ExxonMobil (XOM +0.72%) is taking a diversified approach to the energy transition by investing in an array of lower-carbon opportunities. However, even though it has a large branded retail fuels operation, the energy giant has no plans to invest in building electric vehicle (EV) charging stations.
One factor driving that decision is that Exxon sees greater potential in leveraging its scale advantages in carbon capture. It represents a potentially massive commercial opportunity for the energy giant.
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Drilling down into Exxon's lower-carbon ambitious
ExxonMobil updated its long-term capital spending plans late last year. It aims to invest $17 billion through 2027 on lower-emissions investments. That's a 15% increase from its prior plan. Exxon expects to allocate 40% of this money to build several lower-emissions businesses to help customers reduce their greenhouse gas emissions. It will spend the rest of that money on reducing greenhouse gas emissions from its operations.
The energy giant is taking a diversified approach to building out lower-carbon businesses. However, its primary focus is developing large-scale carbon capture and storage, biofuels, and hydrogen projects. The company chose these focus areas because it believes it can leverage its scale and expertise to develop projects that deliver attractive returns on its investment.
Exxon doesn't believe EV charging stations fit that objective. The company doesn't think it's an area where it can bring a meaningful competitive advantage. Because of that, it wouldn't likely earn an attractive return from investments in the space.
Looking to capture a potentially massive opportunity
Exxon believes that its lower-carbon business has the potential to generate hundreds of billions of dollars in revenue in the coming years. It could outpace the company's legacy oil and gas business within the next decade.
The company has already started to capture some lower-carbon commercial opportunities. Last fall, it signed a landmark commercial agreement with CF Industries to capture and permanently store up to 2 million metric tons of carbon dioxide per year from a new manufacturing complex the fertilizer company is building in Louisiana. It has since signed agreements with integrated gas company Linde and steelmaker Nucor. These projects would capture 5 million metric tons of carbon dioxide per year, the equivalent of replacing 2 million gas-powered cars with EVs. The captured carbon will move by pipeline to underground sequestration sites operated by Exxon.
These projects will all capture carbon dioxide emissions directly from a specific source. However, Exxon also sees the potential to invest in building direct air capture (DAC) projects. These facilities would extract carbon dioxide directly from the air. Exxon could transport that captured carbon to one of its underground sequestration sites. Exxon is still working on the technology to reduce costs so it can build projects at scale and with an attractive investment return.
Exxon isn't the only oil company that believes it can build a large-scale carbon capture business. Occidental Petroleum (OXY 1.00%) has already started constructing its first large-scale DAC facility in Texas. Meanwhile, the Biden administration recently invested money into the company's next project. Occidental has been working to commercialize these projects by selling carbon credits to companies seeking to reduce their carbon footprint. Like Exxon, Occidental believes carbon capture could become a meaningful business that generates income similar to its legacy oil and gas business. Further, those earnings would be less volatile than fossil fuel production since they'd come from long-term, fixed-rate contracts.
Focusing on capturing an enormous opportunity
Exxon is investing in several lower-carbon businesses, which it believes will drive long-term profit growth. While EV charging stations aren't an area it plans to invest in, Exxon sees potential in direct air capture technology, which could complement its growing carbon capture operations. The company believes carbon capture could become a multibillion-dollar revenue source, making it a potentially massive growth driver for the energy giant.
