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Bloomberg Intelligence with Alex Steel and Paul Sweeney on Bloomberg Radio.
Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global marketings.
Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries our analysts cover worldwide.
Today, we'll look at why Microsoft and Apple have dropped plans to take board seats at OpenAI.
Plus, we'll discuss research from bloom Intelligence on ten companies to watch during the third.
Quarter, But first we dive into the pharmaceutical space. This week, Eli Lilly reread to buy US gut drug maker Morphic for about three point two billion dollars.
Lily will pay fifty seven dollars a share in cash, and this comes as eli Lilly's CEO, Dave Riggs, has promised more early stage deals to acquire new technologies.
For more on all of this, we were joined by Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries and Senior Pharmaceuticals.
We first asked Sam about his thoughts on this deal.
This deal is about adding to their immunology franchise. Of course, everybody knows Lily for the endless the headlines that are related to GLP ones and obesity and cancer. Today we have apparently ten cancers that are not cured but risk is reduced with those types of drugs. But the reality is there's a lot more to this company before the
GLP one business ballooned with regards to obesity. And one of the areas they're in is immunology or otherwise known as immunology and inflammation or inflammation and immunology I and I and I and I is also a very attractive area because these are areas where we all have issues with arthritis, psoriasis, Crow's disease, if elamentary bowel disease. All these things are stuff that we have been suffering from
for years. Obsitly probably increases the risk too. So there've been a very active company in that space with three drugs four drugs on the market already and they've been doing deals adding to it.
SAM three point two billion dollars is not a big, big deal for Lily, But is this typical of what we see at a big pharmer companies in terms of if they see a therapeutic or just a piece of science as interesting to them, it's better to buy than develop.
Internally, I would say they're around thirty to forty percent of pharmaceutical companies pipelines comes from this type of interaction, either.
An m and a deal. I e.
Bought the whole thing lock stock and Barrel I license a specific product in this case.
So I'm looking at Lily. We have a database.
Of of course, we have the MAA function in the Bloomberg terminal, but we've taken that and dissected a little bit more and added on the BI dashboard and detail about the types of drugs that are in those deals, and MNA is one of that.
So I'm looking at twelve deals that Lily has done in the.
Past five years, and I'd say that only like three of them are in the cardiovascular metabolic space, I either of diabetes obesity. The rest are oncology CNS, and of course two are inflammation and immunology, and this is one of them.
So now it becomes three, right because that's not quite updated yet. And they're all in that sort of range eight billion for lockso one point one eight hundred eighty million, two point four billion, So we've got a good bunch of deals and they're all in that level which the farmer company is called Bolton Acquisitions, and that's their sweet spot of M and A.
See how everybody thinks that the smart people in bi pharma healthcare researcher guys people like Sam faz Elliot, that's not really the case. It's this young lady named Grace and she's crazy and she maintains a world class model that tracks the millions of drugs that are in various stages of you know, reviews around the world, and clients put huge value on that work that she does, and that allows Sam and some of the other animals to go out there and talk about these drugs. So Grace, great job.
As always, we love the Paul shout out.
That was awesome, so true, and he needs this particular shout out goes to another great lady who's called Mila Mila ban who's also part of our team.
But nobody matches up to Grace. Of course, Grace has been in the catlist.
Calendar that should I don't match up to her, nobody matches.
On to her.
Okay, So based on that, what are some of the cool things that are out there, like cool drugs that we should be talking about. We never get to talk to you when there's no crisis, really, so what are some cool things out there?
Yeah, So obviously the OBC space, there's there's breakneck evolution of different modalities being combined, trying to make it much more focused on fat, preserving some muscle, making it work better for the liver part of the disease. And that's all going to come to fruition over the next two or three years. Oncology, as have been saying all along,
is seeing amazing developments. You know, we're developing these disease hubs, as you might know, and just for lung cancer, we're developing almost thirteen different subgroupings of lung cancer, and it just shows you where treatment.
Of these diseases have got to.
And the same applies in inflammation and immunology, and in that space we're dealing with technology that is really cool. This particular acquisition and the one that they recently did almost exactly a year ago, called dice therapeutics are all about dealing with proteins that are very intractable to inhibition and normal drug discovery, and these two companies have developed oral drugs, small molecules that interact with these targets.
The beauty of this, of course, is you remember all that worry that what.
