Financial Energy Review
ExxonMobil recently made a significant move towards transitioning to a lower-carbon business model by acquiring Denbury, a smaller Texas oil and gas company. The $4.9 billion acquisition is a signal of the growing momentum behind “carbon management” as a viable enterprise for traditional oil and gas companies. Exxon’s vision is to utilize Denbury’s extensive network of pipelines designed for carrying carbon dioxide and ultimately transport CO2 captured from industrial point sources to underground rock formations or old oil wells for burial.
The acquisition reflects Exxon’s confidence in the future success of carbon capture and storage (CCS) across the electricity and manufacturing sectors. This move also paves the way for other companies interested in capturing and storing CO2 to dive into the market. Exxon aims to become a one-stop carbon disposal shop for companies looking to reduce their carbon footprint through CCS. The company has been actively building a portfolio in this area, entering carbon management deals with chemical and steel companies in the past year. The Denbury acquisition will accelerate the growth of this business in a profitable manner, according to Dan Ammann, president of Exxon’s low carbon solutions division.
Oil companies are increasingly turning to carbon management due to their expertise in trading, transporting, and storing molecules. This aligns with their existing strengths, unlike renewable energy, which operates in a different business domain. The Denbury acquisition allows Exxon to secure control over the limited supply of carbon-moving infrastructure, surpassing competitors like Oxy and Wintershall Dea. New CO2 pipelines face similar approval challenges as oil pipelines, making it essential for Exxon to dominate the existing infrastructure.
One of the most attractive aspects of the Denbury acquisition for Exxon is access to the lucrative tax credits provided by the Inflation Reduction Act. The act offers tax credits of $85 per ton of CO2 that is permanently stored underground. While Exxon’s overall low-carbon spending has been relatively low compared to other major oil companies, amounting to 0.5% of its total capex since 2015, the $5 billion investment in Denbury showcases the direction the industry is moving in.
The Denbury pipeline network currently serves Exxon’s oil business through enhanced oil recovery (EOR) techniques. In this process, CO2 is injected into oil wells to extract the remaining oil. While EOR has made CCS economically viable, the shift towards CCS would be more challenging, especially for industries like steel and cement where the concentration of CO2 in their smokestacks is lower compared to natural gas processing, the most common CCS platform.
Industry experts emphasize the need for the carbon management industry to scale quickly within the next decade while tax incentives are still available. Julia Attwood, head of sustainable materials at BloombergNEF, believes that carbon management is crucial for facilitating the nascent carbon trade. Another notable development in the carbon management sector is the launch of Isometric, a London-based startup. Isometric will operate a registry of certified carbon removal projects, focusing on removing CO2 from the atmosphere rather than capturing it from point sources.
ExxonMobil’s acquisition of Denbury and the emergence of startups like Isometric reflect the evolving landscape of the energy industry as it transitions towards a lower-carbon future. As Exxon leads the way in carbon management, other companies are expected to follow suit in order to stay competitive in this changing market.
