Occidental Petroleum Eyes Trillion-Dollar Opportunities in Carbon Capture
Occidental Petroleum (NYSE: OXY) envisions that carbon capture and storage (CCS) will evolve into a massive market, estimating it could grow into a $3 trillion to $5 trillion global industry. ExxonMobil (NYSE: XOM) supports this view, predicting a potential $4 trillion market for capturing and storing carbon dioxide by 2050.
Targeting the Carbon Capture Market
Both companies are positioning themselves to seize this opportunity. Occidental has recently entered a partnership aiming to develop its next direct air capture (DAC) facility in Texas. With its pioneering efforts in carbon capture and storage, Occidental is set to capture a significant share of this burgeoning market.
Developing a Carbon Removal Infrastructure
Occidental Petroleum and its subsidiary 1PointFive have signed an agreement with XRG, the investment arm of Abu Dhabi’s ADNOC, to explore a joint venture for a DAC facility in South Texas. XRG is considering an investment of up to $500 million to facilitate the capture of 500,000 tonnes of carbon dioxide annually.
This announcement follows important benchmarks in DAC technology development. Occidental’s first DAC facility, STRATOS, located in West Texas, is slated to begin commercial operations this year. STRATOS is also designed to capture 500,000 tonnes of carbon dioxide each year and secured an investment of $550 million from BlackRock.
The U.S. Department of Energy has awarded Occidental up to $650 million to support the development of its DAC hub in South Texas. The initial facility is just the starting point, with the hub potentially accommodating up to 30 million metric tons of carbon dioxide removal yearly. The site also offers 165 square miles for storing up to 3 billion tonnes of carbon dioxide in underground saline formations.
Monetizing Carbon Capture
Occidental is focused on commercializing its DAC technology to generate revenue from its investments. A key part of its strategy involves selling carbon removal credits to companies seeking to reduce their carbon emissions. Notably, it signed an agreement with Microsoft to sell 500,000 metric tons of carbon removal credits over six years, which represents the largest single purchase facilitated by DAC technology.
In addition to Microsoft, Occidental has agreements in place with several other companies, such as AT&T, Amazon, and TD to sell carbon credits.
Other commercial agreements include a contract with SK Trading International to supply up to 200,000 barrels of net-zero oil annually for five years. Occidental plans to inject around 100,000 tonnes of captured carbon dioxide underground, compensating for the complete lifecycle emissions of this crude oil, from extraction to use.
Moreover, Occidental has recently entered a 25-year agreement with fertilizer manufacturer CF Industries (NYSE: CF) to store 2.3 million metric tons of carbon dioxide annually at its Pelican Sequestration Hub in Louisiana. This will support a low-carbon ammonia production facility that CF Industries is developing.
ExxonMobil has also engaged in similar agreements with CF Industries, including a plan to transport and store 500,000 metric tons annually of carbon dioxide captured from a complex in Mississippi, reducing emissions at that site by 50%. Additionally, in 2022, Exxon signed a significant contract to store up to 2 million tonnes annually from a Louisiana facility.
Both Occidental and Exxon view these commercial agreements as just the start of their carbon capture initiatives. Occidental believes it could effectively capitalize on the rapidly growing demand for carbon emission solutions.
Exxon and Occidental Fuel Growth in Carbon Capture Technology
ExxonMobil projects that its carbon capture and storage (CCS) initiatives could eventually yield earnings and cash flow comparable to its current oil and gas revenues. The company anticipates that CCS could evolve into a multibillion-dollar segment, driven by the stability provided through long-term contracts for these projects. This strategic shift is expected to lessen future earnings volatility.
Occidental’s Strategic Moves in CCS Development
Occidental Petroleum is steadily advancing its CCS platform. The company seeks funding partners like XRG and aims to commercialize its direct air capture (DAC) facilities and sequestration hubs. This approach holds the potential to generate significant value for investors, contingent on the anticipated growth of the CCS market. Occidental’s efforts position it as a compelling long-term investment in the energy sector.
Evaluating an Investment in Occidental Petroleum
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John Mackey, former CEO of Whole Foods Market, part of Amazon, is on The Motley Fool’s board. Matt DiLallo holds positions in Amazon. The Motley Fool recommends Amazon, Microsoft, and Occidental Petroleum, along with specific options on Microsoft. The Motley Fool has a disclosure policy.
The views expressed here are those of the author and may not reflect Nasdaq, Inc.’s views.
