Climate change and sustainability remained a key topic in first-quarter conference calls. Prominent themes included carbon capture and storage (CCS), renewables spin-off plans, 'carbon neutral' oil, sustainable aviation fuel, and EV charge point targets, said Morgan Stanley analysts in a May 27 research update. Below are the analysts’ observations.
Carbon capture is crucial to the US majors' decarbonization strategies
CCS is a crucial part of Exxon's decarbonization strategy and the company's Low Carbon Solutions business is assessing plans for more than 20 new CCS opportunities globally. Exxon also recently announced an innovative CCS hub concept in Houston. On the conference call CEO Darren Woods said that the project will allow Exxon to reduce its own emissions but also provides "an opportunity for others to contribute at scale in a cost-effective way to reduce their emissions". He also noted that government policy will be required to advance the project, stating that "policy to drive incentives" will be an important part of CCS market growth. Recognizing the variation in investment levels between Exxon's Oil & Gas business and the company's New Energies business, Darren Wood's noted that comparing investment levels with their respective market sizes, Exxon's investment in CCS currently represents 3% of the addressable market.
Chevron's energy transition strategy is based upon three key pillars: 1) lowering carbon intensity, 2) increasing renewables, such as renewable natural gas and renewable diesel, and 3) investing in low-carbon technologies, such as CCS and hydrogen. With respect to the latter, the company recently announced an MoU with Toyota to explore hydrogen transportation, storage, and policy and is also in the early stages of developing a bioenergy project with carbon capture and sequestration in Mendota, Cali. The plant is expected to convert agricultural waste biomass, such as almond trees, into a gas to generate electricity and sequester 300,000 tons/year of CO2 emissions.
Potential renewables spin-offs
With its first quarter results, Eni formally announced a strategic review of the Retail and Renewables business, including the option to list or sell a minority stake in 2022. Morgan Stanley has previously argued that this could unlock significant value. On the conference call, management stated that a spin-off would provide an opportunity to free cash, stabilize, and improve Eni's distribution policy, and allow the company to capture the valuation multiples that the market attributes to renewable and retail companies.
In its strategy presentation at the end of 2020, Repsol said it would consider a partial divestment of its renewables business within the next 18 months, either in the form of a sale to an equity partner or offering a minority stake in an IPO. On the first quarter conference call, Chief Executive Officer Josu Jon Imaz said a combination of both strategies could also be an option, with the company finding a partner to lower the cost of capital of the business in the near-term and then IPO at a later date.
US E&Ps have mixed views on CCS in the near-term
In general, carbon sequestration is expected to play an important role in the US E&Ps' decarbonization strategies.
ConocoPhillips' climate risk strategy will initially focus on using renewable power sources to reduce the emissions intensity of the company's operations, CCUS, and also carbon offsets.
Occidental is working on bringing the company's first direct air capture facility online and is also an equity investor in NET Power technology, which uses oxy-combustion technology to generate emission-free electricity. In oxy-combustion, hydrocarbons are combusted in oxygen-rich air, producing a pure stream of CO2, which can then be used or stored.
Hess is investing in innovative carbon capture R&D, such as the work being conducted by the Salk institute, which aims to develop plants which can absorb high concentrations of carbon from the atmosphere.
However, for other US E&Ps, carbon capture is not a priority in the immediate term. EOG is focused on reducing its own emissions initially and will consider applying technology such as carbon capture to further reduce emissions as a "second phase.” Diamondback's chief executive officer said the company does not expect or aim to become experts in CCUS, instead it will align itself with CCUS specialists when getting involved in such projects. Echoing the sentiment was Pioneer's management who said, “we'll let the majors and other companies do the research on both carbon capture and hydrogen.”
Lundin Energy sells 'world first' carbon neutral certified oil
In April, Lundin said it had sold the world's first certified carbon neutrally produced oil to Saras. The oil was produced from the operator’s Edvard Grieg field, which has been certified as low carbon by Intertek under its CarbonClear certification. To supply a barrel to Saras that was fully carbon-neutral at the point of sale, the company used natural carbon capture offsets to cover the residual emissions. The entire trade was certified as carbon neutral by Intertek under its CarbonZero standard. Lundin aims to sell all of its barrels as carbon neutrally produced by 2025. The company's decarbonization strategy is based on reducing emissions through the electrification of assets, replacing and offsetting power usage with investments in renewable energy, and offsetting unavoidable emissions through natural carbon sinks.
Refiners pursue sustainable aviation fuel
Renewable fuels will be critical to decarbonizing the aviation industry and sustainable aviation fuel (SAF) is expected to play crucial role in getting to net zero. On the first quarter conference call, Neste's Chief Executive Officer Peter Vanacker said a final investment decision had been made on the company's 500,000-ton sustainable aviation fuel optionality project in Rotterdam. The company aims to complete the €190-million project by end-2023. He said that the project will enable the company to produce at least 1.5 million tons of SAF globally by end-2023. Phillips 66 noted an MoU signed with Southwest Airlines to advance the commercialization of SAF. The agreement is focused on public awareness and research and development, but also sets the framework to explore a future supply agreement involving Phillips 66’s Rodeo Renewed project in California.
EV charging points
The European majors have ambitious targets for growing their EV charge point networks. However, as Shell Chief Financial Officer Jessica Uhl explained, each company defines these targets differently. Shell targets 2.5 million EV charge points by 2030, this includes charge points that are both Shell owned and also partner owned, operated across both Shell sites and third-party sites. BP aims to have more than 70,000 BP-operated EV charging points within the same time frame and expects to grow margin share from convenience and electrification to around 50%. Total aims to operate more than 150,000 EV charge points in Europe by 2025. In the quarter, Repsol opened its first ultra-fast charging point in Portugal and aims to expand its recharging network in Spain to more than 1,000 charge points.
