Green Dreams, Red Flags: Air Products' Hydrogen Gamble
Saudi Arabia, Monday, 21 October 2024.
Air Products faces investor backlash over risky green hydrogen investments. With $11 billion committed and few customer agreements, the company’s ESG-driven strategy raises eyebrows. As costs soar and timelines slip, this controversy highlights the tightrope walk between environmental aspirations and financial prudence in the energy transition.
The Cost of Green Ambitions
Imagine investing billions into a vision for a cleaner future, only to find yourself at odds with those supporting your dream. That’s where Air Products finds itself today. CEO Seifi Ghasemi, at the helm since 2014, faces mounting pressure as the company navigates a $11 billion commitment in green hydrogen projects. These investments are not only hefty but also come with the challenge of securing customer offtake agreements, with a significant portion still up in the air. Ghasemi proposed shipping green hydrogen from Saudi Arabia to California during the March 2023 CERAWeek conference, aiming to leverage U.S. incentives. Yet, with only 35% of the NOEM project’s capacity secured through TotalEnergies, the lack of firm commitments raises concerns[1].
Investor Concerns
Major investors like D.E. Shaw & Co. and Mantle Ridge, LP, aren’t shy about expressing their worries. They’ve highlighted the increased risks associated with Air Products’ clean hydrogen strategy, pointing to delays and rising costs. The NOEM Project in Saudi Arabia, for instance, has seen its costs balloon from an initial $5 billion to $8.5 billion, pushing completion to the end of 2026[1]. Such financial hurdles have led to a perception shift, with Air Products trading at a discount compared to peers like Air Liquide and Linde, whose clean energy projects make up only about 1% of their market cap, unlike Air Products’ 20%[2].
Balancing Act
The scenario begs the question: can Air Products balance its ambitious ESG goals with shareholder expectations for returns? It’s a classic case of walking a fine line between doing good for the environment and ensuring financial viability. As the energy transition unfolds, companies like Air Products must navigate investor skepticism, heightened by the absence of a clear succession plan for its 80-year-old CEO[1]. The stakes are high, and the outcomes are uncertain, with any missteps potentially leading to significant financial repercussions.
A Future in Flux
As I see it, Air Products’ journey reflects the broader uncertainties facing the energy sector today. With the world watching, the company’s next moves could set a precedent for how industrial giants tackle the green transition. Will they manage to pull off a successful pivot, or will they become a cautionary tale of ESG ambitions gone awry? Only time will tell, but one thing is clear: the road to a sustainable future is paved with both opportunity and risk.