Chemicals · Industrial Gases
Take-or-Pay Contracts in Industrial Gases
Air Liquide take-or-pay, Linde minimum purchases, Air Products fixed monthly fees: why the wording differs but the cash-flow floor is the same, with filed RPOs.
Selborne Research · Industrial Gases coverage: 7 guides, 4 company profiles, a primer and Excel model
Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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The Floor Is the Product
Take-or-pay turns an expensive on-site plant into contracted cash flow. An on-site plant is built at or beside one customer’s site and feeds it by pipeline. When that refinery, steel mill or chip plant runs below capacity, the supplier still collects its minimum purchases or fixed monthly fees. Of the four majors (Linde, Air Liquide, Air Products and Nippon Sanso), Air Products leans most on on-site plants: 51% of FY2025 sales ($6,180M of $12,037M).
Merchant supply (liquid gas trucked to customer tanks) and packaged supply (cylinders) have no such floor.
How Three Majors Describe the Floor
| Filer | Segment | Contract term | Floor mechanism | Other terms |
|---|---|---|---|---|
| Linde | On-site | Mostly 10-20 years; the longest 30 | Minimum purchase requirements | Price escalation |
| Air Products | On-site | 15-20 years (10-15 small plants) | Fixed monthly charges and/or minimum purchase requirements | Price escalation tied to external indices |
| Air Liquide | Large Industries (its on-site unit) | ≥15 years | Take-or-pay clauses guaranteeing minimum revenue | Energy costs passed to the customer |
The wording differs; the cash flow does not. A minimum purchase requirement, a take-or-pay clause and a fixed monthly fee all answer one question: what does the supplier earn if the customer runs at 60% of capacity instead of 95%?
Remaining Performance Obligations: Scale of the Floor
Remaining performance obligations (RPO) are revenue under contract but not yet earned, a figure the revenue accounting standard requires. Only the two US filers publish one, and they draw the lines differently:
| Company | RPO | As-of | What it includes and leaves out |
|---|---|---|---|
| Linde | $62bn | 31 Dec 2025 | Future minimum purchases plus fixed-price plant sales by its engineering business; excludes volumes above the minimums |
| Air Products | $26bn | 30 Sep 2025 | Fixed charges on on-site and sale-of-equipment contracts; excludes plants not yet on-stream |
So the two cannot be compared line for line. Timing differs too: Linde expects half of its minimum-purchase revenue within six years, Air Products half of its RPO within five.
Filed Contract Examples
Air Products, fixed monthly fee. Its FY2025 10-K describes a plant in Uzbekistan that it owns and operates under a 15-year on-site contract. The plant turns natural gas into syngas, a hydrogen and carbon monoxide mix used as chemical feedstock. The customer supplies the natural gas and utilities, and Air Products receives a fixed monthly fee, made up of a plant capacity fee and an operating and maintenance fee, whether or not the customer requires the output. That is take-or-pay economics without the label.
Air Products, green hydrogen. Its January 2025 proxy filing says 35% of the output of NEOM, the Saudi green-hydrogen project, was sold on take-or-pay terms, and cites under that figure a 15-year contract with TotalEnergies for 70,000 t/yr of green hydrogen from 2030.
Air Liquide, Large Industries. Its annual report states contracts of at least 15 years with take-or-pay clauses guaranteeing minimum revenue. Energy costs are re-invoiced to the customer, which keeps power-price swings out of profit.
Linde, minimum purchases. On-site contracts carry minimum purchase requirements.
What a Model Has to Assume
No major filer discloses take-or-pay as a share of on-site revenue, so a model has to assume one. The Excel model treats on-site earnings as contracted except for a 15% slice above the contract minimum, which falls in a downturn. Its two fictional companies hold on-site contracts of 20 years, the top of the usual 10-20 year range, and each carries an 80% chance of renewal at expiry.