People were having about what happens with the IRA inflection reduction actions and its impact on small molecule development, because it specifically puts them out saying after nine years, irrespective of your patterns, we're going to come back in and negotiate prices. Well, here's Lily who's done two deals that are specifically small molecule deals. When the biology is interesting, when the drugs are interesting, I think the deals happen. Now, whether these will get to market or not, who knows.
I mean, pharma isn't infallible when it comes.
To these deals.
But at this shows that when they they see something interesting, they go for it, irrespective of small or big.
Molecule sam People are, for better or worse, are living longer and longer lives. Which makes every family seems like it's dealing with some type of dementia, Alzheimer's and things like that. How does the farmer industry, healthcare austry, how do they think about that? How are they kind of getting ready for that?
Yeah, so you know the beginnings. Can I just give you an example.
An analogue for Alzheimer's disease is obesity.
We've been at this obesity.
Game for a year, ten years, fifteen years, twenty years. I remember one of the old drugs from Rush Pharmaceuticals that's still around, called ally that reduced the amount of fat you absorb as you eat. Of course, what does that create? Fat left in your stomach, lubrication. I'm going to leave the rest of it to your imagination, right, So, that was the idea that was going to be helping you lose weight maybe three percent, four percent, five percent.
And then it took a lot of time before somebody started discovering these things saying, oh, gosh, we can get to fifteen twenty percent. If you're a two hundred and fifty pound person, we can help you drop seventy pounds.
That happened in obesity.
I'm hopeful that the same happens in dementia and neurodegeneratic diseases.
It's very much tougher.
I mean, all biology is tough, but CNS is tougher because it's a black box. It's a disease that evolves over twenty years, thirty years, and by the time you your disease manifests, you've already had a lot of organic change to your brain. But there is the first products that are approved. With the first products approved, you do get a bit more incentive to develop the next one. Go better, go another mile further. And that's where I'm hoping.
At the very least in Alzheimer's disease and Parkinson's, we're going to be going there.
Other diseases are a bit tougher.
Still, do you think that we'll ever have a preventative drug for Alzheimer's or just a treatment to.
Delay well, I think it's very tough to prevent because how do you know who's going to get it? That means you and I especially I, because you guys are much longer than me. Paul is he's just coming out of school, right, So at what point do you start taking these drugs?
Right? How do I do that? So that becomes difficult? Who pays for it?
And if they're preventative, how long do I have to take them before I know?
I mean, how do you even do a trial there?
So don't forget though in Alzheimer's disease, you can go into the early mild dementia and try and slow down the disease. But step at the time, at a step at the time, and I think we'll have something. Might take a decade or two, but hopefully we'll have them.
Is this something if we see announcements on this front, will likely be, you know, the big farmer companies that you cover, making and acquisitions of some of these smaller companies that are just focused on this one particular thing.
Probably, and don't forget that also, the large farmer companies. I mean, then the two drugs that we have on the market today, let can be and I forget what the nanamaps call. It has just been approved, so I can't remember his A branded name I'm sorry, Illily. They both came from within either the farmer company or the a Japanese partner. However, in the case of the can be that came from a Scandinavian biotech So both of
these are true. The question is who's got the firepower, the money to spend the billions required to develop these That's often ends up being a farmer company.
It's the large farmer companies.
Do you feel like, no matter who gets to be president in here in November, here in the US, are we going to see massive drug pushback? Like I realized it's probably a campaign tactic. But President Biden coming out last week and talking about how all the things were so expensive and really blaming like Novo Nordous. He wrote an app that with Bernie Sanders in USA today, what do you.
Think I think this is a hot potato. I don't think they are aiming their guns at the right group of companies. I think you could always argue that drug pricing because it's the easiest thing. It's a drug that people have to buy, and it says Lily on it right, is.
Difficult for some people. A lot of people can't afford them.
But there's a lot of middlemen that need to be looked at to where the increasing cost comes from. And you know what, the best way to entice people to develop obcity drugs, to bring down the price, to bring up competition is to allow the market to do his job. The market will do it already. These things are not costing tenth one thousand dollars a month.
We're more. You're closer to five hundred net.
Let the market to the job, bring more drugs on the volume goes up, you can drop the price.
Our thanks to Sam Fazzelli, Bloomberg Intelligence, director of Research for Global Industries and senior pharmaceuticals analysts.
Coming up, we're going to break down Delta airline earnings and what they mean for summer travel.
We're listening to Bloomberg Intelligence on Bloomberg Radio, providing in their research and data on two thousand companies and one hundred and thirty industries. You can access Bloomberg Intelligence via b I go on the terminal on Paul Sweeney.
