Chevron Embraces Its Brand of Low-Carbon Energy

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.

Anyone looking to see Chevron follow its European peers into renewable electricity is sure to be disappointed by the US major’s transition strategy update. But management is confident it is giving investors something they can’t easily find elsewhere.

“I think the majority of [our] shareholders believe that they can diversify into [the renewable electricity] sector more efficiently than [Chevron] management can do for them,” CEO Mike Wirth told reporters on the virtual sidelines of Chevron's Energy Transition Spotlight event on Tuesday when asked about his recent conversations with investors. “What’s harder for them is to find good investments in renewable fuels, in hydrogen [and] in carbon capture.”

It is exactly those three pillars — alongside reductions in its current carbon intensity — that Chevron is pitching to investors as part of a now-accelerated low-carbon investment program. Wirth insists he is “finding support” for this approach among shareholders, even if some will still demand it embrace electrification instead.

“If we look at renewable power, it's hard to find even levered returns that get into the double-digits on wind and solar,” Wirth told analysts following the presentation. By contrast, Chevron says it can already achieve double-digit returns on the low-carbon ventures it is pursuing and expects them in future ventures as well.

The secret? Integration and the prioritizing of advantaged markets.

Hard Targets, Higher Spending

The biggest change Chevron has made to its low-carbon plans is its pace of spending.

The company will now devote about 8% of its capital expenditure through 2028 to its new energy businesses, up from 2% outlined previously.

That higher spend will allow it to add new targets for carbon capture, utilization and storage (CCUS) and hydrogen production, as well as grow its renewable diesel and sustainable aviation fuel output at a faster clip:

How Chevron’s Plans Compare

Hydrogen: Chevron’s 150,000 ton per year production target is about 20% lower than Repsol’s, but Chevron is one of the few to provide a hard target. Royal Dutch Shell and BP have spoken vaguely of capturing certain market share rates.

CCUS: Chevron's 25 million ton/yr capacity goal matches Shell’s, but Chevron's target is for 2030 rather than 2035. It is five times higher than TotalEnergies’ 2030 target. Exxon Mobil has a CCUS cost reduction target for 2030 but not a capacity target.

Biofuels: Chevron's 100,000 barrel per day capacity target is roughly 40% higher than Total’s. Shell and BP talk of growth in general terms. Exxon’s 40,000 b/d goal is for 2025.

Renewable natural gas: Total, BP and Shell have modest investment in RNG but do not plan on becoming a market leader in the US as Chevron does.

Chevron's Low-Carbon Strategy Targets
 Previous New
Total Capital Expenditure (annual from 2022)$14 billion-$16 billion$15 billion-$17 billion
Low-Carbon Capital Investment (2021-28)*$3 billion$10 billion
% Capex on Low-Carbon Ventures2%8%
Renewable Natural Gas (RNG)10x volume growth by 202510x volume growth by 2025
  >40 MMcf/d by 2030
Biofuels2x volume growth by 20253x volume growth by 2025
  100,000 b/d by 2030
Hydrogen150,000 tons/yr by 2030 (equity)
Renewable Base Oils/Lubricants20x volume growth by 202520x volume growth by 2025
  100,000 tons/yr by 2030
CCUS25 million tons/yr by 2030 (equity)
GHG Emissions Intensity35% reduction in upstream intensity by 2028 (2016 baseline)35% reduction in upstream intensity by 2028 (2016 baseline)

Addressing Scope 3

Chevron’s strategy update did not concretely explain what impact its accelerated low-carbon investments will have on the full life-cycle emissions of its products. Those details will instead be featured in next month’s climate report.

But the US major’s strategy is not ignoring so-called Scope 3 emissions despite the lack of figures. That's because the emissions of its customers will be reduced as they consume the lower-carbon alternatives Chevron will blend into or use to replace its conventional supplies.

In fact, Energy Intelligence understands that one reason why Chevron is particularly focused on hydrogen to support harder-to-electrify segments of global transportation — heavy-duty trucking, rail and marine transport — is its potential as a near-carbon-neutral fuel, assuming the hydrogen is produced using renewable electricity or with CCS.

The big outstanding question is whether the majority of shareholders will accept the pace of Chevron’s life-cycle emissions reductions. More than 60% voted in favor of a shareholder resolution calling on the company to meaningfully reduce these emissions — although the resolution did require specific targets to be set or hit.

The absolute reduction in Chevron’s life-cycle emissions will be limited this decade given that it is building out nascent businesses, rather than jumping into already-established solar and wind power generation.

But Wirth said he hopes that the cost-cutting, demand build-out and policy support that would be required for these sectors to take off even faster happens — in which case Chevron can potentially invest more.

Majors, Corporate Strategy , Capital Spending, Carbon Capture (CCS), Hydrogen, Biofuels (incl. SAF)
Brent rose by 14¢ to settle at $113.56/bbl on Tuesday, while WTI fell 52¢ to settle at $109.77/bbl.
Tue, May 24, 2022
The commodities trader expects to pay $1.5 billion in penalties after agreeing to settle charges of bribery and market manipulation.
Tue, May 24, 2022
Energy security concerns have reduced support for radical shareholder proposals that would hasten the transition away from fossil fuels.
Mon, May 23, 2022