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Hopes of Fed Cut Jolts Oil Prices

Hopes of Fed Cut Jolts Oil Prices

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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Exxon: Decarbonization Business Is Set For Huge Growth

  • ExxonMobil CEO Woods: Low Carbon business has the potential to outperform its legacy oil and gas business.
  • ExxonMobil: decarbonization business could be a "much more stable, or less cyclical" business.
  • The LNG sector is one of the biggest candidates for CCSU.
Exxon

Last month, Exxon Mobil (NYSE:XOM) pulled the plug on its 14-year-long algae biofuels project, becoming the last oil company to abandon what was once considered the fuel of the future. The whole idea was not without merit, though. Algae do have some clear advantages over other biofuel candidates, mainly because these photosynthetic microorganisms are super-efficient at converting sunlight into biomass, have high lipid content of up to 80% for some varieties and are more versatile than, say, corn, a common biofuel crop. 

Unfortunately, Exxon and its Big Oil cohorts discovered that it's too tough to make the economics of algae biofuels competitive with those of much cheaper crude, with algae-based bioproducts firm Cellana estimating that crude would have to hit ~$500/bbl for algae biofuels to compete successfully.

But Exxon is not about to give up on its non-oil ventures. Last week, Exxon CEO Darren Woods told investors that the company’s Low Carbon business has the potential to outperform its legacy oil and natural gas business within a decade and generate hundreds of billions in revenues. Woods outlined projections showing how 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. However, whether Exxon is able to actualize its dream will depend on regulatory and policy support for carbon pricing, as well as the cost to abate greenhouse gas emissions, among other changes, Ammann said.

Exxon believes that this will result in a "much more stable, or less cyclical" that is less prone to commodity price swings through predictable, long-term contracts with customers aiming to lower their own carbon footprint. For instance, Exxon recently signed a long-term contract with  industrial gas company Linde Plc. (NYSE:LIN) that involves offtake of carbon dioxide associated with Linde’s planned clean hydrogen project in Beaumont, Texas.  Exxon will transport and permanently store as much as 2.2M metric tons/year of carbon dioxide each year from Linde’s plant. Back in February, Linde unveiled plans to build a $1.8B complex which will include autothermal reforming with carbon capture and a large air separation plant to supply clean hydrogen and nitrogen.

$4 Trillion Carbon Marketplace

If Exxon’s carbon ventures sound a tad too ambitious, consider the far rosier projections that have been advanced for carbon capture.

Wal van Lierop of Chrysalix Venture Capital and an investor in Canada-based carbon capture startup Svante have proposed creating policies that will make carbon markets not only feasible but profitable. Lierop argues that carbon pricing, Carbon Capture, Utilization and Storage (CCUS) technology and policies need to be such that capturing, repurposing or permanently storing carbon dioxide becomes more profitable than emitting it into the atmosphere. If policymakers were to price CO2 at $100 per ton, the 40 GT of CO2 that the world emits annually represents a $4 trillion opportunity for carbon capture firms. If that figure seems monstrous, consider that it represents just 5% of the global economy and is certainly lower than the nearly $70 trillion in damages that the economy would otherwise suffer in the face of a full-blown climate disaster.

It’s not such a far-fetched idea, either.

Here in the United States, Section 45Q(a)(1) allows a credit of $20 per metric ton of qualified carbon oxide captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility before the date of the enactment of the Bipartisan Budget Act (DOE). It’s essentially a tax code that provides a performance-based tax credit for carbon capture projects that can be claimed when an eligible project has:

  • Securely stored the captured carbon dioxide (CO2) in geologic formations, such as oil fields and saline formations; or
  • Beneficially used captured CO2 or its precursor carbon monoxide (CO) as a feedstock to produce fuels, chemicals, and products such as concrete in a way that results in emissions reductions as defined by federal requirements.

Today, 45Q pays $35/ton for using captured CO2 in Enhanced Oil Recovery (EOR) or synthetic fuels and $50/ton for sequestering CO2 in geological storage. A bill under consideration might amend 45Q to pay an even higher credit for direct air capture: $43.75/ton for EOR or fuels and $65.50/ton for geological storage.

Still, that might be too low to encourage carbon capture firms whose breakeven point is higher than $50/ton. Coupling 45Q with a Fee and Dividend system could be a more effective solution. This system is currently under consideration in the U.S. House of Representatives H.R.763. The fees collected under H.R.763 would be distributed as dividends to all U.S. citizens to offset higher gas prices and elevated costs for hydrocarbon-based goods.

CCSU For LNG

The LNG sector is one of the biggest candidates for CCSU, with LNG having one of the most emissions-intensive upstream resource themes in the energy sector. About 40% of the total scope 1 and 2 LNG emissions come from the process of gas liquefaction. 

According to Wood Mackenzie, anywhere from 25-50% of the CO2 emissions depending on the strategy used can be removed from LNG projects using CCS technology. The main options for reducing LNG emissions include CCSU, carbon offsets, electrification, methane leakage reduction, and the use of renewables and batteries. 

Luckily, LNG players are well placed to employ CCSU to lower their emissions by simply repurposing their existing infrastructure.

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The first approach involves capturing reservoir CO2. The big advantage of this method is that the acid gas removal unit (AGRU) used to capture CO2 does not incur additional costs since all LNG projects remove CO2 from the feed gas stream before liquefaction to prevent the CO2 from freezing and blocking processes. WoodMac says reservoir CCS has the potential to lower the overall intensity of LNG projects by 25%, and in some cases up to 50%.

The second approach is post-combustion CCSU, which involves capturing CO2 from the LNG flue gas stream. Although post-combustion CCSU is more expensive than reservoir CCSU, there are significant cost benefits of adding post-combustion CCS to a new-build LNG facility due to design and location synergies.

By Alex Kimani for Oilprice.com

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