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We moved now to big tech. This week we heard that Microsoft and Apple drop plans to take board roles at open Ai.
It's a surprise decision that comes as regulators in the US and Europe have expressed concerns about microsoft sway over open Ai.
For more, we were joined by man Deep saying Bloomberg Intelligence and your tech industry analysts. We first asked man Deep for some more context on the story.
I mean, if you roll back to last year when we had the open Ai drama, you know, the board firing Sam Altman and then open Ai adding four new members, and I think everyone so far has been just sort of interested in how open ai has evolved since then in the sense that they have even though they have added independent board members. Microsoft, you know, and now Apple probably would have joined the board. It doesn't make sense,
like when you have vested interests. In the case of Micro they have a forty nine percent stake in open ai and they're the primary cloud provider for open Ai. How can you do a good job of being an independent board member and That's where you know the regulatory scrutiny comes into play, because the regulators obviously are concerned about how Microsoft bought inflection Ai, even though it wasn't an acquisition, they got all the employees of inflection Ai.
Breakdown for me again, what the relationship is now with open ai and Apple versus open Ai and Microsoft.
So Microsoft has a forty nine percent stake in open Ai. They made a ten billion dollar investment, and so you could argue, if you're an investor in a company, you should get a board set as a Sequoia and some other private investors that open Ai has. Apple, on the other hand, just partnered with open ai, which is going to be one of the providers of Genai model on their iOS and other devices, and so it's more of a custustomer supplier relationship if you want to call it
that way. That Apple is using open ee as a supplier, why were they getting a board seat. Well, you could argue they could be an independent board member like Fijisimo is one of the board members for open Ei. She's
the CEO of Instacart. Now, I think that's where the fact that these technologies are so intertwined in terms of AI being deployed on Apple devices, you could argue the independence of the board comes into question, and given how important AI ethics and guardrails and all the things that regulators care about that everyone cares about, frankly, I think the independence of the board was questionable and these companies decided to proactively not join the board, which I think is good for optics.
So Microsoft is under scrutiny in Europe and by US regulators into I guess, their alleged dominance of AI. What's the view on the street about that risk to Microsoft? And I don't know because at some point maybe Apple one on it, but certainly Microsoft.
I mean, the best way to look at it is these companies require a lot of compute for training their models, whether it's open ai and Tropic, any of the independent GENI model providers, they need a lot of compute. Now, in the case of Microsoft, the arrangement is really you know, full of their interest because open ai ends up using Microsoft Compute for training their models.
What does that mean? What is compute?
So think of all the Nvidia GPUs that open ai needs, but it's deployed on Microsoft Cloud. So if I need compute to train the models. I'm not setting up my data center and tropic open ai. They're not setting up data centers. They're using Microsoft data centers to get access to that compute. And that's where they could have gone
to Amazon or Google to get that compute. The reason they're going to Microsoft is because of the you know, the stake they have and the board seed And so if you are open ai and Microsoft is sitting in that board, are you really going to pick any of the alternative cloud providers for training your models? Probably not.
Do you feel like open ai will ever go public or be bought by Microsoft? Like, how does that situation play out?
I mean, everyone knows their antitrust concerns around bit tech buying any of these companies, So the acquisition is definitely out of the window. And that's why the way Microsoft got all the employees of Inflection Ai, it was a pseudo acquisition. You get all of the employees, you pay six hundred million dollars, and you're not calling it an acquisition. So in the case of OpenAI, obviously that's not going to happen, but they Microsoft does have a forty nine
percent stake. Google bought DeepMind for six hundred million. Now they bought it, you know, a few years back. But it just goes to show how, you know, these companies positioned themselves for the future and they end up buying a lot of the startups. So I don't see an acquisition on the cards. But my open ai is unique in the sense it's a nonprofit and then they are looking to build a business out of it. So their
structure was sort of very weird to begin with. And now they had that board trouble where it was a three percent board that fired their CEO. Now they're expanding with independent board members. So I don't think they've got it right still, but at least, you know, not having Microsoft and Apple on the board is good in terms of optics. And that's what I can conclude here.
Our thanks to man Deep Sing, Bloomberg Intelligence Senior Tech industry.
Analyst, we moved next to the airline industry. This week. Delta Airlines reported worse than expected quarterly results, and the airline also said that domestic carriers are struggling to fill planes during the summer travel See in.
For more on this. We were joined by George Ferguson, Bloomberg Intelligence Senior aerospace, defense, and airlines generalists.
