Good morning, and welcome to Air Products Fourth Quarter Earnings Release Conference 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 the Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Simon Moore.

Thank you, Christina. Good morning, everyone. Welcome to Air Products' fourth quarter 2021 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations, Corporate Relations and Sustainability. I am pleased to be joined today by Seifi Ghasemi, our Chairman, President, and CEO; Dr. Samir Serhan, our Chief Operating Officer; Melissa Schaeffer, our Senior Vice President and Chief Financial Officer; and Sean Major, our Executive Vice President, General Counsel, and Secretary. After our comments, we'll be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward-looking statements. Please refer to the forward-looking statement disclosure that can be found in our earnings release and on Slide number 2. In addition, throughout today's discussion, we will refer to various financial measures. Unless we specifically state otherwise, when we refer to earnings per share, EBITDA, EBITDA margin, the effective tax rate, and ROCE, both on a company-wide and segment basis, we are referring to our adjusted non-GAAP financial measures, adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and adjusted return on capital employed. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant Earnings Release section. Now, I'm pleased to turn the call over to Seifi.

Thank you, Simon, and good day to everyone. Thank you for taking time from your very busy schedule to be on our call today. Before we discuss the results, I would like to say that despite the well-known global challenges in 2020 and 2021, talented, committed and motivated people of Air Products demonstrated resilience and resolve, and delivered excellent results. And in addition, continue to execute our growth strategy. I want to thank every one of our employees for standing together, working hard and delivering for our customers and shareholders. Now please turn to Slide number 3, there you can see some of our key highlights for this year. We delivered strong EPS this year, achieving 11% compounded annual growth since fiscal year 2014. And we increased the dividend for the 39th consecutive year. We've had a gain recognized by procedures raters and organizations for outstanding sustainability performance, including one we just announced this week the EcoVadis for the fifth year in a row. Our growth strategy and sustainability strategy are one and the same. And to that end, we probably completed the asset acquisition and project financing transaction for the $12 billion Jazan joint venture with Aramco, ACWA Power and Air Products Qudra, as we announced last week. In conjunction with the Government of Canada and the province of Alberta, we announced the new net zero hydrogen energy complex in Edmonton, Alberta, Canada. This world-scale energy complex will begin with a transformative 1 billion net zero hydrogen production and the liquefaction expected on stream in 2024. And just a few weeks ago, we announced the $4.5 billion world-class clean energy complex in Louisiana. Air Products is built, own and operate this mega project which should produce over 750 million standard cubic feet per day of blue hydrogen for local…

Thank you, Seifi. Now, please turn to $slide 10, which highlights our key growth projects. We are committed to our growth strategy and continue to execute and pursue exciting projects around the world. In June, we announced the world-scale $1 billion net zero hydrogen project in Alberta, Canada, with the strong support of the Canadian, federal and local governments. This project will use natural gas to make net zero hydrogen, which has the same zero carbon footprint as a green hydrogen made from renewable energy. 95% of the co2 resulting from our net zero project will be permanently sequestered, and the remaining 5% will be offset by exporting a clean electricity produced by the clean hydrogen. The project provides a roadmap for hydrocarbon-based economies to significantly reduce their co2 emissions. Just a few weeks ago, we had the honor of joining the Governor of Louisiana and state officials to announce our world-scale $4.5 billion blue hydrogen project. This will also be the world's largest permanent co2 sequestration operation. This project will provide clean hydrogen to our customers, along our 700 mile U.S. Gulf Coast hydrogen pipeline system, and also produce blue ammonia targeting heavy transport around the world. The pipeline will be able to carry a variety of carbon intensity hydrogen, including gray and blue. These two projects will use advanced gasification technologies available to Air Products to produce clean hydrogen, while using hydrocarbon feedstock in a sustainable way. Both the projects also combined in one project, the three pillars of our growth strategy, gasification, carbon capture, and hydrogen. We have made good progress on our Jiutai project, and we expect the facility to be on stream in fiscal year ‘23. We also expect the Debang project on stream in fiscal year ‘23. Successful execution of the Gulf Coast ammonia…

