US upstream independent Occidental Petroleum's far-reaching ambitions to remove CO2 from the air might extend a lifeline for the producer's core oil business in the coming decades, albeit one that has been met with intense scepticism by environmental groups.
If the company succeeds in getting the world's largest direct air capture (DAC) plant, capable of capturing 500,000 t/yr of CO2, up and running in the Permian basin by mid-2025, it could help pave the way for Occidental to continue drilling — even as the energy transition accelerates. However, the concept of producing "net-zero oil", as championed by chief executive Vicki Hollub — whereby more CO2 is pumped into the ground than is released when the oil is consumed — is likely to prove a tough sell.
While the climate lobby recognises carbon removal technologies such as DAC, which is still in its infancy, as crucial when paired with efforts to drive down emissions, it views the oil industry's interest as, at best, an unhelpful distraction. It fears that the technology could be used to justify extending oil companies' social licence to continue operating for years to come.
The irony is that oil companies might be better equipped to ramp up DAC technology than others. Not only do producers including Occidental have decades of experience injecting CO2 into depleting reservoirs to squeeze more oil out of ageing wells — a process known as enhanced oil recovery — they also have deep expertise in building and operating large industrial facilities such as refineries, skills that are key for building the above-ground systems for DAC.
The catalyst for the recent surge in interest was last year's US Inflation Reduction Act, which more than tripled the tax credit for DAC plants to $180/t of CO2 stored. The challenges to be overcome centre on the fact that DAC is the most expensive form of carbon capture. It typically uses chemicals to dissolve CO2 out of ambient air, where the greenhouse gas accounts for just 0.04pc of the volume, after which the CO2 can be captured and permanently stored.
The technology is unproven at scale and involves energy-intensive operations. Local communities have voiced opposition to having storage sites on their doorstep. And critics argue that oil companies could use it as an excuse to delay the transition to clean energy. But that has not stopped other large oil companies from taking notice, even if their interest is at an early stage.
Beyond RepAir
Shell, Norway's Equinor and Spain's Repsol are backing a DAC project known as RepAir. Chevron's venture capital arm was an investor in Carbon Engineering, the Canadian tech start-up recently bought by Occidental. And Abu Dhabi's state-controlled Adnoc also wants in on the action. For ExxonMobil's chief executive, Darren Woods, DAC technology is "kind of the holy grail".
The top US oil major, which has its own DAC technology programme, will push further into this space if costs can be reduced. Those costs — anywhere from $600/t CO2 to $1,000/t of CO2 removed — show how expensive the technology is. But "if… society, the industry as a whole, [can] develop a technology that makes direct air capture economic, you've solved a huge problem that society's facing, in that you do not have to replace all the existing infrastructure the world built both in power generation and manufacturing", Woods says.
Hollub harbours ambitions of turning Occidental into a carbon management company, and rejects accusations of "greenwashing".
"We found that pairing direct air capture with enhanced oil recovery could produce net-zero oil because we're removing more carbon from the atmosphere than the oil generated from that carbon will emit when used — that's over the life cycle of that process," she said at the groundbreaking ceremony in April for her firm's first DAC plant, which is being built by subsidiary 1PointFive.
The company's DAC goals have gathered pace recently, first with the $1.1bn purchase of Carbon Engineering, whose technology 1PointFive is using to get its plants off the ground. Then came news that 1PointFive was picked as one of two recipients to share a $1.2bn grant from the US Department of Energy that it will use for the South Texas DAC hub, a demonstration project drawn up to capture up to 1mn t/yr of CO2. Here, the captured CO2 will be sequestered in saline formations not associated with oil and gas production.
Occidental's advanced plans reflect growing interest in the technology, even if it has yet to take off on a bigger scale. "As we've done the economics of some of these projects, they look certainly interesting," consultancy Wood Mackenzie analyst Peter Findlay says. "Not necessarily a grand slam, or a home run of profitability, but there are some compelling reasons to move forward."
Stratos fear
Although Occidental's first DAC plant in Texas, known as Stratos, was delayed by supply-chain obstacles, the firm is confident that those problems are behind it and construction is well under way. 1PointFive has multiple options for captured CO2 from this plant, including offering CO2 removal credits. To date, it has signed agreements with aircraft manufacturer Airbus, Japan's ANA Airlines, and the Houston Astros and Houston Texans sports teams, all of which are for sequestration only. And technology and e-commerce giant Amazon recently said it would buy 250,000t of carbon removal credits over 10 years.
Supporters say the technology is vital to help hard-to-decarbonise industry meet emissions targets, while the captured CO2 could also be used to produce synthetic fuels. Occidental was the first US producer to lay out net-zero goals for its operations (scope 1 and 2) and, crucially, for use of its products (scope 3), and its DAC facilities will play no small role in helping it reach these targets. ExxonMobil and Chevron have adopted far more modest climate ambitions.
But environmental groups still see oil's foray into DAC as a double-edged sword. "With Oxy's recent acquisition of Carbon Engineering, we recognise both the value of their technical expertise and the fact that fossil fuel companies have actively blocked necessary climate action," non-profit Carbon180 executive director Erin Burns says. "We've been clear — carbon removal is only an essential climate tool, and it's only worth doing when paired with steep and immediate reductions in emissions."
Occidental, which plans to build 100 DAC plants by 2035, says the business could eventually become more profitable than its chemicals arm, which in 2022 accounted for around a fifth of its total profits.
So far, 27 DAC plants have been commissioned globally, the IEA says, while plans for at least 130 are at various stages of development. Lead times range from two to six years, but most are at an early phase. Occidental recently teamed up with Adnoc to evaluate investment in DAC plants and CO2 sequestration hubs in the US and the UAE, including a potential 1mn t/yr DAC plant in the UAE.
Hollub downplays suggestions that potential partners, such as Adnoc, are waiting to see how the company's first DAC plant fares before committing. "They all understand that technologies go through a cost-down," she told analysts recently. "There's never been a technology that's worked and been adopted in a large way without having gone through the same kind of thing that we'll go through with our direct air capture."
