Good morning and welcome to the Air Products Update call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products, and all rights are reserved. Beginning today's call is Megan Britt. Please go ahead.
Hello and welcome to our update call. On the call today, our Chief Executive Officer, Eduardo Menezes, will provide a short business update followed by a Q&A session. Melissa Schaeffer, our Chief Financial Officer, will join Eduardo for the Q&A session. During this call, we'll make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to those discussed on this call and in the forward-looking statements and risk factor sections of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. It's now my pleasure to turn the call over to Eduardo.
Thank you, Megan. Hello, and thank you for joining our call. Earlier today, Air Products issued a joint press release with Yara International, announcing that we are working to establish a long-term partnership for low-emission ammonia projects in the U.S. and Saudi Arabia. We have two primary goals for the proposed partnership. For the U.S. project in Louisiana, our goal is to have a traditional industrial gas project scope and return for Air Products. To that end, we are in advanced negotiations with Yara to sell the ammonia production and distribution assets from our Louisiana project and execute a 25-year contract for the supply of hydrogen and nitrogen from our industrial gas facility.
Separately, in Saudi Arabia, we are in advanced negotiations with Yara on a marketing and distribution agreement where Yara would be responsible for transportation and commercialization of all the renewable ammonia that will be acquired by Air Products from our NEOM joint venture that is not used by Air Products to produce green hydrogen in Europe. The agreements for both projects are being developed in parallel. The final investment decisions, or FID, for Louisiana is targeted by mid-2026, with project completion by 2030. The total cost of the Louisiana project is estimated to be between $8 billion-$9 billion. Approximately 75% of the capital is related to the industrial gases portion of the project that will be owned and operated by Air Products, and approximately 25% of the capital is related to the ammonia production and shipping facilities that will be owned and operated by Yara.
Air Products, as the project developer, will use the next few months to solidify the construction costs with qualified contractors. We are committed to disciplined capital allocation, and we only move to FID for the Louisiana project if we are highly confident that the project can be executed within the estimated cap. The marketing and distribution agreement for Saudi Arabia is targeted to be completed during the first half of 2026, with first supply expected for 2027. Air Products is honored to work with Yara, a leading global crop nutrition and ammonia company. Overall, we look to reshape the Louisiana project into a traditional industrial gas project for Air Products with: A, a core industrial gas scope; B, an offtake agreement with a trusted partner; C, a de-risked execution once EPC arrangements are finalized; and D, an attractive return.
Additionally, this partnership connects the largest green and blue ammonia projects worldwide with the largest global ammonia supply network, with 12 ammonia vessels and 18 ammonia port terminals, maximizing the project value for Louisiana and NEOM by utilizing both organizations' extensive experience and core competencies. Before I turn to your questions, let me reiterate that our announcement today has no impact on the adjusted earnings per share and capital guidance for 2026 that we provided on our fourth quarter earnings call. With that, I'll turn the call over to Megan.
Thanks, Eduardo. Operator, please provide the Q&A instructions to participants in the queue.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up, asking your questions one at a time. Again, press star one to ask a question. We'll pause for a moment to assemble the queue. We will take our first question from Jeff Zekauskas with JPMorgan.
Thanks very much. Does the carbon capture stream in the end belong to Yara, or is that a separate profit stream that would belong to Air Products?
Good morning, Jeff. The CO2 stream will, let's say, belong to Air Products. It's basically the credit that comes to the emitter of the CO2, in this case, Air Products.
Okay. And is the pore space capability 5 million tons, or in theory, can the pore space hold, I don't know, 10 million tons? Is there a size of that capability?
The pore space that Air Products is developing can hold, we expect that it can hold 10 million tons a year of CO2, but we're still finalizing the arrangements for the CO2 sequestration that can be, we can use our pore space, we can use someone else's pore space, or we can have a combination of both. So this is in final phase as well, and this will be finalized during the next few months before we get to FID on the project.
Great. Thank you very much.
Thank you, Jeff.
We will take our next question from John McNulty with BMO Capital Markets.
Yeah, good morning. Thanks for taking my question. Eduardo, it sounds like you still have at least a little bit of wood to chop before you get to kind of mid-26. I guess, what do you see as the biggest hurdles in getting to FID at this point? Is it more on the construction costs? Is it some of the air permits? I would think the air permits are just a matter of time, but I guess, can you help us to think about maybe what you see as some of the bigger hurdles?
Yes, John. Good question. We have been working with Yara for several months now, so I think we understand exactly where we are in these areas. The air permit, as you said, is more a question of time. It's really the construction costs that, as I said in my prepared remarks, that we are trying to make sure we are highly confident that we can reach the CapEx number that we have as a target, right? The situation in the US for projects is a little bit difficult right now. A lot of competition from data centers, some of that being more expectations than anything else.
