Could Big Oil’s next big thing get big support from Joe Biden?
Possibly, if carbon capture and storage is really as big of a deal as ExxonMobil’s first deal of its kind to capture, transport and store carbon from other companies’ plants implies.
The deal, announced last month, calls for ExxonMobil to capture the carbon released by CF Industry‘ ammonia plant in Donaldsonville, La., and transported to underground storage by pipeline owned by Enlink Midstream. Set to begin in 2025, the agreement heralds a new stage in carbon sequestration by manufacturers and is the latest step in ExxonMobil’s often intense dialogue with manufacturers. Investors want oil companies to cut emissions.
The Inflation Reduction Act, passed in August, could decide whether deals like Exxon’s go mainstream. The law expands tax credits for capturing carbon from industrial uses to offset the high upfront costs of plans to capture carbon from places like CF factories, as the tax credits other legislation that helps reduce the cost of renewable energy and electric cars.
The Inflation Reduction Act and Big Oil
The law could help oil and gas companies like ExxonMobil build profitable businesses to replace some of the revenue and profits they will lose as electric vehicles ramp up. While the company doesn’t share financial projections, 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 big business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies across multiple industries, sectors, and geographies.”
The agreement requires ExxonMobil to capture and remove 2 million tons of carbon dioxide annually from CF’s plant, which is equivalent to replacing 700,000 gasoline-powered vehicles with electric versions.
Each participating company is pursuing its own version of a low-carbon industrial economy. CF wants to produce more carbon-free green ammonia, a process that typically involves extracting components of ammonia from high-carbon fossil fuels. Enlink hopes to become a railroad to capture CO2 emissions, calling itself “the CO2 carrier of choice” for an industrial corridor teeming with oil refineries and factories. chemistry.
An industrial facility on the Houston Ship Channel where Exxon Mobil is proposing a carbon capture and sequestration network. Between this industry-wide plan and another company’s first deal to meet CCS needs, ExxonMobil hopes that its low-carbon business will quickly scale into a legitimate source of revenue and profit. .
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Exxon itself wants to develop carbon capture as a new business, Amman said, pointing to “a huge backlog of similar projects,” part of the company’s commitment to removing carbon from atmosphere equal to what Exxon itself will emit in 2050.
“We want oil companies to be actively involved in carbon reduction,” said Julio Friedmann, deputy assistant secretary of energy under President Obama and chief scientist at Carbon Direct in New York. “I expect that this can become a flagship project.”
The key to the sudden burst of activity was the Inflation Reduction Act.
“It’s a really good example of how the intersection of good business policy and innovation can happen on the business side to solve the big emissions problem and the big change problem. climate,” said Ammann. “The concern we’re seeing, the work backlog, all confirm that this is starting to move and is starting to move quickly.”
Goldman said the legislation increased the existing tax credit for carbon capture to $85 a ton from $45, which would save the Exxon/CF/Enlink project up to $80 million a year. Credits for the carbon collected are used underground to boost production of more fossil fuels lower, at $60/ton.
“Carbon capture is the big boys game,” said Peter McNally, global regional leader for industrial, materials and energy research at consulting firm Third Bridge. “These are billion-dollar projects. Those are big companies that capture large amounts of carbon. And the big oil companies are where the expertise is.”
Goldman Sachs and skeptical environmentalists
A Goldman Sachs team led by analyst Brian Singer has called the legislation “transformative” for climate-reduction technologies including battery storage and clean hydrogen. But its analysis is less optimistic when it comes to the impact on carbon capture projects like Exxon’s, with Singer expecting more modest gains as the law promotes development of long-term projects. The Goldman team says to speed up investment even more, companies must build CCS systems on a larger scale and invent more efficient carbon-extracting chemicals.
According to the EPA, industrial use is the third largest source of greenhouse gas emissions in the United States. It is narrow after both power generation and transportation. Reducing emissions in industrial use is considered more expensive and difficult than generating electricity or transporting cars and trucks. Industry is a focus for CCS as utilities and vehicle manufacturers are looking to other technologies first to cut emissions.
Nearly 20 percent of U.S. electricity last year came from renewable sources replacing coal and natural gas, and another 19 percent came from carbon-free nuclear power, according to government data. The percentage of renewable energy is ris growing rapidly in 2022, according to an interim report from the Department of Energy, and the IRA also extended tax credits for wind and solar energy. Most airlines have plans reduce their carbon footprint by switching to biofuels in the next decade.
More oil and chemical companies are likely to join the carbon sequestration group first. In May, the British oil giant BP and petrochemical producer Linde announced plans to capture 15 million tons of carbon annually at Linde’s plants in Greater Houston. Linde wants to expand sales of low-carbon hydrogen, which is typically created by mixing natural gas with steam and a chemical catalyst. March, oxygen announced an agreement with a Weyerhauser lumber unit. Oxygen has earned the right to store carbon beneath Weyerhauser’s 30,000 acres of woodland, even as it continues to plant trees on the surface, with both companies set to expand to other locations over time.
However, environmentalists remain skeptical of CCS.
Carroll Muffett, executive director of the Center for International Environmental Law in Washington, said tax credits can cut CCS costs for companies, but taxpayers still have to pay the bill for what remains. It’s also a “silly thing”. The largest share of industrial emissions comes from electricity that factories use, he said, and factory owners should reduce some of that carbon footprint with renewables as a top priority.
“That doesn’t make economic sense at the top level, and the IRA doesn’t change that. It just changes the risk-taker,” Muffett said.
Friedman countered by saying that economies of scale and technical innovation would cut costs and that CCS could reduce carbon emissions by up to 10% over time.
“That’s a pretty solid number,” says Friedmann. “And it’s about things you can’t easily deal with any other way.”
