Chevron (CVX +1.58%) and its partners, Talos Energy (TALO +4.13%) and Carbonvert, are expanding the scope of their Bayou Bend carbon storage project. The companies acquired land to potentially sequester more carbon dioxide underground in the Gulf Coast region. It puts Chevon, one of the largest stocks in Warren Buffett's portfolio, in an even better position to capitalize on the potentially multitrillion-dollar carbon capture and sequestration (CCS) market.
Here's a closer look at this latest development and how it adds to Berkshire Hathaway's (BRK.A +0.10%)(BRK.B +0.15%) under-the-radar bet on this potentially massive upside catalyst.
NYSE: CVX
Key Data Points
Bayou Bend is getting a lot bigger
In 2021, Talos and Carbonvent won the bidding for a 40,000-acre carbon storage lease offshore of Port Arthur and Beaumont, Texas. Chevron joined the joint venture in 2022, taking a 50% stake in the Bayou Bend project, with Talos and Carbonvent each holding a 25% stake.
The partners have significantly expanded the scope of that project by acquiring nearly 100,000 acres onshore in the region between those cities and the Houston area:
Image source: Chevron press release.
They now hold nearly 140,000 acres of land containing enough underground pore space to hold more than 1 billion metric tons of carbon dioxide. That would make Bayou Bend a leading carbon transportation and storage solution for one of the country's largest industrial centers. It would enable Chevron and its partners to capture a larger slice of this region's CCS market opportunity.
A potentially massive market
CCS captures carbon dioxide from the atmosphere or the emission source to sequester it underground. The technology could be the key to reducing global carbon emissions for harder-to-abate industries where renewable energy and alternative fuels aren't economically viable.
Energy companies believe the technology could become a massive global industry in the coming decades. For example, ExxonMobil (XOM +0.09%) estimates that CCS will grow into a $4 trillion market by 2050. That's an enormous opportunity, almost as large as the $6.5 trillion global oil and gas market it foresees in three decades. Occidental Petroleum (OXY +0.15%) agrees. It estimates CCS will be a $3 trillion to $5 trillion global market. The company, an emerging leader in the field, believes it will eventually generate as much income from the technology as it currently makes from producing oil and gas.
NYSE: OXY
Key Data Points
Warren Buffett's secret bet on CCS
Buffett has quietly made a large-scale wager on CCS. His company, Berkshire Hathaway, has accumulated more than 167.3 million shares of Chevron and more than 194.4 million shares of Occidental Petroleum, two of the emerging leaders in CCS. Chevron is currently Buffett's third largest holding, at 8.3% of Berkshire's portfolio. Meanwhile, Occidental is the seventh largest position at 3.6%. Buffett currently owns 21.6% of Occidental's outstanding shares and has received regulatory approval to boost that stake up to 50%.
While their near-term upside to higher oil prices is a big factor driving Buffett's investment, both companies are also emerging leaders in CCS. For example, Bayou Bend is among the more than 65 potential CCS projects Chevron is pursuing. It's securing pore space to create regional hubs for sequestering the greenhouse gas. It's also investing in capture technology, including Svante, a company developing specialized filters for capturing carbon dioxide directly from the source.
Meanwhile, Occidental Petroleum is building the first of many direct air capture (DAC) projects to capture carbon dioxide from the atmosphere and sequester it underground. It hopes to finish that first project by mid-2025. The company is also locking up pore space and partners to build sequestration hubs. For example, Occidental is developing a competing hub in the Beaumont-to-Houston region, Bluebonnet, on 55,000 acres it hopes to have operational by 2026.
These CCS projects will enable Chevron and Occidental to generate income from capturing and sequestering the greenhouse gas. In addition, the technology could significantly extend the life of their legacy oil and gas businesses, since it will lessen the urgency of switching to lower-carbon alternative fuels to reduce emissions.
A potential game-changer
CCS is a potentially massive opportunity for Buffett's oil stock investments. It could significantly extend the life of their legacy fossil fuel businesses and supply a new long-term growth driver. That means it could dramatically enhance the value of Berkshire's energy investments in the coming years. It makes this technology something that Buffett watchers should keep a close eye on in the future.