Thank you, Dr. Serhan. Please turn to Slide number 11, as we shared with you last week, we along with our joint venture partners, completed the asset acquisition and project financing transaction of the $12 billion air separation unit, gasification and power joint venture with Aramco, ACWA Power and Air Products Qudra in Jazan, Saudi Arabia, making a significant milestone after the hard work by our people, as well as our customers and partners. The project return is expected to be better than we originally envisioned. As we said last week, we expect Phase 1 of the project to contribute an annual run rate of $0.80 to $0.85 of earnings per share, starting as of last week. The project is expected to contribute about $1.35 to $140 for the first 10-years after Phase 2 closes. Now please turn to Slide number 12, which shows our EPS growth. We remain vigilant and motivated to deliver excellent financial results, consistent with our strategy. As you can see, we have delivered 11% annual EPS growth on average since 2014, while laying a strong foundation for our future growth. The excellent results and key milestones we have achieved this year are just the beginning of our journey, delivering gasification, carbon capture and hydrogen solutions to the world. I am very optimistic about our company's prospects, participating in a very meaningful way in the energy transition. Now, please turn to Slide number 13. As a reminder, we share our earnings growth directly with our investors. Both our EPS and dividends have grown by double digits since 2014. We are committed to deliver increased dividends, while we continue to execute our growth opportunities. We have significant cash flow that supports our substantial dividends, and as you know, we have increased that now for the 39th consecutive year. And finally, Slide number 14, as always my favorite slide shows that our EBITDA margins are up 1,100 basis points since 2014. Our margin is down in recent quarters, impacted by higher energy pass-through which increases our sales, but doesn't impact profits. Two-thirds of the margin decline from our peak margin is due to the impact of higher energy pass-through. But, I do want to stress that we are determined and focused on improving our margins back to around 40%, by increasing prices to cover significant increases in energy costs, and by improving productivity. Now, I'm happy to turn the call over to Melissa Schaeffer, our Senior Vice President and Chief Financial Officer to discuss our results in more detail. Melissa?

Thank you, Seifi. We have made great strides executing our growth strategy this year, completing multiple projects and winning exciting new projects. At the same time, we continue to focus our base business and delivered excellent results for the quarter and the year. We grew our EPS 8% this year, overcoming various external challenges and absorbing the cost of additional resources needed to support our growth strategy. Our distributable cash flow remain strong at $2.7 billion. Furthermore, the large scale projects currently under development will substantially add to our earnings, once we bring them on stream. I share Seifi’s conviction that for Air Products, the best is indeed yet to come. This is a testament to the hard work and commitment of the people of Air Products. And, I too, want to thank them. Now please turn to Slide 15 for more details on our full year results. Sales grew 17% to more than $10 billion. Volume and price together gained 7%. The 5% volume growth was primarily driven by our EMEA and Global Gases segments. Although, the adverse impact from the pandemic has eased through the year, it still had a negative impact on FY ‘21. Price improved every quarter in all three regions and across most major product lines. Overall, price increased 2% and our merchant price was up 5%. EBITDA was up 7%, approaching $4 billion, due to favorable price, currency, and equity affiliate income, which was partially offset by higher costs. EBITDA margin declined 330 basis points, of which 200 basis points are attributed to higher energy pass-through, which increases sales but negatively impacts margin. ROCE was 160 basis points lower. The increase in the denominator from our additional $5 billion of debt raise last year, reduced ROCE by about 300 basis points. Adjusting for the…

Thank you very much, Melissa. Now please turn to Slide number 21 for our Asia results. Sales increased 6% compared to last year, on 5% favorable currencies and 1% positive price increase, the 18th consecutive quarter of year-on-year price improvement in this region. Volumes were flat with new plans mostly outside of China, offsetting the lower Lu’An contribution. Regarding Lu’An, there is no change from the previous updates that we have given you. The plant continues to operate at full capacity, despite the coal shortage in China. As I said last quarter, and there's an interim supply agreement we are recognizing reduced fees to fiscal year ‘22 before we return to the full year fee in 2023. This quarter, China's effort to reduce energy usage and intensity, so called dual control had a modest adverse effect on our results. It reduced some merchant customers demand and caused isolated disruptions in operations. We continue to monitor this developing situation very closely. In the long-term, though, we do see positive growth opportunities, as China continues to focus on reducing its carbon intensity. EBITDA for this region grew 3%, supported by favorable currencies and price. Costs compared unfavorably primarily due to higher variable energy costs, and resources needed to support projects and startups, the timing of China government incentives last year, and the disruption caused by its dual control policy to reduce energy consumption. Sequentially, EBITDA and margins were lower as higher costs more than offset favorable volumes. Price is up, but rounded to zero. Now I'd like to turn the call over to Dr. Serhan, to talk about our Americas results. Dr. Serhan?