We first asked George for his take on Delta's recent earnings report.
What we do know is that the weakest part of the business right now appears to be sort of basic economy or those economy classes, and that's weighing it down. So actually, I expect that Delta's earnings report will be better than most this quarter. So I think it'll get worse and worse as you get into the low costs and ultra low cost carriers, because again that's I think where the majority of the pain is in fairs.
Yeah, because you know, going through the quarter, like corporate travel rose thirteen percent for Delta in the second quarter. Revenue from international passengers also increased, and premium products just ten percent. So basically, business people are traveling, we're going overseas and we're buying business class or first class, So like is no one going to Idaho and economy people are going.
They're just they're going for lower fares right there. Load factors were great on Delta, right they were like a eighty seven percent, So they're filling airplanes as well as they filled the year prior. I think, you know, Delta will get a bit of a tailwind as business comes back. That you know, that tailwin applies that Delta United American, the big business airlines management always paints a really nice
picture of how everything is going. But every market but Atlantic showed lower yields year of a year and yields the price of the customer pace per mile they fly. So to me, that's synonymous with fares. So what I saw was weaker fares that were really bad. Into Latin America down I think it was twelve percent or something like that. They're down a couple percent for the domestic market.
Into Europe it was up up one percent. But if you do it on a unit revenue basis, I don't want to get too complicated about how that works, but let's just say that factors in load factors there it was down. And so what that's telling me is that they're having a harder time filling airplanes going across to Europe at the price point they want to fill. So they notched back a little bit how full those airplanes were.
So I generally think, you know, from a revenue standpoint, not boting well at all for the rest of the airlines they're going to report. I didn't see any sort of silver lining, you know, for three Q. I just it looks like a weakening market to me.
So talk to us about capacity out there, George. I thought that there's some capacity constraints out there which might push fares higher because maybe Boeing wasn't delivering as many aircraft that they want, maybe even airbus as well, So the airlines didn't have as many aircraft as they really needed. What is the capacity of the industry these days?
Yeah, So I think that's a narrative that's definitely been going around the street, and I think that's pushed you know, some investment in airlines. So we just really we haven't seen that, right. I think there's a there's a couple of things that are kind of working against that, and I think one, I think US airlines in particular have been taking plenty of deliveries they are prioritized by by Boeing. Right,
Boeing sort of lost business in China. China has been so I don't even know if China needs as many airplanes as Boeing used to send to them, but they you know, they went around and got a bunch of orders from Southwest, United Alaska and Boeing had been feeding them airplanes before we had the you know that some of the problems earlier this year with the Alaska you know.
Flight you know.
So that means most of the US airlines had the airplanes they expected. We saw Delta. They added I think five percent more seats and available seat miles they added eight percent. When we look at this market, we see in both two Q and three Q additions kind of in that five five percent, six percent, seven percent range for seats and domestics, seats in Latin America, seats going
into Europe, and that's well above GDP growth rates. And so what I think also is going on here is if you were an airline and you thought this bounce back travel post pandemic, Hey, there's all this pent up demand, they're all going to fly this summer and it's going to be growth greater than GDP. I think you were wrong. Right. We're basically saying we think growth in travel is recoupling with GDP like it was prior to the pandemic. And
you can't add five percent seats to this market. The US market isn't growing that fast.
What part of any of this? And you kind of sort of answered it. It's just also tough comps because we were expecting the scenario that you just lined out.
Well.
I mean, another thing we've put together recently, it's on the Bloomberg terminal under a bi space AI r LN dashboard and EROG dashboard. We looked at return on invested capital. We looked at margins at US and global airlines and you know they did you know, they did better last year, but if you look at last year, those margins weren't pre pandemic margins. I mean, Delta is a bit of
a standout. Their returns in invested capital are doing better than a lot of their competitors, and at Bastian called that out a bunch of times today on the call, of course, but most airlines in the US market are not getting returns in invested capitol or margins like they were in you know, prior to the pandemic. So it is a tougher copy that's coming out of the pandemic. But this is not the airline industry we saw in the past decade. And that's because we got record revenues.
But those pilots took a big chunk right when they got their twenty percent increases and the airlines aren't pricing to get that back our.
Thanks to George ferguson Bloomberg Intelligence, senior aerospace, defense and airlines analysts.
Coming up on the program, we take a deep dive into hydrogen and why it's important as we move towards the green future.