Frankly, one of the main objectives we have with this announcement today is to make sure our potential partners and suppliers, they understand how real, how critical this project is, and we fully expect it to have a firm construction cost by mid-next year that allows us to move to FID.
Okay. Got it. No, that's helpful. And then, I guess, just as the follow-up for the NEOM side, it sounds like the production part of the project is largely kind of in stone at this point. I guess, can you help us to think about the capital that Air Products may need to put to work on the distribution arm, whether it's for your side of it or even anything to help with Yara bringing their production or distribution side of it, excuse me, bringing their distribution side to the market?
Yeah. I would say that we are very excited about this development with Yara regarding NEOM. I think if you think about whatever you think about green hydrogen and green ammonia, there is no question this is a new product. And as every new product, it has this issue of this chicken-and-the-egg situation. You have no supply because you don't have demand. You have no demand because you don't have supply. Our project is the first real step to fix that for that product, right? So we are the first world-scale ammonia production, green ammonia production. And in the first step, this product will be available in a tank in Saudi Arabia.
This alliance with Yara, as we said, really working together with someone that has its own fleet of ammonia ships, and it has several - or I think the number is 18 - terminals in Europe really will make this product available in many locations. We hope that this will completely change the expectations on how this product will develop. That said, on your specific question about investments by Air Products, the facility in NEOM, as you know, is a JV. So we own a third of that facility, and we are responsible for a third of that investment, which is also project finance, about 70%. Anything beyond that, we're only going to be executed if we have firm agreements with customers. So we announced several months ago an agreement with Total for producing green hydrogen, starting with green ammonia. That agreement is still in place.
Part of that agreement expects that we will determine together with Total where the facility will be built, depending on the legislation in Europe. And as soon as we have that definition, we'll make that decision of moving forward with that investment. That's the only investment we have so far in Air Products. And we're only going to move forward if we have other customers that are willing to take green hydrogen that will need a dissociation of green ammonia. So the agreement with Yara basically moves the sale of green ammonia for every other application straight to Yara. And we hope that that will allow us to rapidly increase the percentage of ammonia that is sold as green versus gray.
Great. Thanks very much for the call.
Thank you.
We will take our next question from David Begleiter with Deutsche Bank.
Thank you. Eduardo, back on the carbon sequestration, do you expect to manage that portion of the project yourself? If not, how much of the $85 per ton credit do you expect to realize?
No, we don't expect to manage that part of the project by ourselves. We have several counterparts that are interested in investing and taking care of the CO2 sequestration. Our scope will basically stop at the compressor, and they will take the CO2 from there and do the sequestration using our pore space or using their own pore space.
And then.
I missed the second part of your question.
Yeah. How much of the $85 per ton credit would you expect to realize?
Oh.
Yeah.
Yeah. The credit of the 45Q comes to, in this case, to Air Products, right? What you have is a commercial agreement with someone that will do the sequestration of the CO2. And we are in negotiations with several providers for that. And I cannot give you an exact number on that, but it is a fraction of the $85.
Got it. And just to be clear, how many tons of CO2 will this project produce?
I think the official number is 5.5 million tons.
Thank you. Thank you very much.
A year. A year. Yeah.
We will take our next question from Duffy Fischer with Goldman Sachs.
Yeah. Good morning, guys. Question just on the economics. If you do go forward with Louisiana, and let's just say it's at the midpoint, $8.5 billion, that makes your cut about $6.4 billion. Should we think about the traditional 10% EBIT return for every dollar of capital? So that would be 600 million-650 million of EBIT accretion when the plant's completed. Is that kind of the right ballpark?
I know you guys love to ask these questions, and as you know, it's very difficult for us to give exact information on that. I would say that what we said is that we expect normal industrial gas returns for these projects, and I will stick to that comment. I would just tell you that because of the CO2 credits, the 45Q, this project will tend to be skewed for the first 12 years of the 12 years of the life because that's the time that you have to receive the 45Q credits, so the EBIT for the first 12 years should be higher than the normal EBIT we would have in an industrial gas project.
Thank you. And then on the NEOM offtake agreement, do you guys bear all the risk of price, and Yara will basically just take a fee on selling it? Or what's their incentive to try to grow that market themselves, and will they take any of the risk on pricing or margin?
Yeah. As you know, Yara is the largest ammonia trader in the world. They have very keen interest in developing renewable ammonia, both blue and green. This is an opportunity for them to commercialize that product from Air Products. As we said in the announcement, it will be based on a commission. And of course, as you can imagine, the commission increases as the prices go up. So it is a deal that I believe it's a good deal for Yara, but it's also a very good deal for Air Products as we would not need to have sales force and marketing, develop a marketing structure and so forth. The other point that I think it's important for people to realize is that Air Products today has both the price and the volume risk, right? So we have to lift every ton from our joint venture.
