A new era of cleaner hydrogen production
Viewed as an important fuel for the world’s transition to cleaner energy sources, “blue” and “green” hydrogen provide sources of growth for industrial gas producers.
Reducing the carbon dioxide generated by various industries is a major focus of governmental efforts to fight climate change, and the passage of the U.S. Inflation Reduction Act of 2022 in August provides corporate tax credits to reduce the cost of producing clean-burning hydrogen without emitting carbon dioxide into the atmosphere.
“Suppliers of industrial gases play a key role in this effort because of their ability to produce hydrogen, which is a clean-burning fuel,” says David Wagner, portfolio manager of Fidelity® Select Chemicals Portfolio (FSCHX). “It’s a compelling opportunity for them.”
For industrial gas producers, such as Linde (LIN) and Air Products & Chemicals (APD), two sizable holdings in the fund, the key is to produce hydrogen in a way that avoids the release of undesirable carbon dioxide.
The traditional way of making hydrogen, known as “gray hydrogen,” uses natural gas in an energy-intensive process that emits huge amounts of carbon dioxide. However, there are two other ways to make hydrogen—which are known as “blue” and “green” hydrogen—that, until now, have been too expensive to adopt on a large scale, Wagner says.
Blue hydrogen is essentially produced the same way as gray hydrogen, except that the carbon dioxide emitted during production is prevented from escaping into the atmosphere.
From an environmental standpoint, the best way to produce hydrogen is simply to pass electricity through water, according to Wagner. If you generate the electricity with clean, renewable energy like wind or solar power, then the process of producing the hydrogen is generally clean, and that’s called green hydrogen.
U.K.-based Linde produces a variety of atmospheric gases, including hydrogen, and helps third-party customers build gas-processing plants.
“Linde is a leader in the transition to clean hydrogen,” says Wagner, noting that the company has installed about 200 hydrogen fueling stations and 80 hydrogen electrolysis plants worldwide. In September, Linde announced it will build a new plant to produce green hydrogen in Niagara Falls, N.Y., which will more than double the company’s green liquid hydrogen-production capacity in the U.S. and is expected to be the first of several new plants planned for development.
As of October 31, Linde is by far the fund’s largest holding, representing 26% of assets. The stock also was the fund’s largest overweight position relative to its benchmark. In the third quarter of 2022, Linde delivered better-than-expected earnings growth and guidance, according to Wagner.
“With increased financial incentives and the world’s growing commitment to fight climate change, I believe certain companies in the industrial gases industry are well-positioned to add a source of dynamic, long-term growth to their businesses,” says Wagner.
For specific fund information, including full holdings, please click on the fund trading symbol above.
Next steps to consider
Research mutual funds
Get fund picks from Fidelity or independent experts.
Explore our fund offerings
See the range of available Fidelity Funds and learn the benefits of each asset class.
More from our portfolio managers
A collection of current insights from our portfolio managers.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.
Past performance is no guarantee of future results.
Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917