Thank you, Seifi. Now please turn to Slide 22, for a review of our Americas results. Sales increase more than 20% versus last year, and EBITDA posted another double digit gain. Volume grew 3% primarily due to better hydrogen and merchant demand. Although, Hurricane Ida interrupted our U.S. Gulf Coast operations this quarter, our team worked very hard to limit the impact to our business. While most of our merchant products have returned to pre-COVID levels, our hydrogen volume has increased, but has not yet fully recovered. Demand for jet fuel, which consumes more hydrogen on a unit basis compared to gasoline is still lagging. Also, the industry continued to use more light sweet crude, which requires less hydrogen. We are confident in the long-term growth of hydrogen demand, particularly in the U.S. Gulf Coast. Price for the quarter was again strong, the 4% gain for the region was equivalent to 10% on the merchant business, Price was better across all major products. This is the 13th consecutive quarter of year-on-year price improvement. Energy cost pass-through drove a 15% sales increase, with the much higher natural gas prices. EBITDA was 16% ahead of last year, as positive volume, price, better equity affiliate income and lower maintenance costs more than offset higher inflation. EBITDA margin was 230 basis points lower. However, energy costs pass-through negatively impacted EBITDA margin by approximately 500 basis points. In other words, EBITDA margin would have been significantly up excluding energy pass-through. Sequentially, energy pass-through drove margin 250 basis points lower. Now, I would like to turn the call back over to Simon, to discuss our other segments. Simon?

Thank you, Dr. Serhan. Now please turn to Slide 23, for a review of our Europe, Middle East and Africa region results. Our EMEA team delivered another set of outstanding results this quarter. Sales jumped 33% versus last year and EBITDA was up 14%. Volume was strong, increasing 14% driven primarily by improved hydrogen and merchant demand and new assets. Our liquid bulk largely recovered from the pandemic, but packaged gases and hydrogen are still below pre-COVID levels. Price increase for the 15th consecutive quarter was higher across most major product lines and sub-regions. The 4% price gain for the region corresponds to a 6% improvement for the merchant business. Consistent with what most consumers and businesses are experiencing, our European business faced unprecedented energy cost escalation this quarter. Supply chain-related interruptions further exacerbated the difficult situation. Our team has done an excellent job coping with these challenges, executing pricing actions and keeping our customers supplied. As Melissa said, our on-site contracts allow us to pass-through the higher energy costs. For our merchant business, we continue to work hard to recover the recent cost increases through additional pricing actions already underway. Currencies were favorable 3%, primarily due to the strong British Pound versus the U.S. dollar. EBITDA was up 14% to about $230 million, primarily due to the strong volume, while better price, equity affiliate income and favorable currencies offset most of the energy cost increase. EBITDA margin was down 560 basis points, with higher energy pass-through responsible for about 400 basis points. The remaining roughly 150 basis point reduction was mainly attributable to unfavorable costs, partially offset by favorable equity affiliate income and better volume. Compared to prior quarter, sales climbed 8% primarily due to pass-through, while positive price and volume were offset by unfavorable currencies. Operating income was 3% below last quarter as the positive price and volume were more than offset by higher costs. Meanwhile, EBITDA was 8% higher due to the inclusion of positive equity affiliate income. And as Melissa mentioned, we will separate the current EMEA segment into two segments, Europe and Middle East and India, starting next quarter. Now, please turn to Slide 24, Global Gases, which includes our non-LNG sales equipment businesses as well as central costs. Sales and profit were up on higher project activities. We continue to add resources to support project development. Please turn to Slide 25, corporate, which includes LNG and other businesses as well as our corporate costs. Corporate segment sales were higher this quarter driven by increased project activities, as we continue to execute multiple large LNG and other projects. But profit was lower on higher corporate costs. Sequentially, sales and profits were better than last quarter. Again, as Melissa said, we will combine global and corporate starting next quarter. Now to provide closing comments, I'll turn the call back over to Seifi.

