Could Big Oil’s Next Big Thing Be Getting a Big Help from Joe Biden?
Maybe if carbon capture and storage is really as big a deal as ExxonMobil’s first-of-its-kind contract to extract, transport and store carbon from other companies’ factories.
The agreement announced last month requires ExxonMobil capture the carbon released by CF IndustriesAmmonia plant in Donaldsonville, La., and transports to underground storage using pipelines owned by Enlink Midstream. The deal, which is due to start in 2025, is meant to herald a new phase in producers’ efforts to tackle carbon emissions and is the latest step in ExxonMobil’s often tense dialogue with investors who want oil companies to cut emissions.
The Inflation Reduction Act passed in August could determine whether deals like Exxon’s are a trend. The law expands tax credits for carbon sequestration from industrial uses to offset the high upfront costs of plans to capture carbon from places like CF’s plant, as other tax credits in the law reduce the costs of renewable energy and electric vehicles.
The Deflation Act and Big Oil
The law could help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profits they will lose as electric cars proliferate. Although the company did not share financial projections, it has committed to investing $15 billion in CCS by 2027, and Dan Ammann, president of ExxonMobil Low-Carbon Solutions, said more will be invested.
“We see a huge business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies across all industries, across a range of sectors, across all geographies.”
The deal calls for ExxonMobil to capture and remove 2 million metric tons of carbon dioxide per year from CF’s factory, the equivalent of replacing 700,000 gasoline-powered cars with electric versions.
Each participating company is implementing its own version of the low-carbon industrial economy. CF wants to produce more carbon-free blue ammonia, a process that often involves extracting the ammonia components from carbon-laden fossil fuels. Enlink hopes to be a kind of railway for captured CO2 emissions, calling itself the “CO2 transport provider of choice” for an industrial corridor loaded with refineries and chemical plants.
An industrial facility in the Houston ship channel where Exxon Mobil is proposing a carbon capture and sequestration network. Between this broad industrial plan and its first deal with another company for its CCS needs, ExxonMobil hopes its low-carbon business can quickly become a legitimate source of revenue and profit.
Exxon itself wants to develop carbon capture as a new business, Amman said, pointing to “a very large backlog of similar projects” as part of the company’s commitment to remove as much carbon from the atmosphere as Exxon emits by 2050.
“We want oil companies to be active participants in carbon reduction,” said Julio Friedmann, President Obama’s deputy assistant secretary of energy and chief scientist at Carbon Direct in New York. “I expect this could be a flagship project.”
The key to immediate action is the Inflation Relief Act.
“This is a really good example of the intersection of good policy and innovation that can happen on the business side to solve the big problem of emissions and the big problem of climate change,” Ammann said. “The interest we’re seeing, the pullback, confirms that it’s starting to move, and it’s starting to move quickly.”
Goldman said the law increased the existing tax credit for carbon capture from $45 to $85 a ton, which would save the Exxon/CF/Enlink project $80 million a year. Credits for captured carbon, which is used underground to fuel more fossil fuel production, are lower, at $60 per ton.
“Carbon capture is a big boys’ game,” said Peter McNally, global sector head of industrials, materials and energy research at consulting firm Third Bridge. “These are billion-dollar projects. Big companies are sequestering huge amounts of carbon. And big oil and gas companies are where the experience is.”
Goldman Sachs and environmentalists are skeptical
The Goldman Sachs group, led by analyst Brian Singer, called the law “transformative” for climate mitigation technologies, including battery storage and clean hydrogen. But his analysis is less bullish when it comes to the impact on carbon capture projects like Exxon’s, with Singer expecting more modest gains as the law accelerates development on long-term projects. According to Goldman’s team, to further accelerate investment, companies need to scale up CCS systems and invent more efficient carbon extraction chemistry.
According to the EPA, industrial uses are the third largest source of greenhouse gas emissions in the United States. It lags behind both electricity generation and transport. Reducing waste in industrial use is considered more expensive and difficult than both electricity generation and the transportation of cars and trucks. Industry is in the spotlight for CCS as utilities and automakers turn first to other technologies to reduce emissions.
About 20 percent of U.S. electricity last year came from renewable sources, replacing coal and natural gas, and another 19 percent from carbon-free nuclear power, according to government data. According to interim reports from the Department of Energy, the share of renewable sources is increasing rapidly in 2022, and the IRA is also expanding tax credits for wind and solar energy. Most airlines plan to reduce their carbon footprint by switching to biofuels over the next decade.
More oil and chemical companies will be the first to jump on the carbon capture bandwagon. In May, the British oil giant BP and petrochemicals maker Linde announced plans to capture 15 million tons of carbon annually at its Linde plants in Greater Houston. Linde wants to expand sales of low-carbon hydrogen, which is typically made by mixing natural gas with steam and a chemical catalyst. in March, Oxy wood manufacturer Weyerhauser announced a contract with a unit. Oxy won the rights to store carbon beneath Weyerhauser’s 30,000-acre forest, while both companies continue to grow trees on the surface, preparing to expand into other areas over time.
Still, environmentalists are skeptical of CCS.
Carroll Muffett, CEO of the Center for International Environmental Law in Washington, said the tax credits could reduce the costs of CCS for companies, but taxpayers still foot the bill for what remains a “boondoggle.” The largest share of industrial emissions comes from the electricity used by factories, and factory owners need to reduce that part of their carbon footprint with renewable energy, he said.
“It makes no economic sense at the highest levels, and the IRA doesn’t change that,” Muffet said. “It just changes who bears the risk.”
Economies of scale and technical innovation will drive costs down and CCS could reduce carbon emissions by up to 10 percent over time, Friedman said.
“That’s a pretty strong number,” Friedmann said. “And it’s about things you can’t easily deal with otherwise.”