Air Products Lands Contract - Analyst Blog
July 01 2011 - 12:43PM
Zacks
The
industrial gas company Air Products &
Chemicals Inc. (APD) announced that it has
been elected to supply its heat exchanger technology to Shell’s
floating liquefied natural gas (LNG) project in
Australia.
According to
Air Products, Shell's project will use its cryogenic coil wound LNG
heat exchanger. It did not provide details of financial terms or
the project’s planned start-up date.
Shell's
floating LNG (FLNG) plant, the first of its kind in the world, will
be in the Browse Basin off the northwest coast of Western
Australia. In May 2011, Shell announced a final investment decision
to move forward with the project.
For Air
Products, which has wide experience in conventional LNG plant
technology, floating LNG projects will be a new market segment.
However, because of its strengths in innovation and also its
development efforts, Air Products has made design changes to its
proprietary LNG heat exchanger to operate safely, effectively and
efficiently in a floating environment.
Floating LNG
plants can be placed directly over offshore gas fields, thus
dispensing with long-distance pipelines and an extensive onshore
infrastructure. As a result, energy firms should find it easier to
monetise stranded natural gas fields located offshore around the
globe.
Air Products
is under contract on the FLNG project with Technip, which is
designing and constructing the FLNG facility in league with Samsung
Heavy Industries.
The
establishment of FLNG plants has the potential to place gas
liquefaction facilities directly over offshore gas fields, thereby
precluding the need for long distance pipelines and extensive
onshore infrastructure.
This
innovative alternative to traditional onshore LNG plants provides a
commercially attractive and environmentally sensitive approach for
monetizing offshore gas fields. Shell will locate its floating LNG
facility approximately 125 miles offshore. At 533 yards, it will be
the largest floating offshore facility in the world.
Based in
Pennsylvania, Air Products benefits from a long-term take-or-pay
contract, a consolidated industry structure, a diverse customer
base and sustained pricing power. Air Products’ aggressive cost
cutting and productivity initiatives, combined with its portfolio
realignment efforts, have helped mitigate fixed cost headwinds,
which is very encouraging.
However,
soaring energy and raw material costs pose a threat to margin
expansion. In order to compensate for escalating raw material costs
Air Products has been increasing the price for a range of chemicals
it makes for industrial use.
In June
2011, the company at an Investor Conference announced new financial
targets for 2015 to take the company to a new level of
performance.
The company
announced that profit margins will expand 3 percentage points
through 2015 and sales will rise about 12% annually, led by growth
in energy and electronics markets.
Air Products
expects revenues to surpass $15 billion in 2015, up from $9 billion
last year. The company forecasts operating margins to increase to
20% by 2015 from 17% which will be an improvement of 300 basis
points. The return on capital is expected to increase 150 basis
points to 15% from 2011 to 2015.
With these
results, the company expects to deliver enhanced revenue growth and
sustained margin and return improvement. The company has a record
of setting and meeting its long-term goals and has a strong
presence in the energy, environmental and emerging markets
worldwide.
Thus by
implementing these strategic actions, the company expects to
continue to lower its costs, improve returns and gain a greater
competitive advantage over its peers.
Air Products
faces stiff competition from Praxair
Inc. (PX).
Currently,
Air Products has a short-term (1 to 3 months) Zacks #2 Rank (Buy)
but a long- term Neutral recommendation.
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