Exxon Mobil Corp. plans to spend about $7 billion through 2027 equipping its Low Carbon Solutions unit to help others lower emissions — and tap into a market that company executives say could generate billions in returns.
Exxon’s focus is on carbon capture and storage (CCS), hydrogen and biofuels—technologies seen as critical to decarbonizing hard-to-abate sectors that account for the bulk of energy-related CO2 emissions.
The investment is about 40% of the $17 billion Exxon said in December it planned to target on lower-emissions initiatives through 2027. The rest will go toward efforts to further reduce emissions from the company’s own operations, Exxon said.
“We expect the Low Carbon Solutions business to generate reliable earnings under long-term contracts and, as it grows, deliver strong, double-digit returns,” Exxon Mobil CEO Darren Woods told analysts on April 4. “Global emissions markets have the potential to grow rapidly and reach a massive size. This, in turn, provides significant opportunities for our Low Carbon Solutions business, which represents an important and attractive element of our growth plans.”
Executives for the Texas-based energy giant discussed the company’s approach to the energy transition, spotlighting the company’s low-carbon business.
Using skills gained from its core petroleum and chemical manufacturing business units, Exxon is set on capturing a piece of what it calls the $6 trillion molecules management opportunity by building foundational projects.
“That market’s taking shape in real time and we’re seeing that demand begin to manifest itself.”—Dan Ammann, president of Exxon Mobil’s Low Carbon Solutions business, on hydrogen
“These are projects that work with today’s policy, today’s technology and today’s infrastructure,” Dan Ammann, president of Exxon Mobil’s Low Carbon Solutions business, said while discussing the unit’s first phase of growth spanning about five years. “And to demonstrate that these projects can attract customers and earn solid returns, the market at this stage could be in the tens of billions of dollars, with our annualized revenue on contract reaching the billions over the next few years.”
At the same time, Ammann said the company will invest in new technologies that will help “unlock” future cost reductions.
Markets take shape
In Texas, Exxon Mobil is building what could become the world’s largest low-carbon hydrogen plant when it starts up by 2028 — producing about 1 billion cubic feet per day of hydrogen.
The Baytown, Texas, facility is expected to pave the way toward decarbonizing not only Exxon’s operations but also other Houston-area facilities. Exxon sees demand for hydrogen coming from multiple different channels, Ammann said.
The next phase of growth for Exxon’s low carbon unit—in about another five years’ time—calls for scaling foundational projects by 10x.
By then, the market would have grown to “hundreds of billions of dollars” as carbon prices rise, while efficiencies of scale and technology improvements drive down abatement costs by 10% to 20%, Ammann said.
The business, mainly reusing and repurposing existing infrastructure, could bring in tens of billions in revenue annually on contracts, he added.
“Beyond this timeframe, we aim to grow another order of magnitude, from 10 to 100. Supporting conditions for this include a cost of carbon 2-3x relative to where it is today, and 30%-70% reductions in the cost of abatement versus today” Ammann said, again assuming technology breakthroughs and large-scale economies.
“The addressable market now could be in the trillions of dollars… and our business potentially measured in the hundreds of billions of dollars, and quite possibly larger than Exxon Mobil’s base business is today as the world approaches net zero,” he said.
Unlocking the potential market, however, will depend on the value of carbon. Right now, there’s no pricing mechanism in the U.S. The cost of carbon could be determined through policy support, taxes or voluntary or compliance-based trading schemes—and end-market demand, the executive said.
Likewise, hydrogen markets are starting to emerge.
Ammann said Exxon is seeing demand pick up in Asian markets for cleaner hydrogen sources, such as ammonia—effectively displacing natural gas used to produce gray hydrogen. In February, Exxon and South Korea’s SK Inc. signed their first heads of agreement for offtake supplies of blue ammonia from the integrated Baytown complex.
“That market’s taking shape in real time and we’re seeing that demand begin to manifest itself,” Ammann told analysts. “We see that scaling into a very large opportunity.”
“The more successful we are, the more cash we generate, the more funds we’ll have to invest and grow the business.”—Darren Woods, CEO of Exxon Mobil Corp.
Regardless of their potential, Low Carbon Solutions projects must compete for capital with other parts of the business, while driving earnings and cash flow.
“The investments in this business, like all of our investments, must be advantaged versus industry and deliver competitive returns to successfully compete for capital,” Woods said.
Each project is evaluated based on the cost of supply, irrespective of the commodity cycle and how the market develops, he added, noting Exxon sees attractive opportunities in all three of its businesses.
Addressing analysts’ questions about how Exxon will allocate investments in new businesses versus its legacy units, Woods answered: “To date, we haven’t been challenged to find something in one business or …[had] to trade something off for another business.”
“The more successful we are, the more cash we generate, the more funds we’ll have to invest and grow the business,” he said.
Woods allowed that in some circumstances, partnerships and M&A might be merited. But for now, Exxon Mobil intends to lead its low-emissions efforts.
“What we’re finding is that we’re able to move in most cases more quickly by leading ourselves,” Ammann said.
The challenges come in execution and putting all the pieces together.
“Ideas are easy. Execution is hard,” Woods said. “As you look at the opportunities set out there today, we’re not limited by dollars and capex.
“We’re limited by putting together the incentives, putting together the elements and pieces of the value chain to construct something that generates a competitive return and delivers on emissions reduction at a cost that’s competitive.”
The market, he added, is in early stages of development.
But “we feel like we’ve gotten here at a really good time and are bringing our capabilities and expertise to bear in that marketplace. And that, frankly, is where the effort and the work is right now.”