For the second day of the Jefferies Industrials Conference. Laurence Alexander with the Jefferies Chemicals Team. It's my pleasure to introduce Sidd Manjeshwar from Investor Relations at Air Products. And I guess we're just gonna dive right in. So Sid, let's start with the hydrogen strategy. There's been a lot of debate around Air Products, giving the appearance of vertically integrating into methanol, ammonia, jet fuel production. How do you think about those moves at Air Products, and how do you de-risk the initiatives?
Sure, Laurence. First off, you know, it's great to be here, and thanks for this opportunity to you and the Jefferies team, and it's always wonderful to be with our investors, talking about our base business and all the exciting opportunities we see in the clean energy space. You know, I appreciate you starting the dialogue about where we are today and headed strategically. I think the world's future truly depends on low carbon and zero carbon solutions. And we at Air Products think our hydrogen strategy and our hydrogen is key to accelerating the energy transition. Look, today, you know, the various use cases you brought up as well, I think today what people don't fully appreciate is public policy today is de-risking and driving the energy transition forward.
And the specifics are how different countries, regions, states are doing it all different. You've got the U.S. IRA, which is a game changer. Europe has the entire alphabet soup, including the Green Deal Industrial Plan, H2Global. Japan's now putting JPY 15 trillion behind their hydrogen strategy. You've got Canada doing similar things. But I think there's an overwhelming consensus that that's the fundamental direction we're headed in, and if nothing else, we see that only accelerating with the global signposts each day. Now, for us, at Air Products, we are the largest producer of hydrogen today. We produce it, supply it safely over pipelines as a liquid, as a gas, in trucking or trucks. We've got the largest pipeline infrastructure networks today in the U.S. Gulf Coast, in California, a couple in Canada, in Europe as well.
So we're really excited about taking that 60 years of experience we've built, the know-how, the technological expertise, adding some technologies to that, and being able to deploy the right solution for the right situation, and I think that's very critical. And what I mean by that is we—what's key for us is to press our first-mover advantage to not only help our customers along their decarbonization journeys, but continue to meet their demand, and providing a myriad of solutions for specific situations. And, you know, staying on the mantra of the right situation, and the right solution for it. So, you know, you mentioned three use cases, right? If you think of the methanol case, let's use our most recent transaction, the classic DCAP we did in Uzbekistan.
Now, we look for the best risk-adjusted returns when we invest globally, but that's a project where we're acquiring Topsoe's two largest ATRs in the world, where some lessons learned there will come to bear in our Edmonton Project, which is also an ATR. But that's a classic DCAP, where in our base business, where we're providing syngas, hydrogen, nitrogen, oxygen, to their facility, which then takes that and goes downstream and provides, you know, high-end synthetic fuels, methanol, and other use cases. But it's purely to help Uzbekistan for socioeconomic benefits and for their energy security and independence. We've all seen what's happened to Europe in the last 18 months with energy security. So that's a very critical project for the country and for us as well, and it's a great win for us. But that's another example where it's a long-term tolling arrangement.
If you think about ammonia, let's pivot to our Louisiana project. That's another classic example where we were the first company to get 400 million tons of pore space from the Mineral Board of Louisiana, where we own the entire value chain. So the entire 45Q credit accrues to our benefit. We're not paying people fees to pipe it or sequester it. We own the entire value chain, which makes our product a lot more cost-competitive. On the ammonia side, look, we're not in the ammonia business. We have no interest in it in its classic form. Ammonia is purely an efficient carrier for hydrogen globally. Today, we move liquid hydrogen, you know, 1,000 mi from Canada to the U.S., from California, Texas to California.
But when you're moving it overseas, the efficiency of moving it as ammonia tends to be the most efficient way to do that. And now, several other companies are following suit and announcing similar ventures. We've been on this journey for several years, which means anecdotally, you've heard people talk about efficiency losses in the ammonia dissociation to hydrogen of roughly 30%. We're now in a single-digit number there, and we're close to applying for patents on it. So I think that's another example where we're pressing our first-mover advantage. The 45Q de-risks that project over 12 years on an unescalated basis. You know, the 45Q is an escalation mechanism, but on a purely unescalated basis, we get $5.2 billion over 12 years from the U.S. government, which basically, to your point, de-risks the entire project.
That's even before selling a single molecule to a customer.
Mm-hmm.
And then we've got many use cases which are, you know—we've got a pipeline network that's connected to the world's largest pipeline network with dozens of customers. So we've got the option of putting blue hydrogen into a pipe or moving blue ammonia to the Far East, where they're now blending ammonia into coal assets in Chile and Thailand, the Philippines, in Japan... where in that part of the world, coal is part of energy security for power generation needs. And then your jet fuel or the SAF example, that's another example where I think what you're seeing with this whole IRA situation and the IRA solution for it, is in some cases, our classic model is the build, own, and operate model, our sale of gas concept.
