Can ExxonMobil make attractive returns from its US CCUS portfolio?

With strong support from 45Q incentives and scale-leading opportunities, the US is arguably the world's most advantaged CCUS market. ExxonMobil has established a clear lead in the US CCUS market, and the capacity dwarfs all other competitors. The capacity of its pipeline of US capture, transport and storage projects is well over twice as high as the remaining Majors combined.  

With our new modelling capability in Lens Carbon, we are now able to analyse the impact on the company’s portfolio, value and returns and provide a unique analysis of ExxonMobil’s opportunity set. 

Read on for a short summary of some of the key takeaways from our recent report Can ExxonMobil make attractive returns from its US CCUS portfolio:

1. ExxonMobil has built arguably the most advantaged US CCUS portfolio in the sector

ExxonMobil has moved swiftly and decisively to build leadership in providing the full CCUS value chain service to industrial emitters. By owning and operating all portions of the value chain in the US, the company is betting on:  

• Emitters’ appetite to sign on, since ExxonMobil is taking most of the technical and project execution risk.
• The enormous scale benefit in the Gulf Coast. 

The legacy Denbury storage project portfolio of 84 Mtpa would capture 13% of our global forecast for CCUS storage capacity in the early 2030s - and 27% of the North American storage market. 

However, the US CCUS business still barely moves the needle in ExxonMobil’s global portfolio. The projects modelled through Lens Carbon show a US$2 billion operating cash flow at plateau in the early 2030s - equivalent to just 3% of our projected total for ExxonMobil in our new corporate financial model. 

2. The value proposition is subject to huge uncertainty as the business model is still taking shape

CCUS project economics are subject to huge uncertainty with transport and storage fee tolls being some of the biggest variables.  

Our analysts have taken a mid-point of US$20/tonne for emitters with a lower cost of capture but there is a real risk they will not be willing to pay a toll at this level. We calculate the unleveraged IRR drops below 10% if the toll fee falls below US$16/tonne. 

A supportive toll fee for providing CO2 transport and storage, filling the infrastructure capacity and securing premium prices for low-carbon products are among the biggest risks that ExxonMobil will need to manage to ensure success. 

Another wildcard is that emitters may be too slow to build capture capacity, resulting in under-utilised infrastructure. Delays, operational problems, political and regulatory risks could also put double-digit returns in jeopardy.  

3. The company’s US portfolio makes a weighted average return of 20% in our base case. Some projects make much higher returns

ExxonMobil is leaning on several areas to manage the uncertainty and downside risks, which we analyse in more detail in our asset reports (available to Lens Carbon subscribers). 

• Low Cost. Unlike most other projects which need new infrastructure build, Denbury’s CO2 pipeline infrastructure is already in place and close to large-scale emitters. 
• Deploying different business models. These include i) storage only, ii) storage and transportation, sub-contracting the latter to specialist pipeline players and, iii) the capture, transport and storage of CO2. 
• Forging partnerships. ExxonMobil already has strong partnerships with heavy industries and is building relationships with emitters.
• Building low-carbon value chains. ExxonMobil’s blue hydrogen facility is at an advanced development stage and will capture 10 Mtpa of CO2 for transportation and storage in its CCUS network. 
• Strategy flexibility. ExxonMobil will have options to store onshore, offshore or EOR in the US Gulf Coast region.

4. In pole position to build a material business in a buoyant carbon removal market

ExxonMobil will initially tread cautiously in committing material capital to commercial development. But the Supermajor has an opportunity to position itself as the partner of choice in offering CCUS-as-a-service if it grows its customer base and establishes itself as a partner of choice to store CO2 from third party emitters. 

Much of this is underscored by the importance of understanding the value proposition for capital allocation decisions. Analysis using our new asset level modelling capability in Lens Carbon to do a deeper cross-sectorial analysis on capital allocation, indicates ExxonMobil’s CCUS assets are almost competitive with upstream for capital. 

Learn more 

Our new asset-level modelling capability Lens Carbon allows Wood Mackenzie to analyse CCUS project economics for companies in our CSAS offering. It shows global CCUS capacity will jump six-fold between 2030 and 2050 to hit 2.0 billion tonnes in our base case – and it will double that if countries stick to their decarbonisation pledges. That provides a large market opportunity. 

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