Could Big Oil’s Next Big Thing Have Big Help From Joe Biden?
Perhaps, if carbon capture and storage really is as big of a deal as ExxonMobil’s first-ever deal to capture, transport and store carbon from other companies’ plants.
The deal, which was announced last month, calls for Exxon Mobil to capture the carbon emitted from CF IndustriesThe ammonia plant in Donaldsonville, US, and transported it to underground storage using pipelines owned by Enlink Midstream. Set to begin in 2025, the deal aims to usher in a new era in addressing the carbon produced by manufacturers, 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, may determine whether deals like Exxon become a trend. The act expands tax credits for carbon capture from industrial uses in an effort to offset the higher upfront costs of carbon capture schemes from places like the CF plant, as other tax credits in the act lower costs for renewable energy and electric vehicles.
Great Oil and Inflation Reduction Act
The law could help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profits they will lose as electric vehicles become popular. Although the company doesn’t 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 across a full range of industries, a full range of sectors, and a full range of geographies.”
The deal calls for ExxonMobil to capture and remove 2 million metric tons of carbon dioxide per year from the CF plant, the equivalent of replacing 700,000 gasoline-powered cars with electric versions.
Each company 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 ammonia components from carbon-laden fossil fuels. Enlink hopes to become a kind of railroad for captured CO2 emissions, calling itself the “preferred CO2 transportation provider” for an industrial corridor full of refineries and chemical plants.
An industrial facility on the Houston Ship Channel where ExxonMobil is proposing a carbon capture and sequestration network. Between this industry-wide plan and its first deal for another company’s carbon dioxide capture and storage needs, ExxonMobil hopes its low-carbon business can quickly expand into a legitimate source of revenue and profits.
Exxon itself wants to develop carbon capture as a new business, Ammann said, noting 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 actively involved in carbon reduction,” said Julio Friedman, deputy assistant secretary of energy under President Obama and chief scientist at Carbon Direct in New York. “I expect this to become a pilot project.”
The key to a sudden burst of activity is the law of limiting inflation.
“It’s really a good example of the intersection of good policy along with business and the innovation that can happen on the business side to tackle the big problem of emissions and the big problem of climate change,” said Aman. “The interest that we’re seeing, the backlog, all confirm that this is starting to move and it’s starting to move quickly.”
Goldman said the law increased the current carbon capture tax credit to $85 per ton from $45, which would save the Exxon/CF/Enlink project up to $80 million annually. Credits carbon sequestration used underground to boost the production of more fossil fuels for less, at $60 per ton.
“Carbon capture is an adult’s game,” said Peter McNally, global head of industry, materials and energy research at consultancy ThirdBridge. “These are multi-billion dollar projects. They are big companies that capture large amounts of carbon. The 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-reducing 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, with Singer expecting more modest gains as the law accelerates development on long-term projects. To accelerate investment further, the Goldman team said, companies must build carbon capture and storage systems on a larger scale and devise more efficient carbon capture chemistry.
Industrial uses are the third largest source of greenhouse gas emissions in the United States, according to the Environmental Protection Agency. This is behind both electricity production and transportation. Reducing emissions in industrial uses is more expensive and difficult than in power generation or transportation by cars and trucks. Industry is the focus of CCS technology because utilities and vehicle makers are looking first at other technologies to reduce emissions.
Nearly 20 percent of electricity in the United States last year came from renewable sources replacing coal and natural gas and another 19 percent came from zero-carbon nuclear power, according to government data. The renewable energy share is rFast forward to 2022According to interim Energy Department reports, the IRA has also expanded tax credits for wind and solar power. Most airlines plan to Reducing carbon emissions by switching to biofuels over the next decade.
More oil and chemical companies seem likely to join the carbon capture bandwagon first. In May, the 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 its sales of low-carbon hydrogen, which is usually made by mixing natural gas with steam and a chemical catalyst. in March , oxy announced a deal with a unit of Weyerhauser lumber producers. Oxy won the rights to store carbon under Weyerhauser’s 30,000-acre forestland, even as it continues to plant trees on the surface, with both companies poised to expand to other locations over time.
However, environmentalists remain skeptical about carbon dioxide capture and storage.
Carol Moffitt, executive director of the Center for International Environmental Law in Washington, said tax breaks may lower the cost of carbon capture and storage for businesses, but taxpayers are still footing the bill for what remains “in vain.” He said the bulk of industrial emissions come from the electricity used by factories, and factory owners must reduce this part of their carbon footprint by using renewable energy as a top priority.
“It doesn’t make any economic sense at the highest levels, and the IRA doesn’t change that. It just changes who takes the risk,” Maffitt said.
Friedman responded by saying that economies of scale and technical innovations would lower costs, and that carbon capture and storage could reduce carbon emissions by up to 10 percent over time.
“It’s a pretty solid number,” Friedman said. “And it’s about things that you can’t handle easily any other way.”
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