In some cases, we buy the feedstock, and we provide an end product that the customer uses, like the de-captive. But in some other cases, like the SAF example, World Energy basically brings the feedstock. We just provide the technology and the asset for the hydrogenation of that, and then the end product, the SAF, the jet fuel, the Max Jet, they can go sell in their market. So again, that's purely a tolling arrangement, again, a multi-decade contract. And if you look at our backlog slide, which is our mega scale projects in our earnings deck, you know, of the 13 projects, I think 11 of them are all long-term contract pipeline deals. And today, in our industrial gas oligopoly, we have the highest percentage of onsites.
Mm-hmm.
I think as these projects come to fruition, that percentage just continues to creep up.
So one question that came up, so I'll just sort of tuck it in here, is Air Products, you know, given that you had a pretty solid quarter, the share price reaction, to what extent do you think that was related to the Nutrien announcement?
Yeah, I think, post the results, we were all scratching our heads around the reaction as well. Look, I think the Air Products team continues to deliver at a remarkably high level. We not only beat our guidance and our consensus, we also increased our guidance for the full year. And if you think about our track record over the last nine years, on our base business alone, we've delivered 11% EPS CAGR, alongside a 10%, dividend growth CAGR as well. Very compelling for our shareholders, and we're very proud of that track record. And that, again, is purely based on our base business before we started on this mega scale project, capital deployment cycle for low-carbon projects, accelerating the energy transition.
Look, Nutrien's a world-class organization, and it's not my place to speculate on their strategic positioning, but at least from all the reports you guys have put out on the sell side, what I've gathered is, they've just hit a few speed bumps. I think they've had a myriad of issues, operational, asset curtailments, phosphate pricing environment, contract repricings in Asia. And as a result, the combination of that has caused them to, I think, guide down $2 billion on their mid-cycle EBITDA guidance. So it seems like it's an organization in capital preservation mode, and if you think of their closest peer is still continuing on their journey of developing their clean ammonia project as well. I think what this demonstrates, and people, you know, you and the investors are way smarter than us.
When you see 600+ thousand plus announcements where companies are leaving their strategic bailiwicks and entering our swim lane, I think what it tells you is the value opportunity here for low-carbon hydrogen globally is incredibly compelling. But when some people hit execution challenges, it tests their conviction of executing these projects. But what it also brings to bear is there is a learning curve here, and people getting up the learning curve, you know, have hard lessons to learn. We've been in this business for 60 years, and you heard Seifi and Dr. Samir Serhan mention, when we build a NEOM, you know, the lessons learned there can be brought to bear on our Texas AES JV that we're doing, which is a mini NEOM as well.
So when we do projects, you know, we extract synergies on our feed, pre-feed, our engineering work that we do, and just on the execution side of things, and there's benefits on the procurement side as well. Hydrogen is something that people take lightly. I mean, there is a... You need to have a solid safety track record to operate that molecule as well. And I think some of the secret sauce with us is, we've got distribution networks globally, which is why today, this space is an oligopoly, right? With three large players. I think the other thing with, on the Nutrien announcement is, people may not fully appreciate is, you know, our Louisiana project, where we can capture in excess of 95% of the CO2.
The CI of our molecule is materially different from what some of these other guys do. So we go to very different markets. We go to power generation, industrial markets, where the subsidy mechanisms are very different from what you get if you just went to a traditional ag or fertilizer market. And, you know, the Louisiana project's a classic example. When you own the entire value chain, including the pore space, the entire $85 a ton, 45Q benefit accrues to Air Products. Whereas for other players, when they play in different parts of the value chain, they're sharing margins with others as well. So the, the cost competitiveness of the product tends to be materially different from what we are able to deliver.
And so sticking with the mega projects, can you speak to the risk of cost overruns? When would we, on the outside, know if a project has had an overrun? Is it only when the project is finished? And how much of that CapEx risk gets transferred to your customers? Will you, will you get a return on the overrun if there is an overrun?
Sure, no, great, terrific question, and incredibly topical today. Look, inflation is something that affects each of us in our daily lives and companies as we execute mega scale projects. It's probably one of the single most things we're entirely focused on as an organization. Thankfully, inflation is trending in the right direction. It's come down quite a bit since what we saw on the tail end of the peak of COVID as well. But I think what I'll bring to some visibility to investors is the way we execute projects as an EPC organization. Two classic examples are, you know, we just brought our Jiutai asset online a couple of months ago, and that was executed in the throes of COVID, where that asset was locked down for 62 days, where literally-...
except for a food truck coming in and out of the site, nothing else could move, right? And then there were other disruptions as a result of COVID. This was executed in Inner Mongolia, in a remote area, and that project was done on time, under budget, right? Which speaks to our capabilities of our world-class EPC organization, led by Dr. Samir Serhan. Now, the other ways we bring some benefits to bear here is, you know, we've got engineering centers, eight-10 procurement engineering centers across the globe, all the way from China to the U.S. So as the sun moves, we've got engineering teams that work 24/7 on these projects. And like my prior example, when we develop assets, there's a lot of synergies we extract on engineering work, et cetera. The other thing is we do all our EPC work on our own.