Thank you very much, Simon. Air Products continues to deliver consistent results, despite significant ongoing challenges in the world. Our volumes, price and profit all grew in 2021. Overcoming the pandemic, the storms, supply chain disruptions and rising costs globally, I truly believe that we have become an even stronger company and fully expect to deliver significant earnings growth as the economies around the world recover, and our projects come on the stream. Now, please turn to Slide number 26, for fiscal year 2022, our earnings per share guidance is $10.20 to $10.40, up 15% to 15%, over last year. For quarter one of fiscal year ’22, our earning per share guidance is $2.45 to $2.55, up 16% to 20%, over last year. And this include about two months of the Phase 1 of the Jazan project. We see our CapEx at around $5.5 billion to $5 billion for fiscal year ‘22, including approximately $1.5 billion of Phase 1 of the Jazan project. Now, please turn to Slide number 27, we are confident that the security of employment and compensation that we provided to our employees during this difficult pandemic period, positions us very well and very strongly for the future. We demonstrated to our people that devious support them in times of difficulty. We are committed to this approach since the only sustainable, long-term competitive advantage of any company is the degree of commitment and motivation of the people in the enterprise. The strong results and significant milestones we achieved this year are just part of our continued growth. As I said before, Air Products is supported by and supportive of the world’s focus on sustainability. Our customers choose Air Products because they know we can help them to meet their sustainability goals, and we continue to innovate so that we can be a partner on their sustainability journey for the future. The world’s environmental and sustainability challenges are immense, huge issues that need to be addressed. And our growth strategy, which is focused on gasification, carbon capture and hydrogen is designed specifically to address these critical needs. We know that our continued success depends on the expertise, dedication, and commitment of our talented people around the world. And we consistently have been adding resources around the world, in order to position ourselves properly to meet the growth demand and the execution of the projects that we have undertaken. Rising through the energy challenges that face our world today, we are committed to having a diverse workforce, significant development of applications and mega project expertise, and collaborative spirit within our companies. I believe Air Products is uniquely positioned to help develop world transition to a cleaner and better future. It's a better future we believe in, and in which, we are already totally invested. Now, we are pleased to answer any questions that you have.

We’ll take our first question from David Begleiter with Deutsche Bank.

Thank you. Good morning. Seifi, you had a couple of –

Good morning, David.

Good morning. Thank you. You had a couple of delays in your projects, most notably NEOM and Indonesia by roughly a year. Can you just talk about why those projects are being pushed out by year?

David, I wouldn't call them delays. I mean, these are mega projects. And we announced them to give our best judgment about them, they come on stream, but all of these projects need to be permitted. They need government approvals and all of that. So, each time we had a call to give you our latest estimate of what we think these projects can come on stream. So, right now, our best estimate for these projects are the days that we have given you. If we can move them forward, we will tell you. If there's further delays, we will let you know, because as I said, we cannot forecast everything, because we are dependent on getting significant permits for a lot of these projects.

Understood. And just on the CapEx increase ex- Jazan, can you just talk about the pieces of that $5 million to build out increase? How much is maybe Alberta, how much is Louisiana, et cetera? Thank you.

Well, I'll bet on Louisiana I’m not going to consume a huge amount of capital next year. But it is all related to the projects that Dr. Serhan mentioned. I mean, people focus on our mega projects, and obviously, we are delighted to talk about it. But don't forget, we still have a base business, which is very resilient, and we are doing many, many, many projects. Actually, as Dr. Serhan mentioned, last year was a record year for our small and mid-sized projects. We are getting our fair share of the market on those projects, they are going away going to be executed, and they require capital.

Thank you very much.

Thank you very much, David.

Our next question from John McNulty with BMO.

Thanks for taking my question. So Seifi, with the huge spike in energy prices that you saw over in Europe, and I imagine maybe even a little bit in Asia as well. I guess, can you speak to how quickly you can offset it with regard to prices, something where look, you automatically kind of immediately put it all in? Or, is it something that has to ease in over the next few quarters? I guess, how should we be thinking about that?

Good morning, John. John, as you know very well, we have two parts to our business, on the on-site, they immediately growing, because that's just pass-through. Our merchant side and packaged gases business, some of it as clauses, but a lot of it don't have clauses. And therefore, we need to go and increase prices and invoice the customers and convince them that energy prices have gone up. And then there is a competitive environment. Some people have tried to use this as an excuse to get market share and all that. So we need work to do. But what has compounded our issue in terms of being able to recover them fast enough is that the rate of energy increases. I mean, if energy increases, we do forecast of these things. But what happened in Europe, in the month of August and September, was something that it was impossible to forecast that things would go up to 100%. So as a result, we’re lagging in terms of price increases in our merchant business, especially in Europe, but the team is doing a fantastic job. They did a great job in September and October, but there is more work to be done. So we will be delayed about a quarter maybe.

Got it. So a quarter to kind of catch up on that. Okay. And then, I guess when thinking about your margin target where you expect to get the margins back up to kind of that 40% range, give or take, admitting that the rest of it really is more energy pass-through and isn't really a reflection of the business. I guess, can you speak to the timing of when you think you can get there? Is it something where we can kind of see the margins approaching that type of a level by the end of 2022? Is it going to take longer than that? I guess, and what are some of the measures that you really have to kind of enact in order to get back to those 40% type level?