Differently from other ammonia producers, our joint venture doesn't have any incentive to reduce production in case the market is long or the prices are low, whatever, right? The joint venture has incentive of producing 100% of the volume. Having a partner like Yara with this infrastructure that they have with the ships, the terminals, really eliminates this volume risk that we have today. That's a big incentive for Air Products on this deal.
Great. Thank you.
We will take our next question from Patrick Cunningham with Citi.
Hi. Good morning. Thanks for taking my question, and maybe first just on Louisiana, I guess for the performance level requirements to secure investment in ammonia production. What does this mean for the timing of when you would receive the cash investment from Yara?
Yeah. The sound is not very good, Patrick, but if I understood correctly, I think you are asking about the ammonia assets that will be acquired by Yara. So this is a transaction that will close only when the plant starts because we started the engineering for the project. But we will have progress payments exactly like we would have in any project like that, with the difference that the final payment at the end will be a little larger than what would normally be in a normal transaction of a sale of a project. So this is something we are still finalizing with Yara, but I can tell you that there will be progress payments during the execution of the ammonia project.
Understood. And then just in terms of getting green ammonia landed in Europe and eventually converted to hydrogen later in the decade, if you do land further agreements that justify moving forward, does Yara have right of first refusal on distribution shipping of that ammonia overseas, or was any of that covered in this agreement?
No. We cannot disclose these issues, Patrick. We negotiated all these items with Yara. Again, the conversion of ammonia back to hydrogen is not a simple process. It requires a lot of capital. I would say that from Air Products' point of view, unless we can get a very good return in this ammonia to hydrogen dissociators, we would be perfectly fine selling the ammonia as green ammonia with Yara taking care of that part of the project.
Thank you so much.
We will take our next question from Chris Parkinson with Wolfe Research.
Good morning. Eduardo, if you don't mind me asking, were you originally hopeful that you would have a partnership announced on the CCUS side this morning and therefore kind of projecting your total CapEx, including what's already been spent, below the $5 billion marker? Or are we thinking about that the wrong way?
Can you repeat the question, Chris, the first part of the question?
Yes. I think I heard it. So, Chris, I think you're asking about the sequestration scope. So, just to be clear, the sequestration scope is not included in that CapEx number. So, it is contemplating a partnership. We are in current discussions with a number of key partners to be able to progress that scope. But, it will be very much a service-type fee that we'll pay along the course of the project. But, no additional CapEx would be needed from Air Products' side if we outsource that.
Got it. Helpful. And then just a random question. One of our competing projects was recently, let's just say, delayed indefinitely, which had what I'll refer to as a plethora of MOUs on the ammonia side, specifically for Japanese energy transition. Is that announcement essentially too little, too late? Is that something that you could consider with your partner for kind of further assessing the overall market for blue ammonia over the next few years? Or is this just, hey, you have an agreement that's progressing well over the next six months, and that's basically the only item that you're currently focusing on? Thank you.
Thank you, Chris. Yeah. As you know, that project that you mentioned is very different from our project. It's larger in total hydrogen production, but it had a smaller ammonia component. It was only, I believe, 1.1 million tons a year of ammonia versus the 2.8 million tons we have in our project. So it's a very different project. We are following up what happened there. But as you know, today is the first day we're disclosing our agreement here. I don't expect that the people involved in these other projects, they had any knowledge of that. So I don't know what they would like to do or what they may come and propose. But at this point, between us and Yara, we have 100% of the volume committed, right?
80% of the volume going to Yara to make ammonia and 20% of the volume coming to Air Products to be injected in our pipeline and be sold as hydrogen to our refinery and chemical customers.
Very helpful. Thank you so much.
Thank you.
We will take our next question from John Roberts with Mizuho.
Thank you, and congratulations. Is Yara precluded from moving green ammonia to Europe if a customer wants to build their own cracker or do a JV cracker?
Yeah. In principle, Yara, well, they are the experts on commercializing ammonia, right, so they know the customers. They know the market, and we can see that that kind of operation happens.
Thank you.
We will take our next question from Josh Spector with UBS.
Hi. Good morning. It's Chris Perrella on for Josh. Just to follow up on the Darrow project, for the 20% of the ammonia that you're taking, when you guys do the math and the economics, are you expecting any premium for that being low-carbon hydrogen in the project returns, or are you basing the base return on gray hydrogen?
Yeah. The 20% we'll take as hydrogen, right? So no ammonia on that point. Yeah. We expect some premium on that. We have, as you know, our pipeline in that area goes from Louisiana to Texas. We move over 1.5 billion cubic feet a day of hydrogen. So this will be equivalent to 12% of our total volume today. And we have a few customers that ask for blue, and we are in negotiations for that volume. Remembering that Air Products today, we have a site in Port Arthur where we capture the CO2. So we already commercialize some blue hydrogen in our pipeline.