Its single-plant example uses a 15-year contract, the middle of that range. The plant is an air separation unit, which splits air into oxygen, nitrogen and argon. It makes 2,000 tonnes a day, costs $250M to build, and the customer must pay for at least 85% of that output. Energy is passed through to the customer, so the fee pays for the plant alone.
Link to Valuation
Contract floors are the main reason industrial gases are valued above commodity chemicals on EV/EBITDA. The premium valuation guide sets out the ranges and the other reasons, including plants clustered near customers, which keeps rivals out.
Industrial Gases Sector Primer
Contracted on-site cash flow valued year by year with a renewal value, the merchant and packaged slice on a market multiple, a backlog adder and a downturn test.
- 15 sections, from the three supply modes to a sum-of-the-parts valuation, a downturn test and ROCE against WACC
- 43 pages
- a packaged-and-merchant global leader and an on-site-heavy major
- 2 worked archetypes
- the listed gas majors on filed supply-mode mix, return on capital and backlog
- 4-company screen
The Excel model is the primer's sum-of-the-parts valuation live across 11 sheets: two archetypes (a global leader and an on-site-heavy major), each splitting EBITDA by supply mode, valuing the contracted on-site slice as escalated year-by-year cash flow over the contract plus a renewal value and the cyclical slice on a market multiple, adding a backlog value and deducting net debt; an on-site contract schedule; a supply-mode downturn test; ROCE against WACC; and a live sensitivity grid. Change the on-site share, the contract discount rate or the cyclical multiple and the value moves.
See what's in the Industrial Gases Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Chemicals industries
Frequently Asked Questions
- What is take-or-pay in industrial gases?
- A contract under which the customer pays for a minimum volume, or a fixed monthly capacity fee, whether or not it takes the gas. On-site plants, built at the customer's site to supply it alone, use these floors because the supplier's capital is sunk there. Air Liquide files explicit take-or-pay language for Large Industries, its on-site unit (contracts of at least 15 years); Linde files minimum purchase requirements (mostly 10-20 years); Air Products files fixed monthly charges and/or minimum purchases (15-20 years).
- Do filers disclose what % of on-site revenue is take-or-pay?
- No. Linde, Air Products, Air Liquide and Nippon Sanso do not quantify take-or-pay as a percentage of on-site revenue in their primary filings, so a model has to assume a share.
- What are remaining performance obligations at Linde and Air Products?
- Remaining performance obligations (RPO) are contracted revenue not yet earned. Linde: $62bn at 31 December 2025, from future minimum purchases and fixed-price plant sales by its engineering business, excluding on-site volumes above the minimums (FY2025 10-K). Air Products: $26bn from fixed charges on on-site and sale-of-equipment contracts (Sep 2025 10-K).
- How does a fixed monthly fee differ from minimum purchase take-or-pay?
- For cash-flow purposes it barely does: both create a revenue floor when the customer's plant runs slow. Air Products' FY2025 10-K describes a 15-year on-site contract in Uzbekistan that pays a fixed monthly fee, a plant capacity fee plus an operating and maintenance fee, whether or not the customer requires the output. Linde and Air Liquide frame the same idea as minimum purchase requirements or take-or-pay clauses guaranteeing minimum revenue.
Read next
Industrial Gas Business Models
On-site, merchant and packaged channels; contract lengths and minimum purchases; FY2025 mix contrast (LIN packaged 35% vs APD on-site 52%).
Why Industrial Gases Trade at Premium Multiples
Contracted cash flows, pipeline density, oligopoly structure; ~12-16x EV/EBITDA vs commodity chemicals ~6-9x.
Project Backlog vs RPO in Industrial Gases
Why a gases backlog counts capital still to spend and remaining performance obligations count revenue owed, what each filer puts in them, and one plant worked through both.
Hydrogen and the Clean-Energy Backlog
How four gases majors disclose clean-energy backlog: Linde's $10.0bn total, Air Liquide's €4.9bn, Nippon Sanso's ~32% sustainable share and Air Products' projects and exits.
See it applied
These company profiles apply the concepts from this guide to real public companies.