Seifi Ghasemi: Kevin, Air Products is right now involved in not only trying to deliver short-term results that meet the expectations of our investors and our own goal of 10% per year increase and, at the same time, executing $20 billion of projects. I don’t think this is the time to try to do any kind of a financial engineering and all that because that would be significantly distracting to the management and to our people. We should continue doing what we are doing. And when the investor anxiety has disappeared once we have signed 20-year, 30-year contracts for the 2 big projects that we have underway. And once our hydrogen business, blue and green hydrogen business becomes reality and produces EBITDA and producers returns and all of that, that is at the time that one can talk about those kind of things.
This is not the time. So right now, trying to put any value on the hydrogen business, it all depends on what is the assumption on the price of blue hydrogen and price of green hydrogen. And you talk to people. Some people say green hydrogen is worth $5, some people say it’s $10, blue hydrogen the same thing. And obviously, we have other people, our competitors running around and saying, “Well, there is no demand for these things anyway.” So how would you value a business like that? I would be very concerned about any effort in that direction because of the distraction that it will cause with especially the management and the team. So as they say, there is a time for everything. This is not the time for doing that kind of financial engineering on Air Products.
And by the way I did obviously read your thoughtful memo on this. Appreciate that.
Kevin McCarthy: And I appreciate the feedback regarding timing, hence my reference to future years. But perhaps to follow-up on the logic, if I may. It sounds as though the game plan is to enter into multi-decade long-term contracts and with greater clarity on counterparties and terms, perhaps the pressure on the multiple will be alleviated, as I understand what you’re saying. And so I guess a follow-up would be, what is the timeline that you have in your mind to lift the veil and put forth these sort of agreements to the Street? Is it 6 months or 24 months or some other period of time? How would you think about starting that disclosure process?
Seifi Ghasemi: Well, Kevin, this is a very fluid situation. It can be any time. It depends on — as I said, our criteria is not to run and announce something so that the stock would go up $50. Our criteria is how do we extract the real value that we deserve for these projects for the next 30 years? That is our criteria. And now if somebody steps forward and say, “Gee, I’m going to start paying taxes tomorrow in 2027, in 2028 because of the regulation. And I desperately need this stuff and I want to secure it before somebody else does it and I want to sign a contract 3 months from now.” We’ll do that. If it is 20 months from now, then we’ll do it 20 months from now. These clients are not coming onstream until 2027, 2028. The part that I can confidently tell the investors, believe me, there is demand.
Do not buy into this business that there is no demand. There is demand. The issue is at what point in — and not only there is demand but Air Products is the only company who is going to have real products being made. We have a real green hydrogen project in Saudi Arabia being built. I can show you the picture of the wind turbines installed. Nobody else has that. Therefore, 3 years from now when people need this product, where are they going to get it? Therefore, we having taken the risk and losing a lot of the, as you said, our market value because we have taken the risk, we deserve a better return on these projects than running around and trying to panic about the fact that our multiple is, instead of being a 30x EPS, it is 20x EPS. But the value of the company hasn’t changed.
Our base business is the most profitable with the highest margin business than anybody else. So if anybody’s business is trading at 30x, ours should be trading at that, too. And now people are worried about these big projects. There is demand. Please take a look at the regulations in Europe, regulations at California, take a — regulations that are coming in Japan, Korea. There is demand. So it is obviously a great deal of pressure but I am absolutely willing to stick my neck out and take the heat because I think my job is to create long-term value for shareholders, not try to panic on a short-term basis. Sorry for the long answer to your question.
Operator: We’ll go next to Patrick Cunningham with Citi.
Patrick Cunningham: You cited major turnarounds in Europe and Americas potentially dragging on 3Q. Can you give us a sense of the volume and margin impact and what are those turnarounds there?
Seifi Ghasemi: Dr. Serhan, you want to take that?
Samir Serhan: Can you please repeat the question again, if you don’t mind…
Patrick Cunningham: Yes, on the major turnarounds in Americas and Europe.
Samir Serhan: You’re talking about the third quarter? Yes. I mean, we have 3 major turnarounds basically in the Americas in the third quarter. And that’s why really our maintenance expense for the quarter is pretty significant. And they’re also finishing a major turnaround in Europe, that’s also going to contribute to basically significant increase in our maintenance costs for the third quarter. And these are mainly for like hydrogen plants…
Patrick Cunningham: Got it. And then do you have an update on permitting and preliminary engineering for the North Texas project? And when do you anticipate FID there?
Seifi Ghasemi: I’d like to take that. We have done a significant amount of engineering on the North Texas project. But we are not going to make a commitment on FID on that project until the rules for the implementation of IRA are finalized. There is a significant impact. And as you know, there is significant amount of controversy about how those rules should be interpreted. Currently, the way the rules have been stated, they are fine with us. And if that was final thing, we would commit to FID. But they are not finalized yet and we expect those to be finalized by June, July. But we will wait. We are not going to make FID on that project until those rules of what is the definition of green hydrogen is final on the books and on which basis one can count on the tax credit.
Operator: We’ll go next to Chris Parkinson with Wolfe Research.
Chris Parkinson: Great. Can you just quickly take us for a trip around the world in terms of the merchant operating rates and what you’re seeing? I think those on the Street are hearing a few varying kind of takes on what’s happening with the global economy. So we’d love to hear yours.