All right. And just a quick follow-up. How much of the Darrow CapEx out of that $8 billion-$9 billion have you already spent for that?
Have I expensed?
Have spent.
I think we already said that about $2 billion being between spent and committed because we basically have engineering close to 90% done at this point. We have a lot of the main equipment, the critical equipment, like compressors, cold boxes. They are already in hand. So we have a lot of things that we started two, three years ago. So we have a lot of that CapEx that was already spent.
Is any of that eligible for or you would get CapEx from Yara for any of that to reimburse what you bought, or does that come later in the process?
I think the way to think about this, as we said, around 80% of the CapEx will be there by Air Products, 20% by Yara of the total project, and I'm sorry, 25% by Yara, 70% by Air Products, and that includes whatever capital we had spent for the ammonia project, so we're going to need to sit down and make the adjustments, and whatever way that is spent that is related to the ammonia projects, we expect that to be paid by Yara.
Okay. Thank you very much.
We will take our next question from Vincent Andrews with Morgan Stanley.
Thank you and good morning. First, I just want to clarify that the $8billion-$9 billion, if I heard the answer correctly, that would not include any CapEx for sequestration, but your point was any incremental CapEx for sequestration would be incurred by a third party. Are both of those statements correct?
Correct.
Okay. And then secondarily, the press release indicates that Yara will pay approximately 25%. So is there any meaning behind that approximate? Is there a ceiling on the amount of CapEx that they would be responsible for in the event that there's a material CapEx overrun? And secondarily, will there be any limitations on Yara in terms of what they can do with capital between now and the time that they would owe you payment in terms of the minimum balance sheet leverage level or maximum balance sheet leverage levels or anything like any security that's going to be provided to you?
I would say this is an agreement between two very sophisticated parties, right? Yara is the largest ammonia producer in the world. They know exactly the value of the product. They know exactly how much they can pay for hydrogen and nitrogen to make their project feasible. We are the largest hydrogen producer in the world. We understand exactly how much we need to charge for our hydrogen and nitrogen to make our project feasible. We have been working together for several months. We reached the point that we understand exactly what the conditions will be. The only point pending now, I would say, is the construction costs to validate that the CapEx is within this $8 billion-$9 billion that we mentioned in our press release.
Exactly the reason why we have this approximately is because there are things in flux like construction costs, like tariffs, things that we need to adapt during the next few months. And that's the reason why we use the word approximately there. Regarding the other part of your question about guarantees and so forth, we are very comfortable working with Yara. Personally, I have been working with Yara for 20 years. I was in board of JVs with them. I negotiated M&A transactions and even similar agreements to this one with them. It's really a first-class organization, majority owned directly or indirectly by the Government of Norway. So I can't imagine a better partner for a long-term project like this one. And it's really not a strong concern for us in terms of payments for the project, the ammonia books.
Thank you.
We will take our next question from James Hooper with Bernstein.
Good morning, guys, and congratulations on the announcement. First question, what happens if this project doesn't make it past FID and the construction cost comes in too high? Are you still progressing on the license that you mentioned at the last set of results about potentially gray hydrogen, or is plan B no project?
No. In principle, if we cannot get to a CapEx number that we can both live with, we're not going to have an FID. We're going to remain disciplined on our capital. I would say that we are making this announcement today because we believe that we have a path to get there. But things can happen. And until we get these agreements with construction companies done and we have a final CapEx picture that we can rely, we still need to make a decision about the FID if we're going to go forward or not.
Yeah. And just on the, is it still, if it doesn't go forward, is still gray an option based around the permit you're applying for in this year's CapEx?
No. Yeah. The project is designed in a way to produce blue. So the capital is higher than the capital that you would have for a gray project. And what makes the project feasible is the 45Q credits, right? So the 45Q credits, I think even during this call, someone asked about the volume. I said 5.5 million tons. Someone mentioned the value of the credit being $85 a ton. So you can make the math. It's a lot of money that is involved on the credits. And that's what makes the project feasible. And frankly, that's what made the project attractive to Yara to move this product to Europe and be able to be competitive with blue ammonia in Europe versus locally produced gray ammonia. So this project needs to be developed as a blue ammonia project.
Thank you.
That concludes today's question and answer session. Ms. Britt, I will turn the conference back to you for any additional or closing remarks.
That will conclude today's call. We thank you for joining and for your interest in Air Products. And we hope you have a safe and wonderful day.
Once again, this will conclude today's conference call. We do thank you for your participation. And you may now disconnect.
