, the electrolyzer technology has been around for a very, very long time. We know a little bit about an ASU, and then we come to making ammonia. Again, we’re using Haldor Topsoe’s technology which is very, very well used in the ammonia space. And then again, back to transporting ammonia, that’s as you well know, every day around the world, ships are transporting ammonia. And then if I go to the cracking of the ammonia, that’s a technology that exists today that has been practiced, I think can be optimized.

                And then the final step is boarding the hydrogen into the vehicles, and that’s where we do have expertise. We have dispensing stations, we actually have patents on the nozzle for how to put that into the vehicle. So when we look at the whole project, it’s innovative in the sense of its size, its scale, its scope using ammonia. But what’s great is we don’t have a $7 billion test project here, we have a $7 billion real project with proven technology that’s going to bring something to market in 2026 that I think there’s going to be very significant demand for. So that’s what we’re excited about.

Marc Bianchi:

Great, that’s a great overview. I know you don’t like to talk about potential project announcements so much, and I’m not going to ask that. But just to give people a flavor, we’ve talked about blue hydrogen, we’ve talked about carbon capture, we’ve talked about green hydrogen. Is there one of those that you would put as the most pressing where the most opportunity is over the next few years or how do you think about all the stuff we’ve talked about here in our discussion, maybe how that plays out over the next several years.

Simon Moore:

Great question Marc. There’s not going to be exactly the same answer in multiple different situations in our opinion. So what is it about? It’s about having a portfolio of technologies, some we own, some we’ve got formal relationships with. It’s about having a set of experiences and experience executing these projects and being able to bring the, to be blunt, bring the bits and pieces together in the most efficient configuration for that project. So a few years ago, we used to kind of talk about our growth platforms as being gasification, carbon capture, and hydrogen for mobility. Well, the only problem with that approach is Canada and Louisiana actually are all three of those.

                So there’s not really a distinction. We’re talking about gasification in a new application because we also want to do carbon capture. Part of the hydrogen output is going to get driven by hydrogen for mobility, but the hydrogen that’s going to go in the pipeline networks is really driven by our customer’s appetite for lower carbon hydrogen for their own operations. So I really think that you’ll see a lot of different project opportunities. I am excited about all of the projects that we’re working on that we haven’t announced yet. I am sure there’ll be other blue hydrogen projects, I am sure there’ll be other green hydrogen projects. None of them will be exactly the same as each other, and that’s one of the big benefits of having a broad set of experiences.

Marc Bianchi:

Yep, yep. Well, this has been great Simon, I’ve got one more question, and this is something that we’re asking everybody is to make a prediction. So this is really a long term thing, three to five years or more. And we’re not going to hold you accountable, it’s really just about providing something that’s thought provoking and might be off the radar for investors. So with that, what’s your prediction?

Simon Moore:

Well, Marc it’s 2027 and the world is on its energy transition journey and the world needs hydrogen for that energy transition journey. And the world wants and needs low carbon hydrogen, and they need a lot of it. Buses and trucks and trains and airplanes are using hydrogen. There’s a lot of industrial processes that use hydrogen. And Air Products will have three major projects on stream at that time supporting the customer demand. I think the demand will be significantly greater than the supply, and people will look back to 2020 when Air Products announce the Neom project and say, well, that was obvious.

                Quite frankly, it’s like Tesla right now. Well, it’s obvious that they should make an electric vehicle, look how successful it’s going to be. But it wasn’t as obvious for a long time. And I think right now people are excited about this, but there’s a little bit of a sense of let’s wait and see. And I think five years from now the world’s going to look back at the innovation, the first mover advantage Air Products created and say, well, that was obvious. But we’re going to have created that first mover advantage that we’ll be leveraging for decades to come. So that’s my prediction.

Marc Bianchi:

That’s a great place to leave it. Thanks so much Simon, we really appreciate you coming on and look forward to catching up soon,

Simon Moore:

Marc, thanks to you and the rest of the Cowen team, and happy to come back and chat anytime you’d like.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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