Seifi Ghasemi: Thank you very much, Chris. If I may just — in general terms, China has been weak for us in the first half. Right now, there is stock. We haven’t seen any evidence yet. But there is stock and some actions taken that might indicate that China’s economy will improve in the second half. We are waiting to see that and we have not included any improvement on that in our forecast. When it gets to Europe, Europe is no change in the — as compared to the last few quarters. Actually, European economy is growing a little bit better than we expected, as I said before. And the U.S. economy is doing better than we expected. And then Latin America is not material to our business. I hope that covers what you were looking for, Chris.
Chris Parkinson: Sure. And just a quick follow-up, just given all the puts and takes, I’m sure you’ve seen but in various public appearances, a lot of your competitors and peers, whether it’s been Exxon or Shell or Aramco or Total, they’ve had, let’s just characterize it as a very mixed commentary on a lot of the initiatives that you’ve been saying — in terms of your potential offtakers over the next 3, 4, 5 years, do you think their comments during present day affects your positioning in terms of being a potential partner of choice on many of these projects? Or how should we interpret that industry rhetoric versus your own?
Seifi Ghasemi: Chris, the products that we are going to make, the potential users for green hydrogen are steelmaking, refineries, shipping, using green ammonia as fuel for ships to meet the very stringent requirements in Europe and hydrogen for mobility. Those are the 4 areas that will eventually — the offtakers for the product. And we are obviously talking to people in all of those 4 sectors. We don’t have anything to announce. And if we are talking to anybody, we are under NDA, therefore, we cannot announce anything or give any details. But those are the sectors that we will be using green hydrogen. On the blue hydrogen side, the developments, the way I see, it is still using blue hydrogen as a fuel to — using blue hydrogen as a replacement of coal to decarbonize power plants.
Blue hydrogen can also be used — as I mentioned before, I think a significant use will be as fuel for ships. And blue hydrogen will be used in our pipeline for decarbonizing refineries and chemical operations along the Gulf Coast. Those are the sectors that we are talking to.
Operator: We’ll go next to Josh Spector with UBS.
Josh Spector: Just a couple of quick follow-ups. Just to follow up on the turnaround and maintenance side of it, are you able to size the EPS impact that you think — in 3Q since you called that out as a bridging item for second half? And would you characterize this year as a heavier maintenance year versus normal? I mean, obviously, there’s turnarounds going on all the time but we’re maybe not talking about them typically as much as we are today.
Seifi Ghasemi: Serhan, do you want to take that?
Samir Serhan: Yes. Sure, Seifi. I mean, definitely, our hydrogen — our portfolio of hydrogen plant is really getting more and more which basically again, you need to maintain these units like every for 4 years — around 4 years, you have to do a major turnaround. This year, without really mentioning a specific number, it is at a record high especially in the U.S. with our U.S. Gulf Coast, our assets in California, our assets in Canada. Basically, we have a significant amount of expense when it comes to maintaining our facilities. So — and also coincided this year, we also — we have our 4-year turnaround for our major facilities in Rotterdam in Europe. So…
Josh Spector: Okay. All right. And if I could just ask then on Asia with helium specifically, you commented earlier that it stabilized. But I think from the last call you were talking about lowering pricing and regaining margins — or regaining volume, sorry. Has that played out? Has it stabilized lower? Or have you regained any volumes? Where is that?
Seifi Ghasemi: We have lowered prices in order to stabilize the situation.
Operator: We’ll go next to Laurence Alexander with Jefferies.
Laurence Alexander: Just two very quick ones. Just on the pricing — merchant pricing in North America, is there any quirkiness in the end market mix where you’re seeing pricing? Or is this 6% across the board? And then secondly, how much capital do you have invested in gray hydrogen currently?
Seifi Ghasemi: I would like to have Dr. Serhan answer the first question. And the second question, I’m not sure we want to disclose that in detail.
Samir Serhan: I mean, when it comes to the merchant, it’s really across the board. It’s — I mean, it’s nitrogen, oxygen, argon, helium. It’s really across the board that we really have pricing discipline there in this inflationary environment. So — and I just also want to highlight in the Americas, I mean, we’ve mentioned it before in the prepared comments that again on-site — hydrogen on-site has been really doing very well. I mean — and that’s helping the volume for the year. And we continue to see this going for some extended amount of time because of the refining activities.
Operator: We’ll go next to Mike Sison with Wells Fargo.
Mike Sison: Nice quarter. In terms of the fourth quarter, what volume growth do you need to hit the range that you have? I know you gave us a lot of — 3 or 4 different reasons why it’s going to be a lot stronger than the prior quarters. But any thoughts on what type of volume growth you need?
Seifi Ghasemi: We have really not — volume growth, not on the base business. But we will have volume growth based on new plants coming onstream. But most of it — yes, sir.
Mike Sison: Got it. And then just a — yes, sorry. But yes, just a quick follow-up on your NEOM and Louisiana. I know you can’t really or want to tell us what price but what is the return premium that you’re looking for to sign the offtake? Is there a certain way for us to look at it at — from that standpoint?
Seifi Ghasemi: As high as we can get. Because if we have a product that nobody else has, then why should we be satisfied with a specific return? And I, obviously, do not want to disclose that but — any kind of a return. We are — we have a product that is going to come onstream that people are going to need. Nobody makes that product today. So what is the price for that? The price for that is not calculated on the basis that this is my capital, this is the return and therefore, we do that. When you have somebody that people need, you extract the maximum price. We all go to the gas station and pay what we are paying for the gas station. The cost of taking oil out of the ground in the Middle East is $5 a barrel. If you sit down and calculate it based on the return, we should be paying $0.25 a gallon for gas.