Good morning and welcome to the Air Products update call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products, and all rights are reserved. Beginning today's call is Megan Britt. Please go ahead.
Hello and welcome to our update call. On the call today, our Chief Executive Officer, Eduardo Menezes, will provide a short business update followed by a Q&A session. Melissa Schaeffer, our Chief Financial Officer, will join Eduardo for the Q&A session. During this call, we'll make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to those discussed on this call and in the forward-looking statements and risk factor sections of our reports file with the SEC. We do not undertake any duty to update any forward-looking statements. It's now my pleasure to turn the call over to Eduardo.
Thank you, Megan. Hello, and thank you for joining our call. Earlier today, Air Products issued a joint press release with Yara International announcing that we are working to establish a long-term partnership for low-emission ammonia projects in the U.S. and Saudi Arabia. We have two primary goals for the proposed partnership. For the U.S. project in Louisiana, our goal is to have a traditional industrial gas project scope and return for Air Products. To that end, we are in advanced negotiations with Yara to sell the ammonia production and distribution assets for our Louisiana project and execute a 25-year contract for the supply of hydrogen and nitrogen from our industrial gas facility.
Separately, in Saudi Arabia, we are in advanced negotiations with Yara on a marketing and distribution agreement where Yara would be responsible for transportation and commercialization of all the renewable ammonia that will be acquired by Air Products from our NEOM joint venture that is not used by Air Products to produce green hydrogen in Europe. The agreements for both projects are being developed in parallel. The final investment decisions or FID for Louisiana is targeted by mid-2026, with project completion by 2030. The total cost of the Louisiana project is estimated to be between $8 billion and $9 billion. Approximately 75% of the capital is related to the industrial gas portion of the project that will be owned and operated by Air Products. Approximately 25% of the capital is related to the ammonia production and shipping facilities that will be owned and operated by Yara.
Air Products, as a project developer, will use the next few months to solidify the construction costs with qualified contractors. We are committed to disciplined capital allocation, and we only move to FID for the Louisiana project if we are highly confident that the project can be executed within the estimated cap. The marketing and distribution agreement for Saudi Arabia is targeted to be completed during the first half of 2026, with first supply expected for 2027. Air Products is honored to work with Yara, a leading global crop nutrition and ammonia company. Overall, we look to reshape the Louisiana project into a traditional industrial gas project for Air Products with, A, a core industrial gas scope, B, an offtake agreement with a trusted partner, C, a de-risked execution once EPC arrangements are finalized, and D, an attractive return.
Additionally, this partnership connects the largest green and blue ammonia projects worldwide with the largest global ammonia supply network with 12 ammonia vessels and 18 ammonia port terminals, maximizing the project value for Louisiana and NEOM by utilizing both organizations' extensive experience and core competencies. Before I turn to your questions, let me reiterate that our announcement today has no impact on the adjusted earnings per share and capital guidance for 2026 that we provided on our fourth quarter earnings call. With that, I'll turn the call over to Megan.
Thanks, Eduardo. Operator, please provide the Q&A instructions to participants in the queue.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up, asking your questions one at a time. Again, press star one to ask a question. We'll pause for a moment to assemble the queue. We will take our first question from Jeff Zekauskas with J.P. Morgan.
Thanks very much. Does the carbon capture stream in the end belong to Yara, or is that a separate profit stream that would belong to Air Products?
Good morning, Jeff. The CO2 stream will, let's say, belong to Air Products. It's basically the credit that comes to the emitter of the CO2, in this case, Air Products.
Okay. And is the pore space capability five million tons, or in theory, can the pore space hold, I don't know, 10 million tons? Is there a size of that capability?
The pore space that Air Products is developing can hold. We expect that it can hold 10 million tons a year of CO2. But we're still finalizing the arrangements for the CO2 sequestration that can be. We can use our pore space, we can use someone else's pore space, or we can have a combination of both. So this is in final phase as well, and this will be finalized during the next few months before we get to FID on the project.
Great. Thank you very much.
Thank you, Jeff.
We will take our next question from John McNulty with BMO Capital Markets.
Yeah, good morning. Thanks for taking my question. Eduardo, it sounds like you still have at least a little bit of wood to chop before you get to kind of mid-26. I guess, what do you see as the biggest hurdles in getting to FID at this point? Is it more on the construction cost? Is it some of the air permits? I would think the air permits are just a matter of time, but I guess, can you help us to think about maybe what you see as some of the bigger hurdles?
Yes, John. Good question. We have been working with Yara for several months now, so I think we understand exactly where we are in these areas. The air permit, as you said, is more a question of time. It's really the construction cost that, as I said in my prepared remarks, that we are trying to make sure we are highly confident that we can reach the CapEx number that we have as a target, right? The situation in the US for projects is a little bit difficult right now. A lot of competition from data centers, some of that being more expectations than anything else. And frankly, one of the main objectives we have with this announcement today is to make sure our potential partners and suppliers, they understand how real, how critical this project is.
