Carbon Capture Starts. Which Firms Excel?

Carbon capture and storage is a popular way to deal with greenhouse gas pollution and global warming. This method forever stores industrial carbon dioxide in rock formations underground. Many companies are interested in this technology, even though it might not be scalable, because it has a huge market potential and the government is giving it a lot of money.

Carbon capture could cut pollution from power plants that use fossil fuels and from big polluters like steel, cement, and chemicals. Carbon capture plants have been struggling for years because they cost a lot to start up and keep running. But last year’s Inflation Reduction Act (IRA) gave billions of dollars in tax breaks, which boosted investments. In its most recent reports, the IPCC said that removing carbon is needed to meet warming goals for 2050. 

Bob Smith, co-chief financial officer at Sage Advisory Services, a company focusing on sustainability, thinks that the fossil fuel industry must collect carbon to stay competitive. Many of these companies hope that low-carbon businesses will make more money than oil and gas and be even more stable.

Major player Occidental Petroleum OXY (OXY) has 14 CO2 recovery plants, 2,500 miles of CO2 pipes (half of the U.S. total), and hundreds of CO2 injection wells in the Permian Basin to help get more oil out of the ground.

The company is building five carbon storage centers in Texas and Louisiana and adding to its network of pipelines to collect CO2 from factories that release it. About 265,000 acres of land are part of deals that the company has made.

Occidental is building a place to directly collect CO2 from the air and sell carbon credits to paper-making companies. It has agreements with Airbus (AIR.France), Shopify (SHOP), and Thermo Fisher Scientific (TMO). Barron says that how the CO2 is used will depend on what the customers want.

Another leader is Denbury (DEN). The company owns about 1,300 miles of CO2 pipes, which is 25% of all the lines in the U.S. It wants seven underground storage sites, most of which would be on the Gulf Coast. Last year, Exxon Mobil thought about buying the company.

Denbury has signed several important contracts to move and store 20 million tonnes of CO2 by 2022. By 2030, the company will send and keep 50–70 million tonnes of CO2 per year and charge $15–25 per tonne.

Businesses that make industrial gas want to make “blue hydrogen” by storing CO2 from production. Ammonia can be made from hydrogen and nitrogen. It is used in fertilizers and plastics. 

APD is spending $4.5 billion to build the biggest blue hydrogen plant in the world in Louisiana and a net-zero hydrogen energy complex in Edmonton, Canada, that will cost many billions of dollars. The chemicals giant collects CO2 from its two steam methane processors in Port Arthur, Texas, to get more oil out of the ground.

Linde is spending $1.8 billion to build a blue-hydrogen plant in Texas that will feed OCI Global’s new ammonia plant. The company will catch CO2, but Exxon will take it deep and store it.

Juan Pelaez, who oversees investor relations for Linde, says that IRA benefits have made “blue” hydrogen as cheap as “gray” hydrogen that doesn’t catch CO2.

Due to the high amount of CO2 in ammonia plants and the low cost of capturing it, blue ammonia has a lot of uses. For example, Denbury moves and holds CO2 from the ammonia plants of Mitsubishi (8058. Japan) and Nutrien (NTR).

Even private businesses want a piece of the action. John Skinner, the managing director of private equity firm Cresta Fund Management, says it’s hard for smaller companies to compete with bigger ones, but there are ways to find winners. He thinks the most important things are knowledge of the subject and skill in the field. 

Cresta put money into Lapis Energy, which was started by oil and gas industry experts. Skinner says they know where and what to look for and what makes an idea work. He also says that Cresta has told Lapis to set more “attainable goals” and has recently signed a deal with LSB Industries (LXU), which makes fertilizer. 

Heather Leahey, a senior assistant at the energy information company Enverus, says that doubt in the carbon capture sector has kept the private financial market careful. Several projects have failed because they went over budget or had other problems. She adds, “They have seen the complexities and problems, so they are waiting for the super majors to take charge and figure it out first.”