We note the Air Liquide announcements of its ESG objectives this week. Industrial gas companies have some of the greatest challenges and some of the greatest opportunities when it comes to clean energy and emission. As the largest producers of hydrogen (from natural gas) they have very large carbon footprints and these are made worse by the power consumption required to run their many air separation units to make oxygen and nitrogen. At the same time, they are the most logical producers of blue hydrogen – using CCS, but most of their existing hydrogen capacity is tied up under long-term contracts with refineries and chemical producers. Making blue hydrogen through capturing the CO2 would only make sense where the primary customer wanted it, or where there was enough slack in the system to free up blue hydrogen to make blue ammonia or to use directly for power generation or transport. Like Linde and Air Products, Air Liquide operates hydrogen grids where there are several consumers in relative proximity – these would seem the most logical places to find meaningful blue hydrogen opportunities and the US Gulf is a more obvious location.
The carbon reduction targets that Air Liquide discusses in the Exhibit below likely cannot be met without some CCS, even if the company is claiming that it can source renewable power for its air separation units. The company is already engaged in a large CCS project in Canada, but we expect much more. The renewable power targets look too high, especially if the company also has green hydrogen ambitions. The industrial gas companies are all talking about green hydrogen, but the only real edge that they have over others in this space is their experience with storage and logistics – the technology to produce green hydrogen has more synergies with chlor-alkali producers than it does industrial gas companies.
Regardless, we see the industrial gas companies as beneficiaries of the move to clean energy as they will muscle their way into hydrogen most likely through a combination of blue and green investments. There is a chance, should carbon values rise enough, that their oxygen businesses benefit from interest in burning natural gas in oxygen rather than air, as it would meaningfully lower the cost of carbon capture (no nitrogen, argon, or other impurities to separate from the CO2).
Source: Air Liquide, March 2021