Air Products, a global leader in industrial gases and process technologies, has made significant strides in shifting towards clean hydrogen energy.
In recent years, Air Products has pivoted towards hydrogen energy, investing $15 billion in hydrogen production projects worldwide. This shift is consistent with the global push for decarbonization, as hydrogen is considered a crucial clean fuel for sectors that are difficult to electrify. However, the rapid transition to hydrogen, now accounting for more than 70% of Air Products’ backlog, introduces considerable volatility and risk.
Air Products’ commitment to hydrogen is evident in its ambitious projects in the US, Canada, and Saudi Arabia. The company’s partnership with NEOM Green Hydrogen Company to build the world’s largest green hydrogen production facility in Saudi Arabia exemplifies its leading role. This $8.4 billion project highlights Air Products’ technological expertise and strategic vision for driving the energy transition.
Additionally, Air Products is expanding its hydrogen refueling infrastructure, with notable developments in California and China. In California, the company is establishing a network of hydrogen refueling stations to support light and heavy-duty vehicles, aligning with the state’s zero-emission targets. In China, a joint venture with Chengzhi Shareholding aims to accelerate transport decarbonization through commercial-scale hydrogen refueling stations.
While Air Products’ investments in hydrogen are substantial, the industry is still in its early stages. Competing companies, such as Plug Power and Ballard Power Systems, are also making significant advances in hydrogen technology and fuel cells. Air Products’ focus on large-scale hydrogen production and infrastructure is commendable, but it must navigate technological uncertainties and intense competition.
Air Products’ pivot to hydrogen presents both opportunities and risks. The company’s revenue and operating income are projected to grow by 8-10% annually until 2026, driven by the expanding hydrogen market. However, the transition also involves higher operating expenses and increased debt, with $10 billion in long-term debt.
Valuation multiples have been affected by the company’s strategic shift, reflecting investor concerns about the risks associated with hydrogen. While Air Products’ valuation multiple is expected to improve as the hydrogen economy matures, the company faces higher discount rates due to the uncertainties surrounding hydrogen adoption and technological advancements.
