Could it be Big Oil’s next big thing got big help from Joe Biden?
Perhaps, if carbon capture and storage is indeed as big of a deal as ExxonMobil’s first deal of its kind to extract, transport and store carbon from other companies’ plants.
The deal, announced last month, calls for Exxon Mobil to capture the carbon emitted CF Industriesammonia plant in Donaldsonville, La., and transport it to underground storage using pipelines owned by Enlink Midstream. The deal, which starts in 2025, is intended to herald a new phase in dealing with manufacturer-produced carbon, and is the latest step in ExxonMobil’s often tense dialogue with investors who want oil companies to reduce emissions. Reduce.
The Inflation Reduction Act, passed in August, could determine whether deals like Exxon’s become a trend. The law expands tax credits for capturing carbon from industrial use in an effort to offset the high initial cost of plans to capture carbon from places like CF’s plant, as other tax credits in the law increase the cost of renewable energy and reduce electric cars.
The Inflation Reduction Act and Big Oil
The law could help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profit they will lose as EVs proliferate. While the company does not share financial projections, it has committed to investing $15 billion in CCS by 2027 and Dan Ammann, president of ExxonMobil Low-Carbon Solutions, says it may invest more.
“We see a great business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies from a whole range of industries, a whole range of sectors, a whole range of geographies.”
The deal requires ExxonMobil to capture and remove 2 million tons of carbon dioxide annually from CF’s plant, equivalent to replacing 700,000 gasoline vehicles with electric versions.
Each company involved is pursuing its own version of the low-carbon industrial economy. CF wants to produce more carbon-free blue ammonia, a process that often extracts the components of ammonia from carbon-laden fossil fuels. Enlink hopes to become a kind of railroad for captured CO2 emissions, billing itself as the potential “CO2 transport provider of choice” for an industrial corridor loaded with refineries and chemical plants.
An industrial facility on the Houston Ship Channel where Exxon Mobil is proposing a carbon capture and storage network. Between this industry-wide plan and the first deal for another company’s CCS needs, ExxonMobil hopes its low-carbon business scales quickly to a legitimate source of revenue and profit.
Exxon wants to develop carbon capture itself as a new company, 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 emits 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. “I expect this can become a flagship project.”
The key to the sudden wave of activity is the Inflation Reduction Act.
“It’s a very good example of the intersection of good policy coming together with business and the innovation that can happen on the business side to address the big problem of emissions and the big problem of climate change,” Ammann said. “The interest that we’re seeing, the backlog, all confirm that this is starting to move and is starting to move fast.”
The law increased an existing carbon capture tax credit from $45 to $85 per ton, Goldman said, which will save the Exxon/CF/Enlink project as much as $80 million a year. Credits for captured carbon used underground to improve the production of more fossil fuels are lower, at $60 per ton.
“Carbon capture is a big boys’ game,” said Peter McNally, global sector leader for industrial, materials and energy research at consulting firm Third Bridge. “These are multi-billion dollar projects. It’s big companies capturing large amounts of carbon. And big oil and gas companies are where the expertise is.”
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 the 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 accelerates development of long-term projects. To accelerate investments more, companies need to build CCS systems on a larger scale and invent more efficient carbon extraction chemistry, the Goldman team said.
Industrial use is the third largest source of greenhouse gas emissions in the US, according to the EPA. That is just behind both electricity production and transport. Emission reduction in industrial use is considered more expensive and more difficult than in energy generation or car and truck transport. Industry is the focus for CCS as utilities and automakers look first to other technologies to reduce emissions.
According to government data, nearly 20 percent of U.S. electricity last year came from renewable sources that replace coal and natural gas, and another 19 percent from carbon-free nuclear power. The share of renewable energy is rising rapidly in 2022, according to interim reports from the energy department, 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 in the next decade.
It seems likely that more oil and chemical companies will be the first to get on the carbon capture bandwagon. In May British oil giant BP and petrochemical maker Linde announced a plan 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 usually made by mixing natural gas with steam and a chemical catalyst. In March, oxygen announced a deal with a division of wood producer Weyerhauser. Oxy won the rights to store carbon under 30,000 acres of Weyerhauser’s forest land, even as trees continue to grow on the surface, and both companies were willing to expand to other locations over time.
Yet environmentalists remain skeptical about CCS.
Tax credits can reduce the cost of CCS for businesses, but taxpayers still foot the bill for what remains a “boondoggle,” said Carroll Muffett, CEO of the Center for International Environmental Law in Washington. Most of industrial emissions come from the electricity factories use, and factory owners should reduce that portion of their carbon footprint with renewable energy as a top priority, he said.
“It makes no economic sense at the highest level, and the IRA is not changing that,” Muffett said. “It only changes who takes the risk.”
Friedman responded by saying that economies of scale and technical innovations will reduce costs, and CCS can reduce carbon emissions by as much as 10 percent over time.
“It’s a pretty robust number,” Friedmann said. “And it’s about things that you can’t easily tackle any other way.”