Could it be that Joe Biden was a big help to Big Oil’s next big project?
Maybe if carbon capture and storage really is as important as ExxonMobil’s first-of-its-kind deal to capture, transport and store carbon from other companies’ plants suggests.
The deal, which was announced last month, provides for ExxonMobil to capture the carbon released KF Industriesammonia in Donaldsonville, Louisiana, and transport it to underground storage through pipelines owned by Enlink Midstream. The deal, due to begin in 2025, is meant to mark a new stage in the fight against carbon produced by manufacturers and is 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, could determine whether deals like Exxon become a trend. The law expands tax credits for industrial carbon capture to offset the high upfront costs of plans to capture carbon from places like a CF plant, as other tax credits in the law reduce the cost of renewable energy and electric vehicles.
Inflation Reduction Act and Big Oil
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 proliferate. While the company does not share financial projections, it has committed to invest $15 billion in CCS by 2027, and ExxonMobil Low-Carbon Solutions president Dan Ammann says he could invest more.
“We see great business opportunities here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies across a range of industries, across a range of sectors, across a range of geographies.”
The deal requires ExxonMobil to capture and remove 2 million metric tons of carbon dioxide annually from the CF plant, the equivalent of replacing 700,000 gasoline-powered vehicles with electric versions.
Each participating company is implementing 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-rich fossil fuels. Enlink hopes to become a kind of railroad for captured CO2 emissions, calling itself a potential “CO2 transportation choice supplier” for an industrial corridor loaded with refineries and chemical plants.
An industrial facility on the Houston Ship Canal where Exxon Mobil offers a carbon capture and sequestration network. ExxonMobil hopes that this industry-wide plan and its first deal relating to another company’s CCS needs will quickly turn its low-carbon business into a legitimate source of revenue and profit.
Exxon itself wants to develop carbon capture as a new business, Amman said, pointing to “a very large number of similar projects” as part of the company’s promise to remove as much carbon from the atmosphere as Exxon emits by 2050.
“We want oil companies to actively participate in reducing carbon emissions,” said Julio Friedmann, Deputy Assistant Secretary of Energy under President Obama and Chief Scientist at Carbon Direct in New York. “I expect this to 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 with business and the innovation that can happen on the business side to solve the big emissions problem and the big climate change problem,” Ammann said. “The interest that we’re seeing, the lag, all confirm that this is starting to move, and starting to move quickly.”
The law increased the existing carbon sequestration tax credit from $45 to $85 per tonne, Goldman said, saving the Exxon/CF/Enlink project up to $80 million a year. Credits for captured carbon used underground to increase the production of more fossil fuels are lower at $60 per ton.
“Carbon capture is a big boy game,” said Peter McNally, head of the global sector for industrial, materials and energy research at consulting firm Third Bridge. “These are billion dollar projects. These are large companies capturing large amounts of carbon. And large oil and gas companies are where there is experience.”
Goldman Sachs and environmentalists are skeptical.
A Goldman Sachs team led by analyst Bryan Singer called the law “transformative” for climate reduction technologies, including battery storage and clean hydrogen. But his analysis is less optimistic when it comes to the impact on carbon capture projects like Exxon’s, as Singer expects more modest gains as the law speeds up development of long-term projects. To accelerate investment, companies must build CCS systems on a larger scale and invent more efficient chemistry to extract carbon, according to the Goldman team.
According to the EPA, industrial use is the third largest source of greenhouse gas emissions in the US. This is slightly less than electricity generation and transportation. Reducing emissions in industry is considered to be more expensive and difficult than in the production of electricity or cars and trucks. The industry is a focus of CCS because utilities and vehicle manufacturers are primarily looking to other technologies to reduce emissions.
Nearly 20 percent of US electricity last year came from renewable sources, replacing coal and natural gas, with another 19 percent coming from carbon-free nuclear power, according to government data. The share of RES is rgrowing rapidly in 2022, according to interim reports from the Department of Energy, 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 within the next decade.
Most likely, more oil and chemical companies will be the first to join in carbon sequestration. In May, the British oil giant HELL and petrochemical manufacturer Linde announced a plan to capture 15 million tonnes of carbon annually at Linde’s Greater Houston plants. Linde wants to expand sales of low-carbon hydrogen, which is typically produced by blending natural gas with steam and a chemical catalyst. In March, oxy announced a deal with a division of timber manufacturer Weyerhauser. Oxy has secured the right to store carbon under 30,000 acres of Weyerhauser woodland even as it continues to grow trees on the surface, and both companies are poised to expand to other sites over time.
However, environmentalists remain skeptical of CCS.
Tax credits may reduce the cost of CCS to companies, but taxpayers are still paying for what remains a “futile exercise,” said Carroll Muffet, CEO of the Center for International Environmental Law in Washington. Most industrial emissions come from the electricity that factories use, he said, and factory owners should reduce that part of their carbon footprint with renewables as a top priority.
“It doesn’t make economic sense at the highest level, and the IRA won’t change that,” Muffet said. “It just changes those who take risks.”
Friedman countered, stating that economies of scale and technical innovation would cut costs, and that CCS could cut carbon emissions by as much as 10 percent over time.
“That’s a pretty reliable number,” Friedmann said. “And it’s about things that you can’t easily solve in any other way.”