We fully expect it to have a firm construction cost by mid-next year that allows us to move to FID.
Okay. Got it. No, that's helpful. And then, I guess, just as the follow-up for the NEOM side, it sounds like the production part of the project is largely kind of in stone at this point. I guess, can you help us to think about the capital that Air Products may need to put to work on the distribution arm, whether it's for your side of it or even anything to help with Yara bringing their production or distribution side of it, excuse me, bringing their distribution side to the market?
Yeah. I would say that we are very excited about this development with Yara regarding NEOM. I think if you think about whatever you think about green hydrogen and green ammonia, there is no question this is a new product, and as every new product, it has this issue of this chicken and the egg situation. You have no supply because you don't have demand. You have no demand because you don't have supply. Our project is the first real step to fix that for that product, right, so we are the first world-scale ammonia production, green ammonia production, and in the first step, this product will be available in a tank in Saudi Arabia.
This alliance with Yara, as we said, really working together with someone that has its own fleet of ammonia ships, and it has several, or I think the number is 18 terminals in Europe, really will make this product available in many locations, and we hope that this will completely change the expectations on how this product will develop. That said, on your specific question about investments by Air Products, the facility in NEOM, as you know, is a JV. So we own a third of that facility, and we are responsible for a third of that investment, which is also project finance, about 70%. Anything beyond that, we're only going to be executed if we have firm agreements with customers, so we announced several months ago an agreement with Total for producing green hydrogen, starting with green ammonia. That agreement is still in place.
Part of that agreement expects that we will determine together with Total where the facility will be built, depending on the legislation in Europe. And as soon as we have that definition, we'll make that decision of moving forward with that investment. That's the only investment we have so far in Air Products. And we're only going to move forward if we have other customers that are willing to take green hydrogen that will need a dissociation of green ammonia. So the agreement with Yara basically moves the sale of green ammonia for every other application straight to Yara. And we hope that will allow us to rapidly increase the percentage of ammonia that is sold as green versus gray.
Great. Thanks very much for the call.
Thank you.
We will take our next question from David Begleiter with Deutsche Bank.
Thank you. Eduardo, back on the carbon sequestration, do you expect to manage that portion of the project yourself? If not, how much of the $85 per ton credit do you expect to realize?
No, we don't expect to manage that part of the project by ourselves. We have several counterparts that are interested in investing and taking care of the CO2 sequestration. Our scope will basically stop at the compressor, and they will take the CO2 from there and do the sequestration using our pore space or using their own pore space.
And then.
I missed the second part of your question.
Yeah. How much of the $85 per ton credit would you expect to realize? Is it of the?
Oh.
Yeah.
Yeah. The credit of the 45Q comes to, in this case, to Air Products, right? What you have is a commercial agreement with someone that will do the sequestration of the CO2. And we are in negotiations with several providers for that. And I cannot give you an exact number on that, but it is a fraction of the $85.
Got it, and just to be clear, how many tons of CO2 will this project produce?
I think the official number is 5.5 million tons.
Thank you. Thank you very much.
By year. By year. Yeah.
We will take our next question from Duffy Fischer with Goldman Sachs.
Yeah. Good morning, guys. Question just on the economics. If you do go forward with Louisiana, and let's just say it's at the midpoint, $8.5 billion, that makes your cut about $6.4 billion. Should we think about the traditional 10% EBIT return for every dollar of capital? So that would be $600 million-650 million of EBIT accretion when the plant's completed. Is that kind of the right ballpark?
I know you guys love to ask these questions. As you know, it's very difficult for us to give exact information on that. I would say that what we said is that we expect normal industrial gas returns for these projects. I will stick to that comment. I would just tell you that because of the CO2 credits, the 45Q, this project will tend to be skewed for the first 12 years of the 12 years of the life because that's the time that you have to receive the 45Q credits. The EBIT for the first 12 years should be higher than the normal EBIT we would have in an industrial gas project.
Thank you. And then on the NEOM offtake agreement, do you guys bear all the risk of price and Yara will basically just take a fee on selling it? Or what's their incentive to try to grow that market themselves? And will they take any of the risk on pricing or margin?
Yeah. As you know, Yara is the largest ammonia trader in the world. They have very keen interest in developing renewable ammonia, both blue and green. This is an opportunity for them to commercialize that product from Air Products. As we said in the announcement, it will be based on a commission. And of course, as you can imagine, the commission increases as the prices go up. So it is a deal that I believe it's a good deal for Yara, but it's also a very good deal for Air Products as we would not need to have a sales force and marketing, develop a marketing structure and so forth. The other point that I think it's important for people to realize is that Air Products today has both the price and the volume risk, right? So we have to lift every ton from our joint venture.
