(APD) Air Products & Chemicals Lands Contract

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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