CEOs of Occidental and Worley on Building World’s Largest “Direct Air Capture” Facility and the Burgeoning Industry of Carbon Capture
Washington D.C. (October 14, 2021)
-Vicki Hollub and Chris Ashton speak with IHS Markit Vice Chairman Daniel Yergin for a new edition of CERAWeek Conversations - available at ceraweek.ondemand/cwc
The carbon capture business is going to be an industry, and a big one at that, says Vicki Hollub, president and CEO of Occidental Petroleum in the latest episode of CERAWeek Conversations.
“It’s going to be a probably $3-5 trillion industry if you look at how much carbon capture is going to be needed around the world,” Hollub says. “We think ultimately it’s going to generate as much earnings and cash flow as our oil business does today. We believe it’s a long-lasting business.”
In a conversation with Daniel Yergin, vice chairman, IHS Markit (NYSE: INFO), Hollub and Chris Ashton, CEO and managing director of Worley discuss their partnership to build a large-scale direct air capture facility in the Permian Basin—expected to startup in 2024—and the potential to scale the technology further.
“One of the big contributors to addressing the economic viability of this is the fact that we are working together in an integrated, innovative way,” says Ashton. “So many inefficiencies exist in a way that traditionally supply chains interact. We’ve taken a big step forward in the way we’re working together.
“Once the direct air capture technology that we’re working on together is up and running and we clearly demonstrate that it works and is viable, the scaling opportunities are immense,” he adds.
“There needs to be a lot of these built over time,” Hollub says in discussing broader plans to build up to 12 facilities in the Permian, along with ambitions to ultimately build facilities elsewhere in the United States and internationally. “That’s the only way we can cap global warming at 1.5 degrees. This has to happen in a big way.”
In addition to carbon capture, Hollub and Ashton discuss their thoughts on the state of U.S. shale production amid tightening oil markets and rising prices; new challenges and strategies for large-scale capital projects in the energy transition; the potential for hydrogen, and more.
The complete video is available at: https://ondemand.ceraweek.com/cwc
Selected excerpts: Interview Recorded Monday, October 4, 2021
(Edited slightly for brevity only)
On direct air capture and its role in the future of energy
Vicki Hollub: “Our plan is to use multiple processes, one of which is the sequestration of CO2 in oil reservoirs to generate a net negative barrel of oil. Currently the world is only making 1.6 million barrels of oil per day of synthetic or low-carbon fuels. To make what the world needs to make, which according to the IEA model for net zero by 2050, we need to make then 19 million barrels of [synthetic or low-carbon] oil. Direct air capture will produce the CO2 that enables us to produce and make up part of that production by 2050.”
“We’ve been handling CO2 for enhanced oil recovery projects in the Permian Basin for 40 years. Today we are the largest handler of CO2 for enhanced oil recovery in the world. We have a lot of experience with it. About 10 years ago we started looking at how we get our CO2 and realized that with the world changing and with what the world needs to happen today, that it’s best to pull our CO2 from anthropogenic or atmospheric sources to replace the organic CO2 that we had been previously using. It’s going to generate value for our shareholders by using it in enhanced oil recovery projects. For aviation and maritime fuels, this is critical to happen.”
“In addition to using net zero or net negative barrels of oil, we also can sequester it in saline reservoirs and-or convert it into products. One of the products we are excited about is the conversion of CO2 into bioethylene. To be able to provide bioethylene also makes our products from the chemical industry ultimately low carbon or no carbon as well.”
On the opportunities for scaling direct air capture:
Vicki Hollub: “We expect to be at [Final Investment Decision] in Q1 of next year, then start construction by the end of next year. So far, it’s looking like that’s doable. It should be up and in operation in 2024.”
“Our intent is to continue the construction [of direct air capture facilities]. We have announced that we will build up to 12 facilities in the Permian Basin, but we ultimately want to build facilities in the DJ basin in Colorado, the Powder River in Wyoming, and we want to expand to our international operations as well. There needs to be a lot of these built over time. That’s the only way we can cap global warming at 1.5 degrees. This has to happen in a big way.”
Chris Ashton: “If you look at the component parts of direct air capture, they’re all established. It’s about bringing together the component parts of it in a way that’s new. The economics are clearly very important. One of the big contributors to addressing the economic viability of this is the fact that we are working together in an integrated, innovative way. So many inefficiencies exist in a way that traditionally supply chains interact. We’ve taken a big step forward in the way we’re working together.” “Once the direct air capture technology that we’re working on together is up and running and we clearly demonstrate that it works and is viable, the scaling opportunities are immense. The combination of the pace and skill will differentiate the opportunity that direct air capture provides.”
