- Giant E&P company Exxon Mobil recently declared that its Low Carbon business could outperform its legacy oil and gas business.
By Joseph Mwangi
About a week ago, Exxon Mobil (XOM) CEO Darren Woods caused quite a stir when he bigged up the company’s Low Carbon business, saying it has the potential to outperform its legacy oil and gas business and generate hundreds of billions in revenues. According to Woods, the business has the potential to hit revenue of billions of dollars within the next five years; tens of billions in 5-10 years, and hundreds of billions after the initial 10-year ramp-up.
“This business is going to look quite a bit different from the base business of Exxon Mobil. It is going to have a much more stable, or less cyclical, profile,” Dan Ammann, president of Exxon’s two-year-old Low Carbon Business Solutions unit, has vowed.
Exxon recently signed a long-term contract with Linde Plc. (NYSE:LIN) that involves offtake of carbon dioxide for Linde’s upcoming clean hydrogen project in Beaumont, Texas. As part of the deal, Exxon will transport and permanently store as much as 2.2M metric tons/year of carbon dioxide each year from the plant.
As America’s largest energy company, Exxon’s bold prediction was much more seismic than that made by its oil field services peer Schlumberger Ltd (NYSE:NYSE:SLB) a few months earlier. But Schumberger’s new energy business could be just as impactful for long-term shareholders.
SLB New Energy
Back in February, SLB discussed its newly carved SLB New Energy unit with Bloomberg New Energy Finance (BNEF). According to Gavin Rennick, president of SLB New Energy, the company started its new energy ventures by making a series of investments prior to 2020. These new businesses evolved to a point where, last year, the company rebranded the entire company and changed the name to SLB, and put a decarbonization curve into its logo to clearly indicate the direction and the magnitude of what it intended to achieve.
SLB is all about impact and scale, with a new mantra to ‘Target Billion-Dollar Opportunities Only’. And, just like Exxon, Schlumberger has big dreams for its new business: Rennick told BNEF the unit is expected to hit revenue of $3 billion by the end of the current decade and at least $10 billion by the end of the next decade. SLB will focus on five key niches, each with a minimum addressable market of $10 billion.:
•Carbon solutions
•Hydrogen
•Geothermal and geo-energy
•Energy storage
•Critical minerals
Of these segments, Rennick says carbon capture, utilization and sequestration (CCUS) is the fastest growing opportunity thanks to the significant boost it got from the U.S. Inflation Reduction Act (IRA).
IRA offers a substantially increased tax credit for captured point source CO2 from $50 to $85 per ton. Many industrial use cases such as natural gas processing facilities, ethanol plants, and ammonia production are now economically feasible with the increased 45Q tax credit. This subsidy provides $85 per ton for sequestered industrial or power emissions, as well as $180 per ton for emissions captured directly from the atmosphere and sequestered.
Other 45Q provisions for CCUS include:
As proof of how fast its CCUS business is growing, Rennick told BNEF that the company was involved in 20 CCUS projects for much of last year but saw the number jump to just under 30 between November and February,”…because the tipping point has been crossed for certain use cases.”
Creating CCUS Hubs
Both the International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC) consider CCUS an ideal solution for many hard-to-abate sectors such as hydrogen production, aviation, power, steel, cement and oil & gas.
Carbon capture technology has been around for decades, but has failed to scale mainly due to high costs. Indeed, carbon capture can guzzle up to a third of a facility’s power capacity, putting the financial viability of such projects at the razor’s edge.
Still, I think SLB New Energy is quite likely to exceed its revenue targets because more and more heavy industries in power, oil & gas, steel and cement are embracing the technology as a realistic pathway to decarbonization, with more than 100 new facilities announced in 2021 alone. For these industries, CCUS has the potential to capture more than 90% of carbon dioxide emissions, dramatically reducing environmental footprints.
For example, Saudi Aramco is currently developing one of the largest CCUS facilities of its kind to support hydrogen production.
The largest steel manufacturer in the Americas and Europe, ArcelorMittal (MT), is relying on CCUS as one lever of its multi-billion-dollar investment programme.
German multinational building materials company HeidelbergCement is developing eight carbon capture facilities across the globe. All three companies are committed to the net-zero goal by 2050.
CCUS is also garnering more policy support: other than the IRA, Canada is accepting grant proposals to advance the viability of CCUS as part of a $319 million investment and has also proposed carbon capture tax credits. Meanwhile, the European Union, the Netherlands and the United Kingdom and Australia have launched similar incentives.
But a whole lot more needs to be done if the world will come anywhere close to achieving its net zero goal by 2050. According to the IEA, only 35 commercial facilities globally are applying CCUS to industrial processes, power generation and fuel transformation with a total annual capture capacity of ~45 Mt CO2. However, McKinsey recently estimated that global CCUS uptake needs to be 120x higher, with the world needing to capture and sequester 4.2 gigatons of C02 per annum (GTPA) to reach net-zero commitments by 2050.
According to McKinsey, CCUS hubs are the most economical way to scale the technology. CCUS hubs essentially are a cluster of facilities that share the same CO2 transportation and storage or utilization infrastructure. McKinsey estimates that the world needs to build at least 160 such hubs, up from 15 currently, but says there’s the potential to build as many as 700 CCUS hubs globally especially, located on, or close to, potential storage locations and Enhanced Oil and Gas Recovery (EOR/EGR) sites.
McKinsey has also calculated a total carbon-abatement cost. The global consulting firm says that if 440 hubs are developed globally, 9 GTPA to 10 GTPA of existing emissions could be abated at a cost of less than $100 per ton CO2. McKinsey says the world can reach its 4.2 GTPA net-zero goal by 2050 by building just 160 CCUS hubs at costs of less than $85 per ton CO2. The firm has estimated that annual global investment in CCUS technology of $120 billion to $150 billion is required through 2035 for the world to achieve net zero.
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Joseph Mwangi, Seeking Alpha Analyst since 2014. An investor with a long-term, and sometimes contrarian, approach to equities investing. I started out as a Tech analyst but now also cover Commodities and Energy sectors as the world navigates the energy transition. Energiesnet.com does not necessarily share these views.
Editor’s Note: This article was originally Seeking Alpha, in the April 14, 2023. All comments posted and published on EnergiesNet or Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet or Petroleumworld. This report is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).This report was made possible by general funding to CSIS. No direct sponsorship contributed to this report.
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EnergiesNet.com 04 15 2023
