Linde Sees Opportunity as E&Ps Enter Hydrogen Game

As the number of hydrogen players expands due to big oil companies entering the game, Linde Plc sees opportunity—not threat—for demand of the multinational company's services and assets.

“It’s a bread and butter part of our business. We know it well. We manage those processes well,” Linde CEO Sanjiv Lamba said July 27 of hydrogen production. “In a large refinery or a chemical complex, those assets sit by themselves and really do not get optimized. So, there is a value that gets unlocked by bringing a very competent operator like Linde into the mix.”

Speaking during Linde’s second-quarter 2023 earnings call, the chemicals company fielded questions from analysts seeking insight on how the U.S. Inflation Reduction Act (IRA) could impact Linde’s businesses and more details on $50 billion worth of global investment opportunities over the next decade.

Global demand for hydrogen, which has near-zero greenhouse gas emissions, is forecast to surpass 150 million tonnes (MMtonne) by 2030, up from 95 MMtonne in 2022, according to the International Energy Agency. About 30% of the demand is expected to come from new applications, including the shipping sector. Linde is eyeing growth in the hydrogen fuel market among other areas. “Even a small slice of the pie makes it very interesting from a Linde perspective,” he said.

Positioned for growth

Boasting 200 hydrogen fueling stations, more than 1,000 km of hydrogen pipeline and its transport and production facilities, “Linde has the ability to scale that up and provide hydrogen to refiners in addition to ensuring that surplus hydrogen is put into that pipeline network, providing a significant advantage and obviously getting us economic return,” Lamba said.

Along the U.S. Gulf Coast, for example, multiple assets are already hooked onto the network, reducing operational risks that may come with a single large site or plant. He agreed that the IRA is making hydrogen financially attractive to traditional oil companies and hydrogen producers alike.

‘’But in many of those cases, people might own assets and often they need to either incorporate that into our network and/or operate and manage it as well,” Lamba said. “Again, providing greater opportunity for us. You put that together, I think that’s essentially what the hydrogen of the future is going to look like from a U.S. Gulf Coast perspective, replicated in many other parts of the world.”

Signed into law in 2022, the IRA includes nearly $370 billion in incentives for clean energy and climate-related spending. Hydrogen incentives in the IRA include a 10-year production tax credit with a maximum value of $3/kg for hydrogen produced with nearly no emissions.

The law also provides incentives for carbon sequestration, which is used for blue hydrogen. Provisions include a tax credit of $85/ton for sequestering CO₂ produced by industrial activity, up from $50/ton. It also adds a tax credit of $180/ton for direct air capture.

Quarterly results

While the forecast looks bright, Linde saw its second-quarter sales dip by 3% to about $8.2 billion compared to a year earlier. The drop was attributed to base volume declines due to some temporary outages on the U.S. Gulf Coast and a decline in Europe.

In a Reuters article, Baader Helvea bank analyst Markus Mayer pointed out the cyclical nature of the segment.

"Late cyclicality of the industrial gas business has started to be felt and should accelerate over the coming quarters,” Mayer wrote in a note, adding this confirmed the bank’s cautious view on the stock.

“Despite the lower year-over-year volumes, operating profit of $2.3 billion increased 15% and resulted in an operating margin of 27.9%,” CFO Matt White said. “We anticipate sequential volume growth into Q3.”

Reported second-quarter 2023 net income was about $1.8 billion.

Linde managed inflation by contractually passing through energy costs.

“On top of this, we continuously optimize costs through robust productivity initiatives. Ultimately, it’s the spread between price and cost, which adds compound value. Add to that a backlog that fuels growth,” Lamba said.

More to come

In the past 12 months, the company started 22 projects valued at $2.1 billion, while winning 38 new projects valued at nearly $3 billion. “Looking ahead, investors can rest assured we will win projects that add value commensurate with risk,” Lamba said. “With this in mind, we continue to make good progress on the $50 billion of clean energy opportunities, of which I expect $9 [billion] to $10 billion to be decided in the next few years.”

Linde’s order backlog ended the quarter at $7.8 billion as green energy investment rose.

The company sees $30 billion in potential investment over the next decade for the U.S., which accounts for about 60% of Linde’s decarbonization plans.

Projects could also be on the horizon in the Europe/Middle East and Asia-Pacific regions. Areas include mobility such as hydrogen refueling stations (10%), industrial applications such as blue and green hydrogen projects (60%); and hydrogen as an energy carrier, which Lamba said may involve green ammonia and methanol.

Linde is currently working with SLB on a carbon capture and sequestration (CCS) in Saudi Arabia. FEED is underway with a final investment decision expected in early 2024.

“We’re looking at a very large scope of carbon capture. In fact, the first phase we’re currently working on is 11 million tonnes of CO₂ a year,” Lamba said, noting the three-phase CCS project could become the world’s largest, “adding up to 54 million tonnes per annum of CO₂ being sequestered.”