And differently from other ammonia producers, our joint venture doesn't have any incentive to reduce production in case the market is long or the prices are low, whatever, right? So the joint venture has incentive of producing 100% of the volume. And having a partner like Yara with this infrastructure that they have with the ships, the terminals, really eliminates this volume risk that we have today. So that's a big incentive for Air Products on this deal.
Great. Thank you.
We will take our next question from Patrick Cunningham with Citi.
Hi, good morning. Thanks for taking my question. And maybe first just on Louisiana, I guess for the performance level requirements to secure investment in ammonia production, what does this mean for the timing of when you would receive the cash investment from Yara?
Yeah. The sound is not very good, Patrick, but if I understood correctly, I think you are asking about the ammonia assets that will be acquired by Yara. So this is a transaction that will close only when the plant starts because we started the engineering for the project. But we will have progress payments exactly like we would have in any project like that, with the difference that the final payment at the end will be a little larger than what would normally be in a normal transaction of a sale of a project. So this is something we are still finalizing with Yara, but I can tell you that there will be progress payments during the execution of the ammonia project.
Understood. And then just in terms of getting green ammonia landed in Europe and eventually converted to hydrogen later in the decade, if you do land further agreements that justify moving forward, does Yara have right of first refusal on distribution, shipping of that ammonia overseas? Or was any of that covered in this agreement?
No, we cannot disclose these issues, Patrick. We negotiated all these items with Yara. Again, the conversion of ammonia back to hydrogen is not a simple process. It requires a lot of capital. I would say that from Air Products' point of view, unless we can get a very good return in this ammonia to hydrogen dissociators, we would be perfectly fine selling the ammonia as green ammonia with Yara taking care of that part of the project.
Thank you so much.
We will take our next question from Chris Parkinson with Wolfe Research.
Good morning. Eduardo, if you don't mind me asking, were you originally hopeful that you would have a partnership announced on the CCUS side this morning and therefore kind of projecting your total CapEx, including what's already been spent, below the $5 billion marker? Or are we thinking about that the wrong way?
Can you repeat the question, Chris, the first part of the question?
Yes. I think I heard it, so Chris, I think you're asking about the sequestration scope, so just to be clear, the sequestration scope is not included in that CapEx number, so it is contemplating a partnership. We are in current discussions with a number of key partners to be able to progress that scope, but it will be very much a service-type fee that we'll pay along the course of the project, but no additional CapEx would be needed from Air Products' side if we outsource that.
Got it. Helpful. And then just a random question. One of our competing projects was recently, let's just say, delayed indefinitely, which had what I'll refer to as a plethora of MOUs on the ammonia side, specifically for Japanese energy transition. Is that announcement essentially too little, too late? Is that something that you could consider with your partner for kind of further assessing the overall market for blue ammonia over the next few years? Or is this just you have an agreement that's progressing well over the next six months, and that's basically the only item that you're currently focusing on? Thank you.
Thank you, Chris. Yeah. As you know, that project that you mentioned is very different from our project. It's larger in total hydrogen production, but it had a smaller ammonia component. It was only, I believe, 1.1 million tons a year of ammonia versus the 2.8 million tons we have in our project. So it's a very different project. We are following up what happened there. But as you know, today is the first day we're disclosing our agreement here. I don't expect that the people involved in these other projects, they had any knowledge of that. So I don't know what they would like to do or what they may come and propose. But at this point, between us and Yara, we have 100% of the volume committed, right?
So 80% of the volume going to Yara to make ammonia, and 20% of the volume coming to Air Products to be injected in our pipeline and be sold as hydrogen to our refinery and chemical customers.
Very helpful. Thank you so much.
Thank you.
We will take our next question from John Roberts with Mizuho.
Thank you and congratulations. Is Yara precluded from moving green ammonia to Europe if a customer wants to build their own cracker or do a JV cracker?
Yeah. In principle, Yara. Well, they are the experts on commercializing ammonia, right? So they know the customers. They know the market. And we can see that kind of operation happen.
Thank you.
We will take our next question from Josh Spector with UBS.
Hi, good morning. It's Chris Perrella on for Josh. Just to follow up on the Darrow project, for the 20% of the ammonia that you're taking, when you guys do the math and the economics, are you expecting any premium for that being low-carbon hydrogen in the project returns? Or are you basing the base return on gray hydrogen?
Yeah. The 20% we'll take as hydrogen, right? So no ammonia on that point. Yeah. We expect some premium on that. We have, as you know, our pipeline in that area goes from Louisiana to Texas. We move over 1.5 billion cubic feet a day of hydrogen. So this will be equivalent to 12% of our total volume today. And we have a few customers that ask for blue, and we are in negotiations for that volume. Remembering that Air Products today, we have a site in Port Arthur where we capture the CO2. So we already commercialize some blue hydrogen in our pipeline.
