Could Big Oil’s next big thing be getting a big helping hand from Joe Biden?
Maybe, if carbon capture and storage is really as big as ExxonMobil’s first deal to extract, transport and store carbon from other companies’ factories.
The deal, announced last month, is called for ExxonMobil to capture carbon emitted by CF Industries‘ ammonia plant in Donaldsonville, La., and transport to the underground storage using pipelines owned by Enlink Midstream. Set to start in 2025, the deal is meant to mark a new stage in dealing with the carbon produced by the plant, and is the latest step in ExxonMobil’s often-tense dialogue with investors who want the oil company to cut emissions.
The Inflation Reduction Act, passed in August, can determine why deals like Exxon’s become a trend. The law expands tax credits for carbon capture from industrial use in a bid to offset the up-front costs of plans to capture carbon from places like CF’s factory, as other tax credits in the law reduce the cost of renewable energy and electric cars.
Big Oil and Inflation Reduction Act
The law could help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profits that will be lost as EVs proliferate. Although the company did not share financial forecasts, it has committed to investing $15 billion in CCS by 2027 and ExxonMobil Low-Carbon Solutions president Dan Ammann said it could invest more.
“We see a huge business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies in a number of industries, a number of sectors, a number of geographies.”
The deal calls for ExxonMobil to capture and remove 2 million metric tons of carbon dioxide annually from CF plants, equivalent to replacing 700,000 gasoline-powered vehicles with electric versions.
Each of the companies involved is pursuing its own version of a low-carbon industrial economy. CF wants to produce more carbon-free blue ammonia, a process that often involves extracting the ammonia component 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 industrial corridors 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 industry-wide plan and its first deal for the CCS needs of another company, ExxonMobil hopes that its low-carbon business will quickly scale into a legitimate source of income and profit.
Exxon itself wants to develop carbon capture as a new business, Amman said, pointing to a “very large backlog of similar projects,” part of the company’s pledge to remove as much carbon from the atmosphere as Exxon itself by 2050.
“We want oil companies to be active participants in carbon reduction,” said Julio Friedmann, deputy assistant secretary of energy under President Obama and chief scientist at Carbon Direct in New York. “It’s my hope that this can be a flagship project.”
The key to the sudden burst of activity is the Inflation Reduction Act.
“This is a really good example of the intersection of good policy coming together with business and innovation that can happen on the business side to tackle the big problem of emissions and the big problem of climate change,” said Ammann. “The interest we’re seeing, the backlog, all confirm that this is starting to move and start quickly.”
The law increased an existing tax credit for carbon capture to $85 a ton from $45, said Goldman, which will save the Exxon / CF / Enlink project as much as $80 million a year. Credits for captured carbon used underground to increase fossil fuel production are lower, at $60 per ton.
“Capturing carbon is a big boy’s game,” says Peter McNally, global sector lead for industrial, materials and energy research at consultancy firm Third Bridge. “This is a billion-dollar project. This is a large company that captures a large amount of carbon. And a large oil and gas company that has the expertise.”
Goldman Sachs, and environmentalists, are skeptical
A Goldman Sachs team 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 in long-term projects. To accelerate further investment, companies need to build CCS systems on a larger scale and create more efficient carbon extraction chemistry, Goldman’s team said.
Industrial use is the third largest source of greenhouse gas emissions in the US, according to the EPA. It is slightly behind electricity production and transportation. Reducing emissions in industrial uses is considered more expensive and difficult than in power generation or car and truck transport. Industry is a focus for CCS as utilities and vehicle manufacturers look first to other technologies to reduce emissions.
Nearly 20 percent of US electricity last year came from renewable sources that replaced coal and natural gas and another 19 percent came from carbon-free nuclear power, according to government data. Renewables’ share is rincrease rapidly in 2022, according to the report of the Ministry of Energy interim, and IRA also expands tax credits for wind and solar energy. Most airlines plan reduce carbon footprint by switching to biofuels over the next decade.
More oil and chemical companies are likely to jump on the carbon capture bandwagon first. In May, the British oil giant BP and petrochemical maker Linde announced plans to capture 15 million tons of carbon annually at the Linde plant in Greater Houston. Linde wants to expand sales of low-carbon hydrogen, which is typically made by mixing natural gas with steam and chemical catalysts. In March, Oxy announced a deal with wood producer Weyerhauser’s unit. Oxy won the right to store carbon under Weyerhauser’s 30,000 acres of forest land, although it continues to grow trees on the surface, with both companies prepared to expand to other sites over time.
Still, environmentalists remain skeptical of CCS.
Tax credits may reduce CCS costs to companies, but taxpayers still foot the bill for what remains a “boondoggle,” said Carroll Muffett, CEO of the International Environmental Law Center in Washington. The biggest part of industrial emissions comes from electricity used by factories, and factory owners must reduce that part of their carbon footprint with renewable energy as a top priority, he said.
“It doesn’t make economic sense at the highest level, and the IRA doesn’t change that,” Muffett said. “It just changes who takes the risk.”
Friedman countered by saying economies of scale and technical innovation would cut costs, and that CCS could reduce carbon emissions by as much as 10 percent over time.
“These are pretty strong numbers,” Friedmann said. “And it’s about things you can’t easily overcome any other way.”