John, as far as I'm concerned, I like to see those margins back then, next time we talk in January. I mean, we don't like to see our margins go down. Therefore, the pricing actions that we put in place has a lot to do with that, because it's all about that -- the margins are all about pricing. The volumes are the volumes. The margin is how much profit you made per unit of volume. So we need to catch up with the energy costs. And our goal is to catch up with it as soon as possible. So, then you say my target is to be able to report that our margins have gone back up to 40% by next quarter or the quarter after that. How much of it be achieved is obviously going to depend on the efforts of all of us over here, but we are doing our best to get there as soon as we can. And we are also increasing book for that spirit, absolutely.

Got it. Thanks very much for the color. Appreciate it.

Thank you, John.

We'll go to our next question from Kevin McCarthy with Vertical Research Partners.

Yes, good morning, Seifi. Just to follow-up on the previous question, can you talk about the level of price increases that you're seeking today in various regions to keep up with this energy inflation? And do you think that pace of realization could differ versus history?

Good morning, Kevin. What it means is that, obviously, the pace of price increases you have seen what we have done in the past, it's about 18th, 19th consecutive quarters that we're getting -- for our merchant business, we are getting 3%, 4%, 5% price increases in different regions around the world. So now, before we begin increasing prices to improve our margins, now we have to increase prices to maintain our margins. And therefore, there is a significant sense of urgency on that. And how successful we are, we are going to report that to you next quarter. I don't want to forecast that, because there is a lot of activities that we do and a lot involved. But the fact is that energy prices have gone up. And we need to recover that by increasing prices. Everybody needs to do that. And there is global inflation. And if people can deal with that, they are going to see their margins go down. And at the same time, we need to also continue to work on our productivity goals. And our people know that, and we are all very focused on that, Kevin.

Thank you for that. And Seifi, I wanted to ask your opinion on a high level question related to clean hydrogen. One can look at this business and recognize it's got vastly different growth potential than, say atmospheric gases and different capital requirements, different technology, discrete assets, et cetera. And you could look at multiples for, let's say, lithium producers or other high growth businesses, and they're quite high today. And so, that might argue for separating the business at some point in time. On the other hand, you've got a lot of benefits of integration, including inexpensive costs of capital and a high quality balance sheet. So, as you consider all of those things, how do you think about how the business might develop over time, and whether or not will remain within the portfolio on an integrated basis for the long-term?

Kevin, you are asking me a very intelligent question. And my answer to that is that our commitment is to create value for our shareholders. If, at some point in time, what you are suggesting is a significant opportunity for significantly increasing shareholder value, we would obviously consider that. But I don't want to give the impression that we want to do anything tomorrow. And besides that, we need to kind of demonstrate the success of the hydrogen business and all of that. So the question that you're asking is a very good question. And we, as a company, as a board, always look at those options. Now, when we would act or if the act on it, it depends on the circumstances, depends on the market, depends on the development of the hydrogen business, and all of that. So, sorry to give you a general answer, Kevin, but I'm sure you appreciate what I'm saying.

I do, and sorry for putting you on the spot there. But, certainly welcome those thoughts. Much appreciated.

Thank you.

We’ll go to our next question from Steve Byrne with Bank of America.

Yes, thank you. Just wanted to drill into your guidance a little bit. If I understood it correctly, and Jazan is in the 2022 guide, if you back out that 11-months' worth, it seems like kind of a mid-single digit EPS guide. Is there anything that you are expecting that is a particular headwind in the year? Or, are you just being conservative here?

Steve, first of all, good morning, and thanks for your question. I'm very happy that you're breaking it down the way that you are breaking it down. We are showing that, first of all, I think we should get credit for Jazan. At the end of the day, that's part of the company and we're increasing the EPS 15%. But if you want to look at this asset by saying, okay, I know you have done that, but the base business looks like is growing 6%. Well, that is the baby seat award right now, because the base business, Kevin, as you know better than I do, is dependent on the growth of GDP or industrial production. And I'm not sitting here getting too excited about prospects of GDP or industrial production growth anywhere in the world. I mean, everybody likes to say that COVID is over now everything is growth. China, the biggest growth engine that the world had last quarter grew only 3%. Europe, GDP and industrial production is not going anywhere. In the U.S., not that much happening. And Latin America is not going anywhere. So I think between the circumstances, and then considering all of the issues about energy costs, and then -- that we need to recover all of the issues that is related to supply chain, which is affecting our ability to move helium containers around the world, that's a real issue. And then all of the fundamental supply chain that I mentioned, and the overall economic activity, these are all real issues. Our job is to give you a guidance that is reasonable. We gave you a guidance for fiscal year 2021, the average of that was 902.5, and we delivered 902, despite the hurricanes, which we didn't forecast, despite the power outages and all of that. It's our job to have a balance. We know the business very well. It's our job to look at growth things, look at the other things and put it all together and give you the best judgment that we have at the time to give it to you. And right now, our best judgment is that yeah, you're right, that overall our base business is going to grow about 6% or 7%. I hope it does better. But we are responsible for giving you a responsible forecast, rather than daydreaming about the fact that everything will be fine. And COVID hasn't gone away either. So, sorry to give you a long answer. But, I hope that helps.

