As the global energy sector transitions from fossil fuels to clean energy in the next several decades, the companies servicing the oil and gas industry are also looking to transition their businesses from servicing oilfields to servicing clean energy operations.

On Monday, Bank of America analyst Chase Mulvehill took a look at hydrogen production and which oil services stocks have the highest exposure to the zero-emission energy source.

Hydrogen Pipeline: Mulvehill said hydrogen provides a potential opportunity to completely decarbonize certain industries, such as heavy trucking and steel, cement and chemical production. In addition, hydrogen could also potentially provide a better form of long-term energy storage than today’s batteries do.

Today’s hydrogen business is extremely modest at only around 110 million tonnes per annum (MTPA). Estimates for hydrogen production vary widely. The International Energy Agency estimates the world will have 287 MTPA of installed hydrogen capacity by 2050, while the Hydrogen Council suggests capacity could hit 546 MTPA in the long term.

The current backlog of announced hydrogen projects represents just 17 MTPA of cumulative production, Mulvehill estimates. The hydrogen industry added 5.6 MTPA of capacity in 2020 and has added another 3 MTPA so far in 2021.

Europe is leading the global hydrogen production development efforts and represents about 78% of the current hydrogen project pipeline. North American hydrogen projects currently represent only about 1 MTPA of capacity.

How To Play It: Mulvehill said Baker Hughes Co (NYSE: BKR), Schlumberger NV (NYSE: SLB), and Chart Industries, Inc. (NYSE: GTLS) have the most exposure to hydrogen production among the U.S. oilfield services group.

“BKR is quickly establishing itself as a major equipment supplier across the hydrogen value chain as highlighted by two recent collaboration agreements, which should help to support BKR’s 2030 annualized $25-30bn hydrogen TAM,” Mulvehill wrote in the note.

Bank of America has the following ratings and price target for the three potential hydrogen plays:

• Baker Hughes: Buy rating, $33 target.
• Chart Industries: Buy rating, $178 target.
• Schlumberger: Buy rating, $42 target.

Benzinga’s Take: The global shift from fossil fuel to renewable energy will not occur overnight, and the world will continue to need energy in the meantime. There’s certainly plenty of money to be made investing in alternative energy in the long term, but analysts say there also will still be big profits in the oil and gas industry for at least another decade.