Occidental Petroleum’s Carbon Capture Bet: The Future of Energy
The Biden administration has announced plans to invest up to $1.2 billion to kickstart the country’s carbon capture and storage industry. As part of the investment agenda in the United States, this funding will assist in advancing the development of two commercial-scale direct air capture (DAC) facilities in the Gulf Coast region. These facilities will directly capture carbon dioxide from the air, which can then be separated or utilized after capture.
Advancing Carbon Capture in Gulf Coast Region
Occidental Petroleum’s subsidiary, 1.5, is set to benefit from these grants. The company will utilize the funds to aid the development of its South Texas DAC hub. This initiative is among the various carbon capture-related solutions being developed by the company. It is presenting a significant opportunity in this field, which could potentially serve as a major catalyst for its stock.
The Role of 1PointFive, Occidental Petroleum’s Subsidiary
1PointFive, a subsidiary of Occidental Petroleum, is a carbon capture utilization and sequestration (CCUS) platform. It is focused on limiting global temperature rise to 1.5 degrees Celsius by 2050, in order to mitigate the worst effects of climate change. This involves investments in various solutions to reduce carbon emissions and use of greenhouse gases.
The CCUS Platform and its Climate Goals
Occidental Petroleum started constructing its first DAC facility in the Permian Basin area of Texas last year. The company expects to spend around $1.1 billion on building the world’s first large-scale DAC facility. It aims to capture up to 500,000 metric tons of carbon dioxide from the air annually. This captured carbon dioxide will either be injected into depleted oil fields in the Permian Basin to enhance oil recovery or be utilized in other applications.
Occidental Petroleum’s DAC Initiatives and Funding
With ambitions to build several plants, this is just one of the many facilities the company is hoping to construct. It is expanding its existing operations, including the South Texas DAC project that is now receiving support and funding from the Biden administration. This DAC facility will be even larger than the first, with a capacity to capture one million metric tons of carbon dioxide per year. Occidental will consolidate this carbon dioxide into underground saline formations. The company has secured 106,000 acres in the Kings Ranch area, which provides ample space to permanently store around 3 billion metric tons of carbon dioxide.
Seizing the Opportunity for Carbon Solutions
Working to capitalize on potential opportunities, Occidental Petroleum believes that CCUS will become a major commercial market in the coming decades. The company envisions the potential of this global industry to range from $3 trillion to $5 trillion ultimately. This could eventually earn as much as it currently generates from oil and gas production. In this valuation, it’s not alone. ExxonMobil, for instance, is looking to spur greater commercial viability in its carbon solutions through its acquisition of Denbury Resources.
Occidental’s Vision and High-Stakes Gamble
Both companies are already commercializing carbon solutions. For example, Occidental has signed numerous agreements for carbon-removal credits that are supported by its DAC projects. Recently, Japan’s largest airline agreed to purchase 10,000 metric tons of carbon removal credits over three years, starting from 2025, supported by one of its DAC facilities. Meanwhile, Exxon has signed a historic deal with C F Industries to capture and permanently store 2 million metric tons of carbon dioxide annually from its production site in Louisiana. These agreements showcase the growing commercial viability of carbon capture and suggest the potential for a massive market.
Occidental’s Path to Becoming a Leader in CCUS
Occidental Petroleum is making a bold wager on carbon capture. It believes that this technology is the key to reducing carbon emissions and has the potential to be an immensely profitable business. This bet is being further bolstered by the support it’s receiving from the Biden administration, which is aiding the commencement of its next DAC facility. These investments have placed the company in a favorable position to stake a claim on a significant portion of the potential CCUS opportunity. This represents a major catalyst for its stock, riding on the increasing prominence of CCUS.