It does. Thank you, Seifi. And I did want to ask you a question about your blue hydrogen outlook. When we drill into the Alberta and Louisiana projects, it seems to us that a majority of the capital is really to produce incremental hydrogen supply more so than it is for carbon sequestration or capture. And if that's a fair assumption, what in your view is the key driver for that outlook for needing incremental hydrogen supply in these regions? And is it driven by renewable fuel?

Kevin, there is two fundamental dynamics. We are talking here about 2020, the time that – yes, 2026 when these projects are going to come on stream. Number one, we do need increase hydrogen demand on the pipeline, because we have new customers that are coming on. And foresee ourselves sold out on that and therefore we need additional hydrogen and the pipeline. The second thing is that we think there will be significant additional customers if you can give them blue hydrogen, and they will convert and get the benefits. But then a significant part of their production, especially in Canada is going to be liquid, which is going to go for mobility where we see people converting to hydrogen for their mobility and the program they have. Then in Louisiana, the massive amount of hydrogen that we are making, a significant part of that or part of that we haven't given you the details until we figured out all of the details, but fundamentally, a significant amount will be converted to blue ammonia, which will be exported. And you know where the destination of that export is, that's basically in Japan, where they have no other choice. But how is Japan going to decarbonize? They don't have oil, they don't have gas, they don't have nuclear. And they don't have shallow waters to do any kind of wind mills offshore. So they need to import their energy. And the best form of energy to import is import blue ammonia, that the co2 has been captured, and to burn it in their power plants to generate electricity, so that then they can use that electricity to drive their cars and all. So, that is the thinking that we have in terms of the outlet for the blue hydrogen.

Very good. Yeah. Thank you.

Thank you.

We’ll go to our next question from Duffy Fischer with Barclays.

Yes, good morning.

Good morning, Duffy.

Dr. Serhan talked about 2021 being a record year for the investment kind of in that mid-size CapEx for you guys. So when we look at that, roughly how accretive is that to ‘22 and ‘23 going forward? Is that significantly a bigger jump than normal? Or how should we figure that into our model?

Well, it seems to be accretive as we go forward. I mean, all of those projects that he's talking about take two or three years to build. So if ’21, we got the project, so it will be ’22, ‘23, it starts having an impact on our results in ’24, ‘25. Those things are not that something that you turn it on right away. They still need to be engineered and built. But he's absolutely correct that we had a very good year on those mid-size projects. We don't usually talk about that, but we decided to talk about it this quarter, because I was just getting concerned that people are under the impression that the only thing they like is mega projects. No, we are committed to our existing business. And we are getting more than our fair share of the existing business on the smaller size. And our people are doing a great job in getting those projects and executing them.

Okay. Fair enough. And then, Seifi you had made a comment that there was some disruption in your business in China in particular. Was that power being cut off to your plants? Was that power being cut off to your customers where they couldn't run? Can you break down out a little bit more, how were you impacted where you had to shut down your operations there?

First of all -- and let me just characterize it, those disruptions in the fourth quarter was not material. They weren't that much. We felt obligated to mention them because there were a few incidents, but they were not material. Now, are they going to be material in this quarter or the next quarter? We have to wait and see. And then the other thing is that we have two kinds of business, as you very well know. We have the on-site business, the on-site business we did only shut down our plant if the customer is forced to shut down. Let's say, it’s a steel plant, and they say shut down the steel plant, the customer doesn't need the oxygen, they have to shut down the power plant. Then we have our merchant business, our merchant business, we rarely every shut down our merchant business, because we are not a dirty business. So they don't specifically say shut down the ASU. It's mainly the customers that they shut down, which affects us.

Great. Thank you, guys.

Thank you, Duffy.

We'll go to our next question from Marc Bianchi with Cowen.

Hi. Thank you. I wanted to first start with the blue hydrogen projects that you have announced and using the technologies of ATR and POCs. And I think you commented earlier that there's a competitive advantage of gasification that's at play there. I was hoping if you could talk about that a little bit more, especially after we've heard from peers saying that they too can offer both technologies and even capture 95% of the co2 through SMR?