So feasibility, pre-FEED, FEED, everything is done by us, including execution. So unlike some other companies where you may have, you know, where they're bringing in a Technip or a Fluor or Bechtel, we do everything on our own, so there's less bureaucracy. Things tend to be a little bit more streamlined, efficient, and we're more hands-on, and that has a lot of time and cost benefits that come to bear. Similarly, with our procurement strategies, when we're developing multiple projects, we tend to make sure we extract value there as well. And then, you know, we've got a multitude of commercial frameworks where we back-to-back our risk with our subcontractors through lump sum turnkey arrangements. You know, when we made the NEOM announcement, we'd mentioned all the contracts for procurement were handed out.
Now that's already done. You know, we've de-risked ourselves from that perspective. Then finally, what I'd say is, you know, on certain projects, like a Louisiana project, once we bring price visibility for long-term contracts to investors, whatever the final number on that project tends to be, we'll make sure we earn the right risk-adjusted returns on our projects. You heard Seifi say this multiple times, "We aren't a cost-plus mentality." I think he's always brought this mentality where, what are the markets willing to bear, and we can extract a scarcity premium? That's the right approach for us.
So quite a few projects in the mega project pipeline were negotiated before the subsidies in Canada, Europe, U.S., Europe, and Asia had been finalized. So why shouldn't that pipeline, in aggregate, have returns closer to the mid-teens?
Sure. Look, I think, what, what you've seen with the public policy being announced globally is it's helping everyone, us as producers, as well as our customers, come along the adoption of the energy transition curve, right? Because the whole point is for it, for it to be easier for us to produce the molecules, and some of those benefits will be socialized across the value chain. I think the biggest thing there is the de-risking piece of things, right? My Louisiana example, where, you know, the entire capital for the project or a large portion of it is entirely de-risked through these subsidies, even before selling a molecule, at a premium to the customers that see tremendous value for this. I think that's key.
I think the other thing, what you'll see is, I mean, you know, we always guide our investors the minimum 10% EBIT return for consistency. But, you know, you generally get a lot of questions today as well with central banks that have hiked, at least in the U.S., rates by, what, 550-600 basis points in the last 14-15 months. You know, when we look at project returns, we look at unlevered returns globally. So when you layer on a project, a capital structure on top of that, the returns naturally get enhanced. We tend to be pretty good at, you know, using every tool in our toolkit in terms of tapping capital markets, project financings. You know, even when we did the NEOM project recently, we've gotten, you know, multi-decade pieces of paper at less than 5%, right?
Which is incredibly, you know, compelling in today's interest rate environment. Similarly, when we did the $1.4 billion of green bonds, where we were the first company to come up with a green finance framework for blue and green hydrogen, we were able to extract, again, as a first mover, a negative new issue premium to price those bonds inside our secondaries. Another win for Air Products. But I think, you know, returns-wise, I mean, let's look at our Jazan example. That's our single largest investment that we made as a company in the last several decades. That project is, you know, well north of the 10% that we typically promise investors, right? And again, that's another example of, you know, extracting or delivering the right risk-adjusted returns globally to our shareholders as well.
So, I wanna come back to one of your earlier comments, that your core business has been delivering, you know, sort of 10%-11% earnings CAGR, but you now have this investment cycle. Do you view that the investment cycle basically cannibalizes some of the core business? You know, it distracts attention, distracts capital flows. You're not investing in the industrial gas, the core industrial gas, the merchant capacity, and so on. Or do you see it as additive? To put it another way, if you take your current backlog, which, on your rules of thumb, look like it's gonna add, you know, a couple of dollars to earnings in the near term, $4-$5 in the medium term, shouldn't you be on track to north of $20 of earnings by 2026?
A great question, Laurence, and, you know, I don't wanna get baited into, into guidance, conversations. But what I'd say is, I think you're spot on. Look, we're on a multi-year investment cycle, and to your, initial remarks, over the last nine years under Seifi's leadership, just our base business alone has delivered 11% EPS CAGR. This is even before any of these mega-scale projects were, announced or what have you. So when you layer on the mega-scale projects and our continued investment in our base business and the wins we get there, we can see our returns well north of the 11% we've delivered. You know, you and the investors are way smarter than us, and you can easily do the math, but you're, directionally headed in, in the right, in the right space....
