Air Products has received final investment approval for an expanded scope and cost of its planned blue hydrogen energy complex in Louisiana, with the cost growing to $7bn from $4.5bn previously, CEO Seifi Ghasemi said today.
Pennsylvania-based Air Products unveiled the project in October 2021. At an expected cost of $4.5bn, the complex as announced would have produced more than 750 million standard cubic feet per day of blue hydrogen for Air Products’ pipeline customers in the US Gulf Coast and for global hydrogen markets.
The Inflation Reduction Act was passed while planning for the facility was underway. Meanwhile, additional support for hydrogen in Europe and Japan led the company to consider future expansion at the Louisiana project.
“It is important that we pre-invest in the infrastructure needs for future expansion now, so that when the demand increases rapidly, as we expect it to, we will be able to bring the next phase of this project on stream as fast as possible,” Ghasemi said.
Beyond the increased scope of the project, costs have gone up due to inflation over the last three years as well as future inflation. The company is also including funds to cover the interest on capital used to build the plant.
The largest bucket of the $2.5bn increase is inflation, at about $1bn, Ghasemi said in response to a question.
Project finance
As the company signs long-term contracts to sell the resulting products from the Louisiana facility, the company will consider – as it did with the precedent-setting NEOM green hydrogen facility – levering the project, leading to cash outflows for the project of between $2bn – $3bn to fund the company’s equity portion.
“We have the capacity to spend our own cash, but we would rather project finance these projects so that we have more cash for future projects,” Ghasemi said.
“We see significant demand for the product that this plant will produce,” he said.
Ghasemi expects to garner a premium for the clean products that will allow for a double-digit return, with a presentation noting a greater than 10% IRR on the project.
