My colleague Euan Weir recently wrote an interesting piece on environmentally friendly shipping regulations, which should benefit refiners who produce low-sulphur fuel. About time too!…Goldman Sachs estimate 15 of the world’s largest ships emit more sulphur dioxide and nitrogen oxides than all the world’s cars combined.

It’s not just eco-warriors and refiners that benefit from this trend – there are second and third order impacts as well. Hydrogen is needed in large quantities to reduce sulphur content in fuel, so industrial gas companies like Air Products, which supplies hydrogen to the world’s refiners, also stand to benefit as we move towards implementation of the regulations in 2020.

Air Products is the largest hydrogen supplier in the world. Hydrogen is usually produced on-site at a refinery by steam reforming of natural gas, or transported by pipeline from a nearby plant. Gas is expensive to transport over large distances by truck, so local oligopolies tend to form within 200-250 miles of a major hydrogen plant. This creates a powerful economic moat.

Revenues are protected in others ways too. Supply contracts typically last 15-20 years and contain minimum pricing clauses to ensure payment, even if no hydrogen flows through the pipes (for example, during a recession when demand is low). This provides Air Products with a stable source of income throughout the economic cycle, and is one of the reasons they have been able to increase their dividend for 35 consecutive years.

With the shipping regulations likely to drive up demand for more complex, “cleaner” fuels and industrial gas companies seeing healthy volume growth and pricing trends, when it comes to the world of investments, going green can really pay dividends.


Opinions and views from the Equities team at Kames Capital are not an investment recommendation, research or advice and should not be considered as such. Content discussing investment strategies and stocks is derived from and solely relates to the investment management activities of Kames Capital.

About the author

Matt Harding is an investment analyst in the Equities team, responsible for generating investment ideas for our North American and global equities portfolios. He joined us in 2015 from Zolfo Cooper, where he worked in financial restructuring. Prior to that, Matt worked in similar restructuring and advisory roles for RBS and Deloitte. He studied Accountancy & Law at Glasgow University and is a chartered accountant, a chartered banker and a CFA® charterholder. He has 14 years’ industry experience.*

*As at 30 June 2018.

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