Occidental Petroleum (OXY -0.32%) sees tremendous potential for carbon capture and storage (CCS). The process that extracts carbon dioxide from the air and stores it underground could help significantly reduce climate-impacting carbon emissions in the future. CCS is not only good for the environment, but it also represents a potentially lucrative market opportunity.

Occidental believes that CCS could become a $3 trillion to $5 trillion global market in the future. Because of that, the oil company estimates that it could eventually generate as much in earnings and cash flow from its CCS business as it currently makes by producing oil and gas. That's leading the company to take several steps to capture this massive opportunity. 

Leveraging its expertise in carbon dioxide

Occidental Petroleum has a long history of utilizing carbon dioxide to produce more oil through a process known as enhanced oil recovery (EOR). As oil wells pump crude out of a reservoir, the pressure falls, causing the production rate to decline. Oil companies have found that if they inject carbon dioxide into oil wells, they can increase the production rate. Occidental is a leader in EOR. It operates carbon dioxide production fields, transportation pipelines, and injection wells, primarily in the Permian Basin.   

The company wants to leverage its expertise in transporting and injecting carbon dioxide to capitalize on the enormous need for CCS. It formed a new subsidiary, Oxy Low Carbon Ventures, to pursue commercial opportunities in this emerging sector. In 2020, the company partnered with a private equity firm to form 1PointFive to finance and deploy large-scale direct air capture (DAC) technology. These systems can pull carbon dioxide out of the air so it can be used or stored underground. 

The company is building its first DAC facility in the Permian Basin. It will be able to capture up to 1 million metric tons of atmospheric carbon dioxide annually. Occidental will inject this carbon dioxide into its oil fields to sequester it and increase the oil output from those wells. 

Working to develop a leading platform

That plant is only the beginning of Occidental Petroleum's CCS vision. The company has signed a slew of deals this year, positioning it to capitalize on the growing demand for CCS services by large carbon emitters.

One aspect of Occidental Petroleum's strategy is securing access to infrastructure and land to support future CCS development. For example, in March, Occidental signed a lease with timberland-focused real estate investment trust (REITWeyerhaeuser (WY -0.90%) to develop and operate a carbon sequestration hub on more than 30,000 acres of subsurface pore space controlled by the timberland REIT in Louisiana. 

Occidental Petroleum also signed deals with two midstream companies to provide infrastructure to transport captured carbon to sequestration hubs. In April, it signed an agreement with Enterprise Products Partners (EPD -1.80%) to support a potential transportation and sequestration solution for the Texas Gulf Coast. Enterprise Products Partners would develop the carbon dioxide aggregation and transportation network using new and existing pipelines. Meanwhile, 1PointFive would develop the DAC facilities to capture the carbon that would move through pipelines to a sequestration hub. Occidental signed a similar deal with EnLink Midstream (ENLC -2.75%) to provide carbon dioxide transportation services along the Mississippi River corridor. EnLink's extensive pipeline infrastructure in the region would help transport captured carbon to a sequestration hub on Weyerhaeuser's land.

Occidental is also starting to line up customers to support its CCS ambitions. Airbus (EADSY 1.10%) purchased 400,000 tons of carbon removal credits from Occidental's DAC facility in the Permian Basin. Meanwhile, SK Trading International agreed to purchase up to 200,000 barrels of net-zero oil annually for five years. Occidental will create that net-zero oil by removing carbon dioxide from the atmosphere at its DAC facility in the Permian Basin. Occidental will capture and store 100,000 tons of atmospheric carbon per year, equal to the expected emissions produced during the lifecycle of that oil. These deals are the first steps toward monetizing the company's bold CCS investments.

Positioning to capture a potentially massive opportunity

Occidental Petroleum has long used carbon dioxide to produce more oil. It's using that expertise to its advantage by taking steps to capitalize on the enormous market opportunity it sees ahead for CCS. That bold strategy could pay off for Occidental in the coming years if the CCS market develops as it envisions.