Our Future’s Fuel – Hydrogen

This UN report tells us that nature is declining globally at rates unprecedented in human history – and the rate of species extinctions is accelerating, with grave impacts on people around the world now likely. Energy is both the cause and the potential cure. Some improvements have been made with solar and wind technology and with natural gas replacing oil and coal in some applications. The future will see new solar and hydrogen technologies as the main suppliers of our future energy provided it comes fast enough for us to have a future. New solar power may come from work being done at the University of Pennsylvania to mimic the actions of iridocytes but that may yet be years away from practical use, whereas…

Hydrogen is here today

I will touch on one way to invest in hydrogen – via Air Products and Chemicals (NYSE:APD) – then will highlight a few of the developments worldwide that are happening today to show that the momentum towards hydrogen use has become unstoppable. We read very little about hydrogen on SA so I am endeavouring to plug that gap with a series of articles that include my interim favourite gas; natgas.

By 2050, hydrogen could provide 18%–20% of the world’s energy consumption. This is possible because the gas can be used in a wide variety of applications, all without any CO2 emissions.

That is crucial if life as we know, and want it, is to survive. The fires raging in California are but one of many warning signals around the world. A few months ago much of Australia was burning, the ice caps are shrinking in the polar regions and glaciers are retreating in my home country Switzerland and elsewhere. My severe weather scientist daughter did a NASA funded study of that retreat in the Andes.

Although many forms of life are now extinct or near extinct, others are returning. My garden has become a sanctuary for a rapidly growing number of lizards – part of a reptile species that was once extinct. Will we soon see a return of the dinosaurs and the demise of mankind?!

Source: pixabay.

First…the Truth

Arthur Schopenhauer told us: “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident”. There are political leaders in parts of the world who are either in denial about global warming and/or allowing things like new coal mines to be developed while paying lip service to reducing carbon omissions!

That also ensures today’s view of truth about hydrogen pricing only calculates the direct cost of producing it and not the whole cost that includes the massive burden on healthcare systems caused by breathing toxic air.

We – the people – cannot wait for them to get to stage three!

We have a choice and must make it now. Investing in companies like APD will help…

Air Products and Chemicals

APD is a giant in gases with its main direction now being towards hydrogen production and distribution facilities worldwide. Readers and potential investors wishing to know more about its finances and related matters can find adequate information on the company website.

This is a summary of key points at the end of its last fiscal year:

Gross margin 34.44%
Net profit margin 22.33%
Operating margin 25.86%

Return on assets 8.89%
Return on equity 16.64%
Return on investment 10.14%

That shows how safe the company and its 1.84% dividend is. The safest dividend is the one that is growing and APD’s does that year after year. In the past year, both dividends per share and earnings per share excluding extraordinary items growth increased 10.24% and 2.89%, respectively. The positive trend in dividend payments is noteworthy since very few companies in the Chemical Manufacturing industry pay a dividend. Additionally when measured on a five year annualised basis, both dividend per share and earnings per share growth ranked in-line with the industry average relative to its peers.

Div yield(5 year avg) 2.32%
Div growth rate (5 year) 8.84%
Payout ratio ((TTM)) 57.56%

Debt is in good shape too:

Total debt/total equity 0.7031
Total debt/total capital 0.4054

The stock price has done well over the long term. Ten years ago it was $79.20 and, as I write, it is $296.00, an increase of 274% to which the dividend can be added. If only…all my investment choices had done so well!!!

I see no reason why that should not continue as its future opportunities are enormous.

Current ones include this massive project in Saudi Arabia mentioned on the company website…

A joint-venture project will enable production of carbon-free hydrogen for buses and trucks around the world. Quote…World’s Largest Carbon-free Hydrogen Project “We are proud to help make the dream of carbon-free energy a reality. Air Products, together with ACWA Power and NEOM, has signed an agreement for a $5 billion world-scale carbon-free hydrogen-based ammonia production facility powered by renewable energy. Sited in NEOM, a new model for sustainable living located in the Kingdom of Saudi Arabia, the project will supply 650 tons per day of carbon-free hydrogen for transportation globally and save the world three million tons per year of CO₂.

The joint venture project, scheduled to be onstream in 2025, is based on proven, world-class technology and will include the innovative integration of over four gigawatts of renewable power from solar, wind and storage; production of 650 tons per day of hydrogen by electrolysis using Thyssenkrupp technology through our exclusive strategic cooperation agreement; production of nitrogen by air separation using Air Products technology; and production of 1.2 million tons per year of carbon-free ammonia using Haldor Topsoe technology through our global alliance agreement”.

