Exxon: From Climate Skeptic to CCS Champion

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Exxon Mobil's effort to jump-start the world's leading carbon capture and storage (CCS) project illustrates how far and how quickly the company's thinking on climate strategy has developed (related). Regarded in the past as one of corporate America's greatest climate change skeptics, Exxon has gradually shifted its thinking over the past decade to accept the need for some action on the issue. But the past year has seen Exxon embrace the idea that significant action is required, as the company, like others across the global industry, face rapidly changing sentiment among investors, policymakers and the general public -- a process accelerated by the Covid-19 pandemic. Resetting the Value Proposition As recently as March of last year, Exxon presented a growth strategy premised on oil and gas demand far exceeding Paris climate agreement-compliant targets, and decried the ever-stricter carbon emissions reduction targets of European majors as little more than a "beauty competition" (OD Mar.6'20). But the US major found itself squeezed on two fronts: Its ability to deliver badly needed improvements in returns alongside that growth, and inescapable calls for greater action toward reducing its emissions. For a company like Exxon that doesn't want to tackle emissions through diversification into renewables, defining a Paris-aligned long-term strategy had to lie in carbon capture on a massive scale. The alternative? A steady wind-down of its oil and gas business. Rising support for CCS policies, particularly in the US, as well as growing private funds for low-carbon ventures, has given Exxon the means to build this new strategy story without deviating far from its core priorities (OD Mar.3'21). Exxon has always held CCS as a slow-burn research and development area of focus and has a queue of potential investment opportunities. But it now hopes to seize the moment and define what needle-moving CCS can look like at the megaproject scale, at the same time as pursuing next-generation technology deployment. Shifting Realities The landscape in which Exxon is operating has changed markedly over the past couple years. Investors and others became increasingly skeptical that its strategy of efficient, low-cost oil and gas production could remain viable in the long term without some sort of path toward decarbonization (OD Mar.2'21). The accession of US President Joe Biden added to that pressure by placing climate at the top of the country's political agenda. Biden has faced pressure from progressive interests to adopt solutions that exclude all fossil fuels, but has shown a willingness to be more flexible in keeping with the US' status as a major oil and gas producer. The administration appears ready to support CCS to help address oil and gas emissions, and has found some bipartisan support (OD Mar.25'21). Exxon and other major US producers have stepped up their pledges to address emissions since Biden's election and have endorsed policies that could make meaningful emissions mitigation more economically viable (OD Apr.8'21). Exxon hopes its massive CCS hub concept can illustrate to key policymakers and other stakeholders what CCS could deliver with sufficient fiscal and regulatory support. The Exxon Way Yet the US major's approach to the climate issue is also quintessentially Exxon. Historically, when the company has faced a challenge, it typically reaches for two tools: proprietary technology and industry-leading scale. It comes as no surprise, then, to see Exxon advance a decarbonization plan that ticks both of those boxes. Exxon recently converted its CCS venture group into a full-fledged business unit -- known as Low Carbon Solutions -- late last year to raise its prominence within the company and give it a seat at the table when strategic and budgetary decisions are being made. The US major had been advancing CCS for years, largely through breakthrough technology-focused research and development and participation in three operational CCS projects in Qatar, Australia and the US state of Wyoming. But the scale of its Houston Ship Channel CCS concept has its Low Carbon Solutions unit going big out of the gate. The project is all about getting required partners on board -- from fellow big emitters to infrastructure firms and federal, state and local policymakers -- to realize its full ambition. Over time, Exxon also sees revenue potential in advancing and licensing some of the new materials and carbon capture processes it hopes to commercialize. The major is looking to cut CCS costs by one-third this decade, largely through technological advancements. One of the key technologies on its radar is utility-scale fuel cells that generate power while capturing carbon emissions. Current CCS technologies, by contrast, are net power consumers. Casey Merriman, Phoenix

Carbon Capture (CCS), Corporate Strategy
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