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Occidental Petroleum sees major build-out of US DACC plants

30 March 2022 S&P Global Commodity Insights Editor

Despite current high costs for the emerging technology, Occidental Petroleum announced plans last week to build some 70 direct air carbon capture (DACC) projects by 2035 to suck carbon dioxide out of the atmosphere and store it underground, assuming they reach better efficiency and economies of scale.

In an update for investors in Occidental's Low Carbon Ventures subsidiary on 23 March, Occidental executives also said the oil and gas producer expects to start up the firm's first direct air capture plant within two years, at a cost of $800 million to $1 billion. They said the facility would be capable of permanently removing some 500,000 metric tons of CO2 from the air, and that it would run by 1PointFive, a subsidiary of the Oxy Low Carbon Ventures business unit.

Occidental first announced plans in August 2020 to build the plant in Texas' Permian Basin using technology developed by Canadian startup Carbon Engineering.

In the update, Richard Jackson, Oxy's president of US onshore resources and carbon management and operations, said the global engineering firm Worley was currently nearing completion of the facility's front-end engineering and design, setting the stage for start-up of the project by the end of 2024.

According to Jackson, 1PointFive's strategy will also involve creating a carbon-removal credit that businesses can purchase to offset their emissions. Oxy earlier this month announced that European aerospace firm Airbus had already purchased credits covering some 400,000 metric tons of CO2 emissions over the next four years from the first direct air capture facility. Separately, Oxy it signed an agreement through which SK Trading International, based in Seoul, South Korea, will purchase up to 200,000 bbls of Occidental's net-zero oil, created with direct air capture, produce aviation fuel.

Looking forward, Jackson said Oxy plans a massive expansion as the technology is refined and improved, with economies of scale also helping to bring down costs. "In a current support scenario, we see market and policy conditions as supportive of 1PointFive building 70 direct air capture facilities by 2035," he said.

Carbon storage plans

However, numerous studies have indicated that the current federal CCUS tax credit of $50 per ton of CO2 stored underground is not sufficient to make direct air capture plants economic. Congress increased the credit to $50/ton in 2018 and specifically made direct air capture eligible, but CCUS advocates say a higher credit is still needed if the industry is to gain market traction.

Jackson said Oxy estimated that, worldwide, direct air capture technology has the potential to economically remove up to 5,000 million metric tons per annum (Mtpa) of CO2 from the atmosphere in the near term.

In addition to the direct air capture projects, Oxy said it is also focusing on rolling out a significant number of point-source industrial carbon capture, utilization, and storage (CCUS) projects for carbon-intensive industries such as cement, ethanol, and steel. Jackson claimed the company is "currently working with over 40 Mtpa of point-source capture potential that we believe can move forward over the next few years."

In its presentation, Oxy estimated that US industrial point-source CO2 emissions stood at 2,600 Mtpa in 2019. "[J]ust a small portion of this 2,600 Mtpa of U.S. point-source emissions is economic to capture today," Jackson acknowledged. "However, [with] just a moderate increase in support, or with a reduction in capture cost, we can unlock substantial volumes for economic capture and sequestration."

To help build economies of scale and reduce costs, Oxy is planning to build three "sequestration hubs" at US locations by 2025. Those hubs, which would take CO2 both from point-source facilities as well as from direct air capture, would each have at least 6 Mtpa of sequestration capacity, with each facility containing more than three CO2 injection wells as well as more than five monitoring wells to ensure no leakage of CO2 levels from reservoirs.

"In the near term, we expect to secure more than 100,000 net acres for these sites by the end of 2022 and to have filed multiple Class VI permit applications for dedicated injection wells," Jackson said, referring to the US Environmental Protection Administration's designation for wells that inject CO2 into deep rock formations.

Article by Jason Fargo, "The Energy Daily".

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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