The last barrel
With the energy transition initiative gaining momentum, it appears that carbon capture, utilization and storage will play a major role in helping us continue to exploit our existing hydrocarbon economy, while moving toward net zero emissions. Carbon capture has been used for decades to improve the quality of natural gas, but by utilizing new technologies, the industry can now remove and sequester CO2 indefinitely. Operators also can add value to what has traditionally been a waste product by turning CO2 into marketable industrial products (Saudi Aramco/Hawiyah). With many international companies making meaningful changes to their business model to achieve carbon reduction goals, several U.S. majors recently announced plans to join the fray.
Exxon Mobil committed $3 billion to fund its Low Carbon Solutions business unit. Although the capex is less than 5% of Exxon’s total spend, it marked a noticeable shift in tone for the company, which has been pressured by investors to reduce emissions and more closely emulate its European peers on climate change. According to CEO Darren Woods, “We’re seeing venture capital looking for opportunities to invest in carbon reduction.” Exxon’s efforts to commercialize low-carbon technologies by partnering with outside investors will be a key objective of the new division. It also would mean Exxon would not need to fund large projects solely with its own cash. Woods also stressed the importance of a government-set price on carbon that rewards projects designed to bury carbon gas, an area in which Exxon sees itself as a leader.
Although Exxon has been in the carbon-capture space for a decade, it has been unwilling to commit significant amounts of capital to projects, due to low returns, regulatory uncertainty and technological constraints (Bloomberg). However, the recently expanded 45Q tax credit makes the technology more appealing, but a carbon tax or other proposals being put to the Biden administration could dramatically boost the sector’s profitability. “Companies that are in sectors that are difficult to decarbonize are looking for opportunities to offset their carbon emissions and we think that’s an opportunity,” Woods said.
Occidental Petroleum announced plans to build the world’s first large-scale, direct air capture plant in the Permian basin, to extract CO2 directly from the atmosphere and pump it underground for storage or to enhance oil recovery. The objective is to lower carbon emissions by 1 MM tons/year, while setting a stretch-goal to eventually produce carbon-negative crude. To cover operating costs, Oxy will initially use much of the CO2 in a secondary recovery operation to help extract oil from tight shale formations. The facility, expected to cost several $100 MM, will need support from tax credits to be financially viable. “Oxy wants to become a carbon management company,” says CEO Vicki Hollub. “I do believe that in 15 to 20 years, more of our income will be from carbon management than from oil and gas.”
American Petroleum Institute has said it’s considering backing a government-imposed price on CO2 emissions, a major policy shift from the group’s previously stated position. Although API’s draft policy statement does not endorse a specific mechanism, such as a tax on CO2 emissions or cap-and-trade system, it does endorse a market-based, economy-wide policy. The U.S Chamber of Commerce embraced market-based policies to limit emissions in January, and several of API’s largest members already support a carbon tax-and-rebate plan.
“Getting a market price on carbon is going to be important, to ensure that we’re using market forces to implement the most cost-effective methods to reduce CO2 emissions,” said Exxon Mobil CEO Darren Woods at CERAWeek. “Governments should not pick winners and losers. The efforts have gained momentum, as international energy companies are making investment decisions, based on the assumption that emissions limits will be imposed by regulation, tax or other mechanisms. The companies are seeking regulatory certainty on the issue, instead of environmental policies that whipsaw with every presidential election.”
ADNOC’s low carbon strategy. Speaking during a virtual panel session at CERAWeek, H.E. Dr. Al Jaber explained that the UAE has been preparing for the energy transition for 15 years. “We have always seen the energy transition as an opportunity to diversify and develop our economy. As the founding CEO of Masdar, I was closely involved in growing the UAE’s renewable investments. Today, the UAE has three of the largest and lowest-cost solar projects in the world, with significant renewable energy projects in 30 countries globally. However, we also understand that the world will still need oil and gas for many decades to come, so our mission at ADNOC is to provide hydrocarbons as responsibly as possible, and we plan to reduce carbon intensity by an additional 25% over the next 10 years.”
A game-changer. Dr. Al Jaber then highlighted the importance of CCUS to help meet reduction goals. “ADNOC saw the technology as a game-changer, when it introduced it in the region four years ago by building the region’s first, and largest, industrial-scale CCUS facility. The truth is, there is no credible way of reaching global climate goals without the widespread adoption of CCUS, and this goes beyond the oil and gas industry. In fact, I see an important role for CCUS across sectors that are hard to decarbonize, and use significant amounts of energy, including heavy industrial manufacturing and chemicals. And ADNOC is ready to partner with others, within and outside our industry, to enable wider CCUS adoption.”
The transition to a low-carbon future will be a complex process. Alternatives will take significant time, and renewables cannot do it alone. The industry must embrace advancing CCUS technology, as collaboration between stakeholders will be vital to its success.