On investor reactions to direct air capture::
Vicki Hollub: “Because it’s a key part of what we do and because CO2 enhanced oil recovery is a core competence of ours, our investors understand that part of this will help us to lower our cost and CO2 operations which will generate about two billion barrels of resources that we can continue to develop in our EOR business. It’s a value-add for our shareholders.”
Chris Ashton: “If you look at the reports coming from the IEA, the latest IPCC, [and] technical journals, carbon capture is going to have to play a role if the world is going to meet net zero in 2050. Direct air capture and where we are working together with Oxy, and Carbon Engineering is absolutely part of that future. When we talk to our investors, they get very excited with the prospect that direct air capture brings and the fact that Worley, working collaboratively with Occidental, are good together and they see us as very much at the center of solving this challenge.”
On the state of U.S. shale:
Vicki Hollub: “Our investors are wanting us to approach our developments in a more prudent way and to ensure that we’re delivering a good return on capital employed. In the world that we’re in today with demand becoming closely balanced with supply, and ultimately in 2022 demand is going to exceed supply, as the world starts to pivot toward a more robust oil price, our investors will appreciate the discipline that we intend to demonstrate through this cycle. We know there could be a little inflation, but we expect and hope that we’ll continue to gain efficiencies that can partially offset that inflation to capture the value that shareholders deserve in this environment.”
On Occidental’s future as a carbon management company:
Vicki Hollub: “The carbon capture business is going to be an industry. It’s going to be a probably $3-5 trillion industry if you look at how much carbon capture is going to be needed around the world. We believe that our core competence and our infrastructure is such that we can start pivoting from an oil and gas company to carbon capture. We think ultimately, it’s going to generate as much earnings and cash flow as our oil business does today. We believe it’s a long-lasting business. In just the Permian Basin alone there’s 150 gigatons of storage capacity available. There’s a lot that we can do in just the Permian here in the United States.”
On new strategies for large capital projects in the energy transition:
Chris Ashton: “If we continue to execute projects the way that have traditionally been done, it’s unlikely that there is sufficient capacity to deliver that which is needed if we’re going to hit that net zero 2050. We’re going to look at greater levels of collaboration. We’re going to look at greater levels of integration and working with communities. We’re going to look at greater levels of transparency to allow us to accelerate that. We’re going to look at designing one and building many, if you look at what we’re going to be doing with direct air capture being able to replicate that around the world. I believe that we’re going to have to see a much more deeply integrated supply chain. There’s one thing for certain: If we continue to think of developing projects and delivering projects as we’ve done traditionally, there isn’t sufficient capacity in the world to deliver the scale at the pace necessary to hit net zero 2050.
If you are at the capital investment levels that we’re talking about; if you look at what some of the large investment banks estimate to be the required capital investment across all of the world, not just the energy sector but chemicals, resource sector; if you look at what’s required to put assets in the ground or modify existing assets it’s going to be the largest spend in history and we’re going to have to look at doing things differently. One of the things will be an increased level of automation, digitization, use of artificial intelligence to deliver the assets at the pace and the scale necessary.”
On industry messaging: Emissions vs. fossil fuels:
Vicki Hollub: “We have to pivot the discussion, the discussion that’s across all sectors of the industry all around the world. We all need to come together and collaborate to fight emissions. The fight against fossil fuels is wasting too much energy and too much time. We need to partner with those that want to kill fossil fuels, help them understand that what we really want to do is kill emissions. There’s a lot of partnering that needs to be done, a lot of collaboration and we’ve got to focus on what the real problem is. The oil and gas industry can be a big part of helping to do this.”
On the outlook for hydrogen energy:
Vicki Hollub: “There’s more work to be done on making it technically more feasible but I think ultimately it will happen. We continue to look at it because if we’re doing it today for us it needs to be part of another process to ensure that initially the economics are justifiable for it. We believe over time it will be a key thing for the industry.”
Chris Ashton: “If you look at energy through the lens of different technologies, we’ve got carbon capture, hydrogen, clearly offshore wind, very large scale solar—hydrogen is going to be in the mix. There’s some work to be done on the technology and the economics. But in the same way that we saw wind technology cost base come down I’m absolutely confident that going forward we’re going to see economic production as part of the mix. If you look at an Aramco talking about 30 gigawatts of hydroelectrolyzers, Neom, at what Shell’s doing, it’s already emerging. We’re going to see an exponential shift in the technology advancements and the economics associated. I think it’s sooner than later at a commercial scale.”
Watch the complete video at: https://ondemand.ceraweek.com/cwc
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