In the US it is building the world’s longest hydrogen pipeline, announced thus; Air Products says it was awarded $500M in combined new contracts – its largest-ever investment in a U.S. project – to supply the proposed $1B Gulf Coast Ammonia project in Texas. The contracts include construction of a 700-mile hydrogen pipeline from Texas City to Baytown, connecting to the world’s largest hydrogen pipeline system, running from the Houston Ship Channel to New Orleans. APD says it also will build and operate its largest-ever steam methane reformer to produce hydrogen, an air separation unit to supply nitrogen, and a steam turbine generator for the power and utilities.

I shall add more opportunities later but first a bit more about

Hydrogen

Born in the stars, hydrogen is one of the major components of our planet. The advantage of this abundant, colourless, odourless and non-corrosive element is that it contains three times more energy per kilogram than petrol. Because its atoms are so simple – made up of just one proton and one electron – it is the lightest chemical element. Hydrogen does not occur naturally on its own except in some rare instances. It is always bonded with other molecules, most commonly to form water, and water covers 70% of the Earth’s surface.

THE DIFFERENT SOURCES OF HYDROGEN:

There are several techniques to produce hydrogen, but not all of them are clean.

BLACK HYDROGEN is produced using coal or lignite through a process called gasification. This method creates the most pollution, but fortunately it is no longer very common. The hydrogen produced costs between $1 and $2 per kilo.

GREY HYDROGEN is produced from natural gas via a chemical reaction called steam methane reformation. This method is the most widely used today because it is inexpensive ($1 to $3 per kilo), but it produces a lot of CO2.

BLUE HYDROGEN is produced via natural gas reformation in a similar way to grey hydrogen, but the CO2 produced is captured by filters, and then either reused or stored and not released back into the atmosphere. Blue hydrogen costs between $1.50 and $3 per kilo.

GREEN HYDROGEN – the cleanest – is produced by water electrolysis, i.e. splitting water molecules (H2O) into hydrogen gas (H2) and oxygen (NYSE:O) using an electric current supplied by renewable energy (solar, wind, hydroelectric dam). This method has the advantage of not releasing any greenhouse gases, but it is expensive ($3 to $7.50 per kilo).

Expensive?

So was solar and wind but now neither is!

Thierry Lepercq, author of the book Hydrogène, le nouveau pétrole [Hydrogen: the new oil],

said this recently; “In five years, we’re expecting a price of $1 per kilo. Some manufacturers are announcing a price of $1.50 starting in late 2020.” There are two reasons for this price drop. First, in order to produce green hydrogen, you need access to completely clean electricity from renewable and cheap sources. From 2009 to 2019, the cost of electricity produced in solar power plants decreased ninefold to reach $40 per megawatt-hour, and wind energy dropped from $135 to $41 per megawatt-hour, according to a study by Lazard Bank published in late 2019. “And prices will continue to fall in coming years, reaching $10 per megawatt- hour in 2025 with solar, which will automatically reduce the price of green hydrogen,” predicts Lepercq. The second reason is electrolysers – the machines that can transform water into hydrogen using electricity. “In recent years, the sector has gone from small pilot units – demonstrators with less than one megawatt of power – to industrial- scale projects that can reach 10, 20, and even several hundred megawatts,” says Xavier Regnard, an analyst at investment bank Bryan Garnier & Co. “This change in scale will lead to an industrialisation of the industry and a drop in prices.”

The IEA has this report on hydrogen

I covered more of its history in Linde/Praxair – a new energy major

Hydrogen has been a common feature of modern industrial innovation since the Swiss inventor Isaac de Rivaz harnessed its power in the first hydrogen engine in 1806. Space exploration would, of course, have been impossible without it. We find hydrogen in many industries – metallurgy, chemistry, petrochemistry, and pharmacy – but until recently it was not used for transport. Mechanical engineering has traditionally steered away from the hydrogen engine. It resurfaced periodically, each time presenting itself as a reinvention of a great idea, but the verdict was always the same: too expensive!

Everything changed with the advent of renewable energy. Renewable sources are capable of producing unlimited amounts of electricity, but not always when we want it. And that’s where hydrogen comes in. The major issue with electricity is that it must be used when it is produced. If it is not used immediately, the electricity generated by a wind turbine or solar cell is simply lost (this is known as “unavoidable energy”). Because this electricity would otherwise be lost, cost-effectiveness becomes irrelevant and water electrolysis makes sense. And because it is easy to store, hydrogen provides us with a way of storing electricity in gas or liquid form, simply by compressing or cooling it. That storage means less reliance on fossil fuels as back-up. The hydrogen can be converted back into electricity as and when it is required by powering a turbine or fuel cell. These are mature, familiar technologies that give us another way of meeting the challenge of climate change while cutting our oil and coal environmental cost bill.