Marc, I'm very happy that you're asking me the question. Because, the blue hydrogen projects that we have announced, we are using new technology in Canada and another technology in Louisiana, when we can capture 95% of the co2 and sequestrating. When it comes to the SMR, what happens in SMR? When you take the natural gas, you have a steam methane reformer. You take some of the natural gas directly into the process, goes over a catalyst, and you break down CH4 to CO on hydrogen, and then you shift, it you have hydrogen and CO becomes CO2, and it goes up at the atmosphere. You can capture 95% of that, true. But then you use a lot of the natural gas to burn to heat up the tubes, which contain the catalyst, that is combustion, like a combustion in a furnace, or in a power plant. Theoretically, you can capture that CO2, but it will cost you an arm and a leg to capture that. So, making a statement that I can capture 95% of the CO2 from SMR, sure, you can capture the CO2 is air too. But the issue is that is it cost effective or not. So what we are saying is that the technology that we have makes it possible to capture the CO2 in a cost effective way. But, yeah, you have to put a lot of equipment on the SMR to capture the CO2 from combustion. Theoretically, you can say, yeah, I can put a special boxes and do that. And I really don't want to comment on what our competitors say, they have to defend what they say, it's their business. But from our point of view, when we put carbon capture on SMRs, as we have done, and we actually operate the biggest plant in Port Arthur, everybody can go and take a look at it. We have the CO2 capture on the process spot, because that is economical, we can capture that and use it for the natural recovery. But on the combustion part, we don't do that, because that becomes cost prohibitive. Can it be done? Yeah, sure, anything can be done at the cost. I hope that helps, Marc.

That's helpful. Thank you, Seifi. Earlier Dr. Serhan mentioned, I think, some increased confidence on NEOM versus last year. I'm curious what's behind that that statement? Is there anything to say about perhaps customers being signed up? Or what's driving that statement?

I'll have Dr. Serhan answer that, but he's not going to make any comments about customers. But he will tell you why he feels better about the project as compared to before. Dr. Serhan?

Thanks, Seifi. As we communicated before, this is really our first mover project in this world-scale for production of green hydrogen. And I can tell you, we have around maybe 30 different work streams going in parallel in developing, optimizing, producing products, improving the cost. And that's really where this additional confidence is coming that we really feel that we have a very good solution, very, very competitive. And we are targeting for 2026 that means to have it on stream. We will be competitive, very low carbon intensity. And it really meets the specifications that are being imposed in the different countries in the world.

Thank you, Dr. Serhan. Yeah, thank you. Okay, I hope you've got your answer, Marc. Okay.

Yes, thank you.

Thank you. Thank you very much.

We'll go to our next question from Bob Koort with Goldman Sachs.

Yes, good morning. This is actually Mike here, sitting in for Bob. Just curious, is there a scenario where Lu’An could return to full fees before ‘23? And then, I guess on the other hand, what is the likelihood that that production could become permitted?

I understood the first part of your question, and that thing is that the agreement that we have -- the plant is running at full capacity. The agreement we have with them in terms of structure of the fees and so on that is not going to improve in 2022 versus what we have right now. It will improve in 2023. The second part of your question, I wasn't sure I heard it, because you got this -- there was a disruption on what you said. Can you just repeat the second part?

Oh, I’m sorry. Yeah, the second part was, is there a possibility or likelihood that that reduction could become permanent?

Well, we don't anticipate that. Oh, you mean that in 2023, Lu’An comes and says you were charging me reduced fee, continue doing that. Well, that's not our agreement. That's not our agreement. I don't want to anticipate what Lu’An will do and what we would do in that case. But right now, we don't expect that.

Okay. Thank you.

Thank you.

We'll take our next question from John Roberts with UBS. John, your line is open, please check your mute button. Due to no response, we'll go to our next question from Vincent Andrews with Morgan Stanley.

Thank you, and good morning, everyone.

Good morning, Vincent. How are you doing?

I'm very well. Thank you, Seifi. I'd be curious to get your thoughts on in the long-term, not obviously, where things are today. But, if you think in the medium to long-term, what you think the cost of carbon is going to be? And maybe on a regional basis, you could talk about it. And to the extent you want to discuss what you're assuming when you think about looking at a new project that might be helpful too?

