ExxonMobil (XOM 1.08%) firmly believes oil and gas will play a vital role in fueling the global economy in the decades ahead. One factor driving that view is the emergence of carbon capture and sequestration (CCS) as an increasingly economically viable solution to reducing carbon emissions. Exxon believes that CCS could become a $4 trillion global market by 2050.
That massive market potential is leading ExxonMobil to explore new CCS opportunities. It recently expanded its strategic relationship with pipeline company EnLink Midstream (ENLC +0.00%) to develop new solutions in the Gulf Coast region as the oil giant looks to expand its ability to capture this immense opportunity.
NYSE: XOM
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A first mover in CCS
Exxon and EnLink have been working on CCS solutions since late 2022. The two companies signed a transportation service agreement to utilize existing and new pipelines owned by EnLink to transport carbon dioxide from the Mississippi River corridor in southeastern Louisiana to a 125,000-acre carbon dioxide storage site Exxon is developing in Vermilion Parish. Exxon initially reserved the capacity to transport 3.2 million metric tonnes annually starting early next year. It has the option to reserve up to 10 million metric tonnes per year.
That transportation agreement supports a landmark emissions-reduction project in Louisiana. Exxon signed the largest-of-its-kind commercial agreement with hydrogen and nitrogen manufacturer CF Industries to capture and permanently store up to 2 million tons of carbon dioxide annually from a manufacturing complex in Louisiana that will start up early next year.
Exxon has since signed CCS deals with industrial gas giant Linde and steelmaker Nucor. On top of that, it acquired Denbury Resources in a $4.9 billion deal to expand its carbon dioxide infrastructure platform. Exxon now owns the largest carbon dioxide pipeline network in the country at 1,300 miles, including 925 miles in Louisiana, Texas, and Mississippi. Exxon also has access to 15 strategically located onshore carbon dioxide sequestration sites.
NYSE: ENLC
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Expanding its partnership to enhance its ability to capture the opportunity
While the Denbury deal made Exxon the country's largest carbon dioxide pipeline operator, it will need more pipelines in the right places to enhance its ability to capture the CCS opportunity. That's leading it to work with EnLink to explore additional opportunities to provide carbon transportation services in other Gulf Coast areas beyond the southeast Louisiana Mississippi River Corridor. EnLink is an excellent partner because it has extensive pipeline capacity in this region it could repurpose for carbon dioxide transportation:
Data source: EnLink Midstream.
While the Louisiana Mississippi River Corridor has a lot of emissions (80 million metric tonnes per year), the greater Gulf Coast region emits 215 million metric tonnes of carbon dioxide annually. By casting a wider net, the companies could capture more of the potentially lucrative market.
Working with EnLink "gives ExxonMobil greater flexibility and more options to meet the needs of industrial CO2 emitters," stated the midstream company's CEO Jesse Arenivas in the press release unveiling the expanded partnership. Meanwhile, Exxon sees "EnLink as a key part of providing the most efficient CO2 transportation," commented Dan Ammann, president of the oil giant's low-carbon solutions business.
This partnership aims to offer carbon emitters the most cost-effective way of reducing their emissions by leveraging the scale and expertise of both companies. Exxon's increased scale following the Denbury deal is leading it to evaluate the most market-competitive solutions. That could cause it to prioritize projects by focusing on those with the best chance of commercial success.
Exxon firmly believes CCS can grow into a meaningful business in the future. At its low carbon solutions spotlight last year, Exxon noted that it could see exponential growth in the coming decades as it scales this business.
CEO Darren Woods stated at the event, "The addressable market now could be in the trillions of dollars, and our business potentially measured in the hundreds of billions, and quite possibly larger than ExxonMobil's base business is today as the world approaches net zero." Further, long-term contracts would underpin this business. Because of that, this income would be more stable than its more volatile oil and gas business.
Working hard to capture a potentially massive opportunity
Exxon is expanding its relationship with EnLink to potentially capture more CCS opportunities in the Gulf Coast region. CCS could be a needle-mover for the environment and Exxon's bottom line. The oil giant could eventually generate billions of dollars in stable income from CCS, which could create significant value for its shareholders in the coming decades.