All right. And just a quick follow-up. How much of the Darrow CapEx out of that $8 billion-$9 billion have you already spent for that?
Have I expensed?
Have spent.
I think we already said that, that about $2 billion being between spent and committed because we basically have engineering close to 90% done at this point. We have a lot of the main equipment, the critical equipment like compressors, cold boxes. They are already in hand. So we have a lot of things that we started two, three years ago. So we have a lot of that CapEx that was already spent.
Is any of that eligible for, or you would get CapEx from Yara for any of that to reimburse what you bought? Or has that come later in the process?
I think the way to think about this, as we said, around 80% of the CapEx will be there by Air Products, 20% by Yara of the total project, and I'm sorry, 25%, 25% by Yara, 70% by Air Products, and that includes whatever capital we had spent for the ammonia project, so we're going to need to sit down and make the adjustments, and whatever way that is spent that is related to the ammonia projects, we expect that to be paid by Yara.
Okay. Thank you very much.
We will take our next question from Vincent Andrews with Morgan Stanley.
Thank you. And good morning. First, I just want to clarify that the $8 billion-$9 billion, if I heard the answer correctly, that would not include any CapEx for sequestration. But your point was any incremental CapEx for sequestration would be incurred by a third party. Are both of those statements correct?
Correct.
Okay. And then secondarily, the press release indicates that Yara will pay approximately 25%. So is there any meaning behind that approximate? Is there a ceiling on the amount of CapEx that they would be responsible for in the event that there's a material CapEx overrun? And secondarily, will there be any limitations on Yara in terms of what they can do with capital between now and the time that they would owe you payment in terms of the minimum balance sheet leverage level or maximum balance sheet leverage levels or anything like any security that's going to be provided to you?
I would say this is an agreement between two very sophisticated parties, right? So Yara is the largest ammonia producer in the world. They know exactly the value of the product. They know exactly how much they can pay for hydrogen and nitrogen to make their project feasible. We are the largest hydrogen producer in the world. We understand exactly how much we need to charge for our hydrogen and nitrogen to make our project feasible. So we have been working together for several months. We reached the point that we understand exactly what the conditions will be. The only point pending now, I would say, is the construction costs to validate that the CapEx is within this $8 billion -$9 billion that we mentioned in our press release.
Exactly the reason why we have this approximately is because there are things in flux like construction costs, like tariffs, things that we need to adapt during the next few months, and that's the reason why we use the word approximately there. Regarding the other part of your question about guarantees and so forth, we are very comfortable working with Yara. Personally, I have been working with Yara for 20 years. I was in board of JVs with them. I negotiated M&A transactions and even similar agreements to this one with them. It's really a first-class organization, majority owned directly or indirectly by the Government of Norway. So I can't imagine a better partner for a long-term project like this one, and it's really not a strong concern for us in terms of payments for the project, the ammonia book.
Thank you.
We will take our next question from James Hooper with Bernstein.
Good morning, guys. Congratulations on the announcement. First question, what happens if this project doesn't make it past FID and construction cost comes in too high? Are you still progressing on the license that you mentioned at the last set of results about potentially gray hydrogen? Or is Plan B no project?
No. In principle, if we cannot get to a CapEx number that we can both live with, we're not going to have an FID. We're going to remain disciplined on our capital. I would say that we are making this announcement today because we believe that we have a path to get there. But things can happen. And until we get these agreements with construction companies done and we have a final CapEx picture that we can rely, we still need to make a decision about the FID if we're going to go forward or not.
Yeah. And just on the, is it still if it doesn't go forward, is still gray an option based around the permit you're applying for in this year's CapEx?
Yeah. The project is designed in a way to produce blue. So the capital is higher than the capital that you would have for a gray project. And what makes the project feasible is the 45Q credits, right? So the 45Q credits, I think even during this call, someone asked about the volume. I said 5.5 million tons. Someone mentioned the value of the credit being $85 a ton. So you can make the math. It's a lot of money that is involved on the credits. And that's what makes the project feasible. And frankly, that's what made the project attractive to Yara to move this product to Europe and be able to be competitive with blue ammonia in Europe versus locally produced gray ammonia. So this project needs to be developed as a blue ammonia project.
Thank you.
That concludes today's question and answer session. Ms. Britt, I will turn the conference back to you for any additional or closing remarks.
That will conclude today's call. We thank you for joining and for your interest in our products. And we hope you have a safe and wonderful day.
Once again, this will conclude today's conference call. We do thank you for your participation, and you may now disconnect.