Peter Clark: Again, it’s going back to the OCI a little bit. I mean, obviously, that plays to your strengths. You can see that with the infrastructure, the pipelines and everything. Obviously, there’s a lot of talk now coming out of Europe, though with a response to the IRA. And I see your footprint there. It’s not quite the same as the Gulf Coast. You don’t have the hydrogen pipelines, the same expense and stuff. Just wondering how you see your advantages there, if there is a real risk.
Sanjiv Lamba: So Peter, I’m going to give you the example of Germany and Leuna where we have exactly the — that we have here in the U.S. Gulf Coast. Peter, can you hear us?
Peter Clark: Well, I think — yes. I’m saying in Europe, you don’t have the same pipeline infrastructure that you have on the Gulf Coast. So…
Sanjiv Lamba: We do. And I was going to give you an example of Germany and Leuna where we have exactly the same structure, multiple customers, pipeline network, serving refineries and chemical companies in that industrial network. So, that’s an example of where we have incumbent strength. In fact, we are building our electrolyzers there to provide some green into that very pipeline network. So, that’s one example where we do have the ability to expand and use that incumbent position that we have as a leverage to win more into that industrial activity and the part that we operate in Leuna in Germany. So, that’s an example in Europe. What I’d say also to you is I think the nature of the projects in Europe is going to tend to be quite different, where there will be a complex producing product and then putting it into a pipeline network.
Our ability, therefore, to participate in these islanded developments remains very strong. And I can also tell you that of the number of projects that I referenced previously in response to David’s question, I see a number of those currently being developed in Europe as well.
Peter Clark: Got it. Can I add — just sneak one in on trading? Just on Europe, obviously, the margin shot up. You had the volumes down. A lot of that was the on-site business. So I presume that helped you with the margin. But effectively, how you see the price/cost argument in terms of pushing the selling price through against the energy cost situation now? Because I presume most of it is through and you caught that up. So just how you see that progressing in ’23? Thank you.
Sanjiv Lamba: So Peter, the way I think about energy costs and their implications for our business is twofold, right? In terms of power cost and natural gas costs, anything that happens in terms of it going up or down gets accounted for in our contractual cost pass-through mechanism. So, if that moves up and down, yes, you will see some shifts happen as a result of that. For the rest, the way we recover inflationary impact and the way we manage our business is pricing. And as you know, we’ve got a 30-year track record now of positive pricing. And I see no difference — nothing different to suggest that there’d be any different as we move forward. If fuel costs go up, we manage that through a pricing mechanism. That’s the cost inflation piece.
If other costs go up, we manage that through a pricing mechanism as well. One of the things that we do is we manage that through product pricing and not only surcharging. And therefore, the stability of that pricing longer term is quite sound. And we feel pretty good about where it stands and how we’ll be able to cope with that as we move forward.
Matt White: And Peter, this is Matt. I would just add to Sanjiv’s point. I mean, I think a good indication to see these changes you’re looking for are the sequential trends. So, when you look at EMEA sequential trends in this most recent quarter, you can see that, to Sanjiv’s point, pass-through is negative 6%. That is the energy pricing, that is the natural gas pricing coming down, yet pricing was up 4%. So, we’re still seeing stability in the pricing levels. But of course, we are seeing large reductions in the pass-through as that energy comes in.
Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy: Sanjiv, would you comment on your expectations for China as they emerge from the Lunar New Year holiday? What are you baking in there in terms of baseline demand trajectory for ’23? And then, I’d welcome any thoughts on non-China, Asia as well, taking into account your ExxonMobil project start-up in Singapore.
Sanjiv Lamba: Sure. So Kevin, just talking about the APAC business overall, and I’ll just walk you through APAC more broadly. That would give you the color that you’re looking for. Again, we had solid pricing, as you saw. We had record operating margins. They are up at 26.5%. I’ve said to you folks before that there’s a target on the back of the Americas business, and APAC and EMEA are moving in that direction to try and bridge that gap. Sales were pretty strong in electronics, in particular, across APAC followed by chemicals energy and then a bit of manufacturing. It is a story of two halves, if you will. Ex China, again, electronics, very strong chemicals, engineering, energy and manufacturing also extremely strong, some seasonal impact of LPG business in South Pacific that you would normally expect.
We see that level stable, and I’m seeing that in January, the same momentum carrying through. In China itself, in the last quarter, we saw steel automotive being reasonably weak. The Chinese New Year, obviously, in January kind of impedes our ability to really see how that recovery is going to come through given the reopening that’s been touted now. I think the next couple of weeks, I’m watching carefully to see how that trend shapes up, and that’s really going to determine what that long-term view on China is going to be. I said last year that I expect moderated growth out of China, and that’s kind of what we’ve considered in our guidance.
Operator: Our next question comes from John Roberts with Credit Suisse.
John Roberts: Is Linde interested in the disassociation of ammonia back to hydrogen and nitrogen? And I don’t know if any of the OCI ammonia is targeted for export for local disassociation, but I’m more interested in general. Since there are a number of blue ammonia projects underway by companies who don’t sell hydrogen and nitrogen and I guess, there could be some extra cargoes that will be available eventually in that market.
Sanjiv Lamba: John, I’ll answer that in two parts. Let’s talk about technology, and then I’ll talk a little bit about the commercial side of things. As far as technology is concerned, Linde has some really good technology around backtracking, which is cracking that ammonia back to get — disassociate and get hydrogen back. And we are, in fact, running pilots as we speak on some new catalysts and some new developments over there to make that a lot more efficient as a process. We’re running with one of the largest oil and gas companies in the world kind of doing that — those trials. So, I feel very good about the technology we have. I feel very good about that particular project that we’re running through, and you’ll hear more on that in the weeks ahead.
As far as the commercials are concerned, I really struggle with this. The reality is for us to make ammonia blue or green, we put a lot of energy into that process. We get the ammonia molecule. We’ll then move that molecule from point A to point B in a large ship. We will then take it to a storage at the other end, and we will back-crack it. The amount of energy loss that you see in that entire process makes the economics not viable in my mind. I don’t see — so for me, direct ammonia usage, either on the fertilizer front or direct as a fuel injection or fuel blending, makes a lot more sense in the near term. As technology changes and improves and as the energy balancing work that we are doing, in fact, in our pilot continues to improve, then it becomes a little more viable longer term.
Operator: Our next question comes from Steve Byrne with Bank of America.