You know, if you think about our business, we continue to extract value through productivity actions, margin expansion initiatives. We announced some productivity actions this past quarter as well. And today, we've got an industry-leading EBITDA margin of 40%, well north of our peers, right? And that demonstrates, you know, some of the, the themes you're trying to tease out. You know, on our base business, we continue to invest $600 million-$800 million each year. Last year, we brought 60 assets online. This past quarter versus the prior quarter, we had another 30 assets. And in places where some others have seen some weakness, you know, in the chemical space, electronics, semiconductors, glass, fiberglass, EV battery manufacturers, et cetera.
So I think we continue to stay focused on the base business, extract value there, and these mega scale projects will deliver a lot of value. This year alone, Jazan, you know, we invested $1 billion in Jazan. We've got GCA that's come online. We've got Jiutai. Next year we'll have the Uzbekistan acquisition adding value. We'll have Debang and our base business as well. So we're tremendously excited about the step function change we're gonna see in our growth rates moving forward.
So can you talk a little bit, speaking of the core business, can you talk a little bit about what you're seeing in industrial markets? We're hearing at the margin softer commentary, particularly in Asia, apart from automotive. Can you talk a little bit about what you're seeing? And because your business is usually a pretty good coincident indicator for activity, like real activity.
Sure. You know, a very tough question. Maybe starting east and going across the globe, you know, in terms of the state of the union. What I'd say in Asia, you know, the recovery is probably gonna be a multi-quarter recovery in China, especially post emerging from zero COVID. I think most folks had anticipated a rapid snapback that hasn't materialized. The property sector and all the adjacencies coming through that continue to be soft. But I think one other thing I'd highlight for investors is compared to our industrial peer group, we have the highest percentage of onsites, particularly in Asia. 60% of our business is the onsites, and then most of these new asset wins that we've actually had added have been in Asia as well.
And we're cautiously optimistic, but, you know, it'll be a multi-quarter recovery in Asia. Moving to Europe, look, Europe had the mildest winter in, you know, the last 30, 40 years. And, you know, things didn't pan out as people had feared, which was great. But the manufacturing sector, you know, other anecdotal company announcements, there is a risk of de-industrialization in Europe, and the alphabet soup of subsidies that they're bringing to bear is to keep the industrial base there. But that stays under duress. You know, their energy prices over the last, what, 12-18 months, have been 5x-7x what they were traditionally accustomed to. On the back of that, we've pushed a lot of pricing as well, in terms of energy surcharges. But let's see how the winter and energy prices play out in Europe.
I think that's the key thing there. Again, in Europe, our onsites have been performing incredibly well, and we've performed much better. I think over the last couple of quarters, we've demonstrated, unlike some others, not only top line, but bottom line growth as well, which we're very excited about. And coming to the Americas, I mean, our assets are performing great, and in the Americas, everything is full steam ahead. You know, we don't see any softness in the Americas yet.
Can you unpack one comment you made? If there is a surge in energy prices in Europe because there is a colder winter, is Air Products better positioned this year to manage the volatility?
I think just the entire industrial gas space has demonstrated incredible pricing discipline. You know, a lot of these price increases that people have witnessed over the last seven-eight quarters have been on the back of a lot of these energy surcharges. And you've seen our EBITDA margins move around quite a bit as well as a result of that. Roughly 75% of our EBITDA margin moves have been driven by some of these energy pass-throughs, right? I think the key is what does winter look like and what their gas storage injection levels and track heading into the winter. I think that'll be the sort of X factor that drives all that. But I think in terms of our behavior, we'll continue to demonstrate pricing discipline. And I think most people...
You know, we tend to be a very small portion of our customers' cost stack, and customers appreciate when everyone's facing these inflationary pressures, you know, these pricing actions reflect that.
I guess just to close, I mean, on pricing, you know, when Seifi came in, I think there was a big part of the surge in real pricing at Air Products felt like a cleanup of, you know, actions over the prior 15 years. Are you at a point now where you've hit sort of a good equilibrium price relative to your end markets, and real prices going forward should be 1%-2% kind of the trend? Or do you think there's more room to go for just pushing real price towards, you know, 3%-5% a year for several years?
Look, one thing everyone knows with Seifi, with his incredible vision, his ability to see around the corner, and his track record, is he continues to promise that, you know, he'll deliver a certain amount of value to shareholders each year, demonstrated by a nine-year or 11% EPS CAGR. So we don't have a cost-plus mentality in our space, and, you know, the pricing discipline our peers have demonstrated, I think, you know, that's comforting as well. But I think his view is, as a first mover, as we press our first-mover advantage and help our customers along their demand growth journeys through decarbonization, is always price a product at what the market is willing to bear. And I think that philosophy will continue at Air Products.
Okay. Okay, thank you very much.
Great. Thanks for the time.