Chevron Is Following Leaders ExxonMobil and Occidental Petroleum to Capture This $5 Trillion Potential Opportunity

Matt DiLallo, The Motley Fool

March 20, 2024 4 min read

Carbon capture and storage (CCS) could become a vital solution to helping reduce carbon emissions. This means it has the potential to be a massive commercial opportunity.

ExxonMobil (NYSE: XOM) sees CCS growing into a $4 trillion global market by 2050, while Occidental Petroleum (NYSE: OXY) believes it could become a $3 trillion to $5 trillion global industry. That's leading those oil giants to invest heavily to capture this emerging and potentially very lucrative opportunity.

Fellow oil giant Chevron (NYSE: CVX) also wants to capture a slice of the global CCS market. It recently signed an agreement to evaluate a potential CCS solution for Japan. Here's a look at some of the projects these oil stocks have under development.

Another step toward its lower carbon ambitions

Chevron signed a memorandum of understanding with Japan's JX Nippon Oil & Gas Exploration to evaluate exporting carbon dioxide from Japan to storage projects in the Asia-Pacific region. The companies will study the feasibility of building a CCS value chain, including capturing the greenhouse gas from industrial sources in Japan, including affiliates of JX, and transporting it by ship to storage sites operated by Chevron in Australia. The partners would also evaluate other potential storage sites throughout the Asia-Pacific region.

CCS represents a potential win-win solution for Chevron and other energy and industrial companies. It could enable them to continue operating their legacy businesses for decades to come while reducing the impact fossil fuel usage has on the environment.

Chevron has committed to spending $10 billion on lower-carbon investments and projects by 2028, including CCS, hydrogen, and renewable fuels. The company is developing several potential CCS projects across the Americas and Asia-Pacific region. For example, it's part of a joint venture aiming to develop Bayou Bend, one of the large carbon storage projects in the U.S. It's also part of joint ventures evaluating massive offshore greenhouse gas storage projects in Australia that encompass subsurface areas the size of Denmark.

A step behind the leaders

Most of Chevron's projects are still in the evaluation stages. That puts it at risk of falling behind rivals Exxon and Occidental Petroleum, which have projects under construction secured by commercial contracts.

Occidental is currently building the world's largest direct air capture project in Texas, which will be capable of capturing 500,000 tons of carbon dioxide per year from the air. The company formed a joint venture with a fund managed by BlackRock, which will invest $550 million into the project. The Stratos project is already under construction and should begin commercial operations next year. Occidental is commercializing the facility by selling carbon credits to several customers.

Exxon is taking a different approach. It focuses on transporting and storing carbon dioxide captured directly at the emissions source.

In 2022, Exxon signed a landmark commercial agreement with CF Industries to capture and permanently store 2 million metric tons of carbon dioxide annually from its manufacturing complex in Louisiana starting next year. Exxon will transport the gas via pipelines operated by EnLink Midstream to a sequestration site the oil giant is developing. Exxon has gone on to sign several additional commercial agreements with large industrial customers.

In addition, it paid nearly $5 billion to buy Denbury Resources, primarily for its carbon dioxide pipeline infrastructure. Exxon now has the largest owned and operated carbon dioxide pipeline network in the country. It also has access to 15 strategically located onshore storage sites in the country.

Exxon and Occidental Petroleum believe their CCS businesses could be huge moneymakers. Occidental thinks it could eventually generate as much earnings and cash flow from these operations as it currently does from producing oil and gas. Meanwhile, Exxon believes CCS could be a multibillion-dollar annual revenue stream. Further, long-term contracts will serve as the commercial foundation of the business, which will supply Exxon with more predictable cash flow than it produces from oil and gas.

Looking for ways to capture a slice of this enormous opportunity

Chevron continues to evaluate potential CCS projects. The oil giant wants to find commercially viable opportunities that would benefit the environment and its business. While it currently lags behind leaders Exxon and Occidental, the opportunity is so potentially vast that there's plenty of room for Chevron to secure needle-moving opportunities. That upside adds to its long-term investment appeal.

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Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

Chevron Is Following Leaders ExxonMobil and Occidental Petroleum to Capture This $5 Trillion Potential Opportunity was originally published by The Motley Fool

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