ExxonMobil(NYSE: XOM) believes that carbon capture and sequestration (CCS) represents a massive opportunity to make money while helping the environment. The oil giant believes the market for CCS will be worth a staggering $4 trillion by 2050.
The company is emerging as an early leader in capturing this massive market opportunity. It recently signed another deal to provide carbon dioxide transportation and storage solutions for a customer. These commercial agreements will supply ExxonMobil with steadier revenue, which will grow its income while reducing the impact of oil price volatility on its cash flows.
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Capturing another customer
ExxonMobil has signed an agreement with Calpine, the country's largest power producer from natural gas, to transport and permanently store up to 2 million tons of carbon dioxide per year from its Bayton Energy Center near Houston. The project is part of Calpine's Bayton Carbon Capture and Storage project, which aims to capture the facility's carbon dioxide emissions. That will enable the company to provide a 24/7 supply of low-carbon electricity to customers in Texas and steam to nearby industrial facilities. Calpine's project will produce about 500 megawatts of electricity, enough to power 500,000 homes.
Exxon will tie Calpine's facility into its existing carbon dioxide pipeline system, which is the largest in the world. It will transport the greenhouse gas to sequestration sites along the U.S. Gulf Coast, including potentially those that use carbon dioxide for enhanced oil recovery (a technique to increase oil production from legacy oil fields).
A growing list of clients
With the addition of Calpine, Exxon has now signed six carbon dioxide transportation and sequestration contracts totaling 16 million tons per year. Barry Engle, the president of Exxon's Low Carbon Solutions Business, commented, "This agreement underscores the growing confidence our customers across diverse sectors -- including steel, fertilizer, industrial gases, natural gas processing, and now power generation -- have in our unique end-to-end CCS system."
In 2022, Exxon signed a landmark agreement with fertilizer manufacturer CF Industries to capture and permanently store up to 2 million tons of carbon dioxide annually from a nitrogen manufacturing facility in Mississippi. The largest-of-its-kind commercial agreement at the time also involved pipeline company EnLink Midstream (now part of Oneok) and led Exxon to develop a 125,000-acre sequestration site in Louisiana.
Exxon has since signed deals with steelmaker Nucor (800,000 tons per year), industrial gas maker Linde (2.2 million tons), and other customers. In addition, Exxon paid nearly $5 billion to acquire Denbury Resources in 2023, primarily for its large-scale carbon dioxide pipeline system (1,300 miles in the U.S., including 925 miles in the Gulf Coast).
Massive revenue potential
ExxonMobil believes CCS can grow into a very large and lucrative business. The company aims to secure 30 million tons of transportation and storage contracts with third-party customers by 2030. It's now more than halfway there.
This strategy is part of its broader investment push into lower-carbon energy. The company plans to invest $30 billion by 2030 into reducing its emissions and providing carbon reduction solutions to customers (CCS, hydrogen, and lithium). The company estimates that those businesses have the potential to generate $2 billion of earnings by 2030.
The CCS business could be a massive revenue producer in the long term. In the next five to 10 years, Exxon believes its CCS business alone could generate over $10 billion of annual contractual revenue. It could scale to be even larger in future years. Because long-term contracts support this revenue, it will provide the company with stable and more predictable earnings than its oil and gas business. As such, CCS will help grow the company's profits while reducing their volatility in the coming years.
Adding to Exxon's investment appeal
Exxon has captured another opportunity to provide CCS services to a customer. That contract will supply the company with stable cash flow while putting it one step closer to its current target. It's a continued validation that Exxon's CCS business could become a very lucrative venture for the oil giant. It makes the company look like an even better long-term investment opportunity. CCS could extend the usage of fossil fuels for many years into the future while providing Exxon with a massive long-term growth driver that also helps reduce the volatility of its earnings.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Linde. The Motley Fool recommends Oneok. The Motley Fool has a disclosure policy.