They're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries. You can access Bloomberg Intelligence via b I go on the terminal upfull Sweening.
And I'm Alex Steel and this is Bloomberg.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am staring on applecar Play and Android Otto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Bloomberg Intelligence recently put out research on ten companies to watch for in the third quarter of twenty twenty four, and for more on the list. We were joined by Tim craighead Bloomberg Intelligence, a global Chief Content officer.
Who first asked Tim about a couple of the companies we should be watching for it in three Q.
I'll give you a smidge of a backdrop on this, if that's okay to put it into context. These are all part of what we call our focus ideas, which is a list of companies that we have a strong point of view on fundamentally that we think is different from what the market currently believes, and there's catalysts ahead to hopefully turn the market towards our view. The thing that sets these ten off is that they all have
catalysts coming up in the third quarter. A lot the ten companies to watch for this quarter, and I guess the first group that you have to start. It seems like with any conversation these days is AI, and there's certainly a couple of AI related ideas here, even though Nvidia is not on the list. Corning.
Oh interesting, visit fiber optic cable.
You can't have AI going through all of these data centers if you can't connect the data centers together. And interestingly, with fiber optic cable, there was actually a down cycle over the course of the past year where there was excess inventory and this, that and the other, with some telco build related to five G that sort of has worked its way through, and we expect data center build out to really drive demand for fiber optic cables going forward,
allah the potential for positive surprise. There's another one called THCHK. My guess is you've never heard of this one. It's a machinery company out at Japan and they have a fifty percent share in something called, now I'm going to make sure I pronounce it correctly, linear motion guide rails. And you're saying, what, Yeah, if if you think about how you picture semiconductors being manufactured, there's the equipment that
buzzes across and etches these patterns into silicon. The rails that they run on are these things, and they have a fifty share, So.
It's it's like the things.
Yeah, so you know these are things that you can't do AI unless you have these things. So we're looking for those types of opportunities. You could you could draw a little bit of a further sort of second or third degree connection with Sandvik. This is another machinery company based in Scandinavia. Fifty percent of their business is mining related, and you're saying, what, well, the current hot topics these days, and mining, among others is copper, and we're seeing a
capex cycle in copper. You can't dig and mine copper without Sandi's stuff, so it's another adjunct play on AI.
So those are a couple of things.
I like this. I mean that that's I like the way you guys are thinking about this, you know, kind of by the you know, kind of the tools of AI as supposed to be, you know, kind of the direct plays here. Another one is that I think about the Olympics in Paris this summer, and I think it's going to be just just a monster monster event. Fingers crossed. Everything goes well, but that's good for all the companies associated with the Olympics. You've got one here, Nike. Talk to us about that.
Yeah, So Nike's interesting. You've got the Olympics coming up. They've got new product that's going to be displayed there and promoted there with all the advertisement and visibility that happens running shoes like the new pegasusts.
There's other products as well.
They've lagged for two years in innovation, and Puma and Adidas have taken share. You might remember we've talked about Adidas before where we had a focus idea that Puna mcgoyl was behind. She since closed that shifted gears towards Nike because she sees market share recovery with Nike because
they finally got on board with some new innovation. So interesting story there, and I would say similarly, you could kind of throw into the same bucket Galaxy, which is one of the big casino operators in Macau who think about innovation and new product. They opened a big new phase of their Cotai based resort and they're starting to gain market share and summer is the big season for
travel China. Travel is back up, and there's a big story there that again revolves around new product innovation, right time, right place.
What do you also have on the list which is interesting is our age? This is restoration hardware? Is that what this is?
Yeah?
Okay, because the corn wasn't that good, right, and like their stuff is so expensive but in a downturn, that feels a little hard to.
Swallow a discount. You can't get a sales.
Okay, even the outlets store at Industry City, which is they've outlet stores in Brooklyn and stuff is just insanely expensive. You can get something for good quality that's not going to be like eight grand for like a table. I don't know.
Well, so you're playing into the idea here, Alex, and I am going to date myself. I remember being an equity research salesperson back at Goldman on the day and we were doing the IPO for restoration hardware, and I remember traveling around with management. But that's another story. RH is one of our cautious ideas, along with HCA, the big US hospital company, as well as Nintendo the gaming software electronics company. We do have negative focus ideas as
well as positive focus ideas. And the thing with RH management guidance and still consensus is guiding for a recovery from what you're just talking about. But now, withstanding the resilient US consumer, we still expect the recovery that's anticipated to disappoint, you know, for int, your sales last year, we're disappointing, notwithstanding the consumer, and we think a recovery is going to be delayed and expectations are going to be cut again.