So, when will we be ready to replace fossil fuels with hydrogen? We’re actually ready now! The prototype and experimentation stages are well behind us. Hydrogen proves every day that it is a great solution for transportation and storing electricity. It is now time to scale these solutions up, to industrialize them, to create the markets that will establish a hydrogen-based green economy, and spread the word to the general public. People will then begin to understand that hydrogen solutions are more than just responses to a tech- nological and environmental problem. They are the signs and symbols of a society that is moving towards more resilient lifestyles. We’re not just changing the fuel we use; we’re changing our way of life – people power. The air is looking purer and, suddenly, the future of humanity can be so much clearer.

Scaling up

Much is happening:

– I do not put much faith in political promises but some might eventuate including the potential US president’s $1.7 trillion clean air plans if Mr Biden gets elected

– The EU is further advanced with detailed hydrogen strategy promises that mentions specifics such as; “EU industry is rising to the challenge and has developed an ambitious plan to reach 2×40 GW of electrolysers by 2030.

– The U.K. government is looking to get a leg up on its European rivals with a flurry of new funding for hydrogen projects

I put more faith in what we – the people – are actually doing and that is very real, including;

– 2019 saw the global hydrogen fuel sector add more than 1 GW of new capacity for the first time

– The world’s largest green-hydrogen production facility has commenced operations in Austria

– The world’s first commercial-scale green-hydrogen plant to be powered solely by surplus offshore wind energy has been announced by a trio of Belgian companies

– Hyundai and Toyota are racing ahead with hydrogen powered cars. My view of the future sees those outselling EVs that have too many limitations including range, charging time and no provision for battery recycling

– Farmers might soon have tractors partly fuelled by hydrogen

– A 10MW hydrogen production plant powered from renewable energy has just opened in Fukushima Prefecture, Japan, thought to be the world’s largest to date.

– Swiss giant, ABB, is working on hydrogen powered large ships

– The city of Carmel, Indiana (pop: 93,510) is injecting hydrogen into gasoline for its fleet of vehicles. It’s a small part of a wave of new hydrogen technologies for heating, energy, and transportation aimed at supplementing or replacing fossil fuels there.

– In Florida NextEra Energy is closing its last coal-fired power unit and investing in its first green hydrogen facility

– Paccar, among others, is developing hydrogen powered trucks

– German company Worcester Bosch is developing hydrogen household heating boilers

– The world’s first hydrogen powered trains – made by Alstom – have been running in Germany since 2016.

– Swiss company Stadler is bringing them to the US via a manufacturing plant near Salt Lake City where it will make the first hydrogen-powered trains in America.

Photo: Stadler Rail US

– Airbus will one day fly us around the globe on hydrogen, ridding us of the current filthy fuel burners

In Short.. all those pieces – and many more – scale up to a very big picture for hydrogen. Platts tells us much in their webinar and Wood Mackenzie summarised things with this;

Cumulative installed capacity vs. 2020-2025 project pipeline (MW)

From 2000 to the end of 2019, a total of 252 megawatts (MW) of green hydrogen projects have been deployed. By 2025, an additional 3,205 MW of electrolysers dedicated to green hydrogen production will be deployed globally – a 1,272% increase.

Our Future’s Fuel – Hydrogen

Several companies are building hydrogen refuelling stations for vehicles in the US and elsewhere. In many cases existing natgas pipelines can be used one day to transport hydrogen instead. One of my favourite companies, Chart Industries (NASDAQ:GTLS) makes everything needed to transport and store hydrogen.

There are many companies – too numerous to cover in one article – worthy of investing in. Readers might share their ideas on those in the comments as we all learn more from that.

My favourites are APD as featured today. Linde (OTC:LIN) that I covered in my article titled Linde/Praxair – a New Energy Major and Air Liquide (OTCPK:AIQUY) that I shall write about another day.

Active Investing

Give this a new meaning! Let’s actively invest in companies that ensure we have a future and actively lobby our local political leaders to get hydrogen refuelling stations installed locally. Linde, Air Liquide and others are already installing them in parts of the US and Europe. I shall do my bit to get them into my part of Switzerland.

We have a stark choice. The future will see these:

Or these:

If we make the right choice today our investment gain will enable us one day to enjoy a glass of champagne together on that plane!

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Disclosure: I am/we are long APD, LIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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