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Oxy's DAC Ambitions Turbocharged by Policy

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Occidental Petroleum's direct air capture (DAC) ambitions have grown even larger, driven by strong tailwinds from the US Inflation Reduction Act (IRA). The landmark bill signed into law during the summer will enable the company to pursue the higher end of its DAC development scenario, which envisions as many as 135 plants by 2035, each capable of capturing 500,000-1 million tons of CO2 annually. That scenario was nearly inconceivable in March when Oxy first floated that figure, nearly double its more frequently cited target of up to 70 large-scale plants by 2035 for the still-nascent technology. But the policy support offered by the new — and unexpected — legislation “is what's going to help us be able to accelerate” the DAC build-out, Oxy CEO Vicki Hollub told the Energy Intelligence Forum last week.

‘Net-Zero Oil’

Oxy will take CO2 captured at its initial DAC plant in the Permian Basin and pump it into oil reservoirs to squeeze out incremental barrels, a process known as enhanced oil recovery (EOR). While the idea of capturing emissions for the purpose of producing more hydrocarbons is anathema to the views of many climate hawks — since reducing overall oil consumption is foundational to scenarios for slowing climate change — Hollub says low-carbon barrels are something that climate-minded consumers both want and are willing to pay a premium for. The "negative" carbon emissions made possible by DAC more than offset the new emissions that the produced oil would emit when ultimately combusted, Hollub says. Further, she argues that CO2 floods, as they are called, maximize existing infrastructure and reduce the need for new steel and other emissions-intensive materials. “We all should be focusing on emissions, not on the fuel source,” she says.

Her comments reflect a larger conversation within an industry wrestling with how best to balance energy security and supply with slashing emissions across the economy. At the Forum last week, Baker Hughes CEO Lorenzo Simonelli said the focus should be on the idea that “energy is good, because we need it, and emissions are bad.” To avoid charges of greenwashing, stakeholders must ensure accountability as they pursue their net-zero pledges by hitting milestones in “bite-sized phases,” Simonelli says: “It’s great to talk about 2050, but what’s 2030 look like? And how do we show continued progress collectively into reaching those targets?”

Uses Beyond EOR

To be sure, incentives in the Inflation Reduction Act improve the business case for carbon capture even if the carbon is not sold and utilized via EOR, since companies can bank on cash flow through tax credits that are now guaranteed well into next decade. Aniruddha Sharma, CEO of carbon-capture technology specialist Carbon Clean, told Energy Intelligence that before the recent legislation, “the margins and the margin of error [for capture projects] was so thin that the only way you could justify a billion-dollar plant … was to sell your CO2 to some oil producer.” Now, he says, it would be considered commercially viable to just store the CO2 or utilize it for purposes other than further oil production.

Hollub says, in no uncertain terms, that she believes storing CO2 in a saline formation and leaving it there is “a waste of a valuable product.” Oxy will likely focus its DAC efforts on EOR for the foreseeable future, but it also has its eye on other potential uses for captured carbon. Its low-carbon ventures unit has invested in a number of emerging technology providers specializing in turning waste carbon into valuable products such as bioethylene, fuels, building materials and other everyday items. “I think there's a lot to be done with CO2, we just need to figure that out and work that a little harder and support the companies that are doing that,” Hollub says.

Digital Twin

Oxy’s first DAC plant is due to break ground on Nov. 29 this year and Hollub expects there to be at least 250 people in attendance, underscoring the high level of interest in the project. It is expected on line by late 2024 and will ultimately be able to capture 1 million tons of CO2 per year.

As it is installing the first 500,000 ton per year train, Oxy will build a “digital twin” of the facility that will allow it to optimize designs for subsequent trains and facilities and “modify on the fly,” Hollub says. That will allow Oxy to reduce costs, improve performance and scale at a faster rate than could previous new-energy technologies like wind and solar, she says.

Finance Hurdle

With now 135 of these plants in sight, Oxy will have to figure out how to pay for what could be more than $100 billion of capital investment over the next decade-plus; the first several plants come with an estimated price tag of $800 million-$1 billion. Hollub says that could mean taking on a partner to help bear some of the costs. But the IRA could help on that end as well, she says.

Oxy has already begun selling CO2 offset credits tied to the first DAC plant. “Once we prove the technology on the first one, we'll be able to access project financing going beyond that,” she says. “What IRA does is let you take the credit for the CO2 that's provided as part of that bill, and you can also then sell the CO2 credits from it. So we expect that we will be getting sufficient revenues from the sale of the CO2 credits to help with the additional units that come after.” Hollub says there are not enough “certifiable CO2 credits for the more than 2,500 corporations that have committed to net zero” today, “so these CO2 offsets are going to be in high demand.”

Emerging Technologies, Carbon Capture (CCS), Corporate Strategy , Policy and Regulation, EOR, ESG, CO2 Emissions, Independent E&Ps, Capital Spending, ENERGY INTELLIGENCE FORUM 2022
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