So that's that one.
That's on the cautious side, right Yeah, Okay.
Yes, indeed, I would throw out similarly in terms of we think overly optimistic expectations. And Nintendo obviously totally different story, but we all know game Boy and Switch and.
Things like that.
Boy yeah, yeah, going back in the day. But you know their current console is the Switch and there is a new console coming out called Switch too. And Paul, you know from your background these console stories are big deals, whether it be for Nintendo or Microsoft or what have you. This one is sort of like waiting for Goodough.
We hit that point. We thought.
We've been thinking they were going to announce a date, but it still is yet to come, and we think it causes room for disappointment relative to where consensus expectations are still setting our.
Thanks to Tim Craig at Bloomberg Intelligence, Chief Global Content Officer, we have something here.
At Bloomberg called Bloomberg New Energy Finance. The idea behind it is to provide data on commodities, power, transport, industries, buildings and agricultural plus new technology.
This week we looked at hydrogen and why it's important as we move towards a green future.
For more. We were joined by Martin Tangler Bloomberg, THENEF head of hydrogen Research, and we asked him first to break down what green hydrogen.
Is green hydrogen is one way of producing hydrogen via electrolysis. So that's splitting water into oxygen and hydrogen using green electricity. So that's what green hydrogen is.
So explain to us where the technology green hydrogen? Where are we in terms of the development of this technology.
Yeah, so this is a really it's an old technology. At its core. We've used it for more than one hundred years. We've done electrolysis of breaking up water molecules into hydrogen oxygen. What's new, though, is that this time we want to use green electricity in order to reduce the emissions from the production of what's called gray hydrogen.
Gray hydrogen being hydrogen made from fossil fuels without any capturing of the resulting CO two, which is how we might make the vast majority of the hydrogen today, and many countries, many governments have been incentivizing the production of green and sometimes also so called blue hydrogen that's gray with carbon capture and storage attached to that, so that we can decarbonize a deproduction of the gray hydrogen that we already produced today one hundred millions. It's a lot
of hydrogen we make. And also to use hydrogen in some other sectors to decarbonize things like steel production for example, or shipping where it's really hard to do electrification.
Why do we want hydrogen? It is very expensive to split. It is more expensive if you are going to split a hydrogen and oxygen using renewable energy. So why do we want it? What's the end product? So awesome?
Yeah, so we want it, as I've said, in order to reduce emissions. That's the only reason honestly. Today, making green hydrogen, as you said, Alex, is more expensive than making gray hydrogen, and in turn, making gray hydrogen is more expensive than using fossil fuels because hydrogen is made gray hydroen is made from those fossil fuels. So we only use hydrogen in sectors where it is required for the chemical properties of it today, so that's production of fertilizers,
things like ammonia NH three. You cannot make NH three without putting H in there. Right, same goes for all refining. You need hydrogen and for future as I've said, we're going to need it for sectors that are going to be really hard to decarbonize using electrification. For example, it's really hard to run a ship that runs across half the world on batteries, you just don't have enough batteries. Batteries are too heavy, they take up too much space.
We need something denser, and one way we could do that, for example, is to combine hydrogen and nitrogen into ammonia or hydrogen carbon and oxygen into methanol and use those to power the ship instead as a more energy dense fuel.
Martin Which countries or which parts of the world are leading in this green hydrogen move.
This is a really hard one to say. If you ask people five years ago, they tell you it's totally Japan that's leading. Japan is the first country that had a hydrogen strategy way back when, in twenty fourteen, when nobody has even thought about hydrogen to the extent that many people are today. But now we could say the real leaders are the US and European Union and its member states. In the US, as you're probably aware, the Inflation Reduction Act was passed back in August twenty twenty two.
There were some pretty generous tax credits for the production of green and blue hydrogen, and we're seeing especially the blue hydrogen projects in the US now coming through because the economics could actually work out on green It's a bit more difficult because companies are still waiting on guidance as to the rules under which they could claim these credits. In Europe, there's a lot of excitement. Europe is the one place since probably the most sincere desire to decarbonize
and the strongest policies to do that. We have carbon prices, we have mandates to use hydrogen. There's very few other places where we have actual mandates that require use of hydrogen for for example, shipping or aviation. That's what we're seeing in Europe.
Thanks to Martin Tangler. Bloomberg be any Head of Hydrogen Research is.
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