Vincent, you're asking a very, very insightful question. I mean, right now, different parts of the world have put different numbers in place. I mean, in California, they have put $200 per ton of CO2, you get an incentive for that. Canada is talking about $50 to $100 per ton. Other parts of the world that we have exposure to that, if the number is somewhere between $100, $50, $75, $150, it's all over the place. I think that the way we look at these projects, and all of that, we try to kind of look at the profitability, on the basis that we don't get too much of these kinds of things, because we don't want to rely on governments of subsidies every time to do something. But overall, these numbers are all going to develop based on the commitments that people have made. And fundamentally, what is going to happen, Vincent, if people are going to -- I see that a great deal of fascination, all of these promises being made at Glasgow. But if you add up all of those things, the amount of carbon credits that you need in order to meet the requirements becomes gigantic. And therefore, in order to generate those things, customers need to start using these low carbon energy sources. And therefore, you have to have real incentives for people to convert from diesel, for ships and trains, and planes, and all of that, and steelmaking to really shift to clean energy. And that one, a little bit of incentive is not going to do that. So, I think if the governments are serious to achieving those goals, they have to put in steep incentives to incentivize people to actually do that. So, the prospect of that is very encouraging for our business, but we have to see how it develops, Vincent, as we go forward.

I appreciate that answer. And, yes, thank you very much. In the interest of time, I'll pass it along.

Thank you very much, Vincent. I really appreciate that. Next question?

We'll go to our next question from Jeff Zekauskas with JP Morgan.

Thanks very much. Seifi, I was looking at your project commitments, and I didn't see any commitments in the electronics area through 2026. Is that something strategic where Air Products is moving away from the electronics area in favor of other opportunities? And when you look at your $4.5 billion or so in CapEx for next year, can you talk about what the big chunks that you're going to spend?

Jeff, good morning, first of all. Jeff, one of the reasons that we wanted Dr. Serhan to talk about smaller facilities and all of that, was because my concern about the fact that the question that you just asked, we are winning our fair share of business in electronics, we are doing some very big projects for people like all of these big electronic manufacturers, like Intel, like Samsung, like TSMC, and all of that. You don't see it, you don't highlight them, because they are not mega projects, but we are getting our fair share of those. So, we are not -- that is actually one of the sectors we are very focused on. We are very strong in Asia Pacific, where most of these projects are happening. And we are definitely on top of that. Now, in terms of the breakdown, I've been hesitant to give you the breakdown, because then people know exactly which projects we projects we have involved, and all of that. But believe me, Air Products has been and continues to be extremely focused on the electronics sector. And I can claim that we are definitely winning our fair share of those projects for those big customers.

Yes. Thank you very much.

Thank you. Sure.

We'll go to our next question from PJ. Juvekar with Citi.

Yes. Thank you. Seifi, I’ll ask one quick question. What's happening globally, we look at the narrative about COP26 in a move towards decarburization, and less investments in fossil fuels. Do you see a scenario where fossil fuel prices just keep going up as a result, similar to what has happened in Europe? And if that does happen, hypothetically, how do your projects in China and other parts of the world fare in an environment of higher energy prices? Thank you.

Well, PJ, thank you very much for asking a very excellent question. The thing is that there is no question that if hydrocarbon prices go up, like the oil price having gone up, that does help some of the existing projects that we have in China. I mean, right now, one of the reasons that Lu’An is operating at full capacity, despite the very high price of coal in China is because -- what are they doing, they are taking coal, and they are making diesel. And they are selling the diesel fuel at higher prices, because the oil price is $84 a barrel. So in a roundabout way, if hydrocarbon costs go up, it helps those kind of projects. But then the other interesting part is that if hydrocarbon costs go up, then the cost of renewable energy compared to hydrocarbons becomes even more attractive. So you would say that it's easier to convert a truck driver from diesel to hydrogen, because now the diesel is costing more. So in a funny way, if actually hydrocarbon prices go up, it will help our strategy in terms of focusing on renewables. Does that make sense, PJ?

Yes, that does. But does it impact your coal gasification plants?

But it helps them, because the coal gasification plants are producing chemicals, which are competing the production from oil. I mean, the whole reason that China is using a lot of coal, or Indonesia wants use a lot of coal or India wants to use coal is because they want to use coal to produce chemicals, so that they don't have to pay foreign currency for the oil that they import. So, if energy prices go up, coal prices are in the ground, therefore that would help.

I'll pass it along. Thank you.

Thank you very much. I really appreciate that. Any other questions or that’s --

It appears there are no further questions at this time.

Okay. With that, then I would like to thank everybody who was on the call. We very much appreciate your very good and insightful and sometimes difficult questions, but that's the way it is. We do appreciate that. And we look forward to talking to you when we announce our first quarter results, sometime in January or early February. Thank you again, and have a very nice day.

That does conclude today's call. Thank you for your participation. You may now disconnect.