Carbon Capture: Why Oil & Gas Companies Are Investing

Occidental's Carbon Capture Strategy: Boosting Oil Production

Two years prior, Occidental, a major oil and gas corporation, completed the acquisition of Carbon Engineering, a carbon capture startup. This deal was initially viewed favorably, representing a successful exit for a climate technology firm and providing a fossil fuel company with entry into a potentially lucrative sector—estimated to reach $150 billion in value by 2050.

Shifting Priorities: From Climate Impact to Oil Output

A clearer understanding of Occidental’s motivations for this acquisition has now emerged: the intention to utilize the technology to enhance oil extraction.

While the company had previously communicated plans to employ the technology for neutralizing its climate impact, CEO Vicki Hollub recently altered this narrative during an earnings call. She stated that injecting CO₂ into oil wells to facilitate increased oil production is a critical objective.

Hollub asserted that CO₂ removal from the atmosphere represents a technology that must benefit the United States, and that former President Trump recognized the economic viability of this approach. This information was initially reported by The Verge.

Enhanced Oil Recovery: A Parallel to Fracking

Hollub drew a comparison between utilizing CO₂ in enhanced oil recovery (EOR) and the fracking technique, which dramatically increased oil and gas production within the U.S.

However, direct air capture (DAC), the method employed by Carbon Engineering to extract CO₂ from the atmosphere, currently carries a substantial cost—ranging from $600 to $1,000 per metric ton.

Incentives and Profitability

The Inflation Reduction Act (IRA) does offer considerable incentives for employing captured CO₂ in EOR, potentially reaching up to $130 per metric ton by 2026, contingent upon permanent underground storage.

Occidental anticipates achieving profitability by the end of the decade by combining these incentives with revenue generated from carbon credit sales, even though this alone isn't sufficient to make the practice economically viable.

Despite efforts by the Trump administration to dismantle climate-related government incentives, particularly those within the IRA, continued support from companies like Occidental and ExxonMobil could potentially ensure the survival of these tax credits.

A Historical Perspective on Carbon Capture

The relationship between carbon capture and fossil fuel companies has a complex history. The practice of injecting CO₂ into declining oil wells began in the 1970s, initially utilizing CO₂ sourced from underground deposits.

During the early 1980s, pipeline infrastructure expanded from Texas, but low oil prices hindered the widespread adoption of the technique.

The Petra Nova Experiment

Approximately a decade ago, NRG Energy constructed the nation’s first carbon capture facility connected to a coal-fired power plant, known as Petra Nova.

This installation was designed to capture roughly one-third of the CO₂ emissions from a single boiler and utilize it to boost production at an oilfield located southwest of Houston.

The project yielded positive results, although not to the extent initially projected. Oil production increased from around 300 barrels per day to 6,000 barrels, a substantial improvement but only half of the forecasted amount.

NRG shut down Petra Nova in 2020 due to plummeting oil prices during the pandemic, and subsequently sold it to JX Nippon three years later.

Challenges and Potential

While oil prices have since rebounded, EOR utilizing CO₂ remains challenging due to the limited availability of the gas—insufficient to achieve the 50 to 70 billion barrels of increased production predicted by Hollub.

Direct air capture offers a potential solution by providing an ample supply of CO₂. Over the past century and a half, human activities involving the combustion of fossil fuels have released gigatons of this gas into the atmosphere.

It is conceivable that CO₂ captured directly from the air could enable the production of carbon-negative oil, where the drilling process stores more carbon than is released during combustion, though further research is necessary to validate this concept.

The Future of Incentives

The longevity of federal incentives for direct air capture remains uncertain, particularly with potential shifts in political leadership. However, these incentives may have a strong chance of survival due to the oil industry’s continued interest in maintaining current operational practices.