With ExxonMobil anchoring much of its “greener” strategy in carbon capture at its analyst day yesterday, the subject of lower-carbon fuel has been elevated and ExxonMobil is not the only one talking about it. More than 75% of the carbon footprint of a hydrocarbon-based transport fuel today comes out of the exhaust or stack when the hydrocarbon is burned – to fuel an engine or create steam for a turbine. The oil companies can capture carbon on refineries, reduce methane leaks, use renewable power for pumping and their transport fuel – to move materials to market, but they cannot do anything about the 75% - Scope 3 – emissions without buying offsets, or sequestering more carbon than they produce (which is Oxy’s plan). Whether a consumer will be more attracted to a “lower-carbon” gasoline remains to be seen, but they are unlikely to pay more for it but might buy preferably if the price was the same – which might be possible if the fuel providers were lowering their costs by avoiding a carbon penalty.
Source: ExxonMobil Investor Day Slides, C-MACC, March 2021
The LNG story is a bit clearer in our view as – while burning natural gas (delivered as LNG) in a power plant is a major improvement over coal. The liquefaction process has a high carbon footprint. There could certainly be a competitive edge gained by offering a “low carbon” LNG to the market, but whether a premium could cover the cost of the necessary large-scale CCS is unclear. If it becomes a clear competitive edge, for example, if Engie were to reengage with a US LNG producer willing to cut its carbon footprint, the demand for CCS would see a major step-change very quickly. ExxonMobil’s slide below suggests that natural gas (LNG) CCS is almost affordable with the existing 45Q credit program in the US – this is a little misleading, and we have shown the analysis in prior work. An LNG facility has two tranches of CO2, one that is separated from the natural gas before liquefaction. This is a clean stream of CO2 and has a low cost of capture. The much larger CO2 footprint comes from the power generation needed to liquefy the gas – this is 8-10x the first tranche in terms of CO2 volume, but is a dilute stream and sits in the “industrial furnace” group shown below. Our discussions with large furnace-based CO2 emitters on the US Gulf suggest that $100 per ton of incentive would get the ball rolling in many cases, and the ExxonMobil estimates may be too high unless they include some sort of industry average or desired return on capital.
