Occidental Petroleum Faces Financing Hurdles for Carbon Capture

Occidental Petroleum Corp., a major energy company based in the United States, has expressed concerns about the financing challenges faced by its carbon capture business. The company's carbon capture division has highlighted the difficulties in securing long-term contracts in the voluntary carbon market and the asymmetric risks associated with carbon storage.

The company's 1PointFive division, which is responsible for carbon capture, has stated that the current financing models are insufficient for scaling up direct air capture technology. The division's president and CEO noted that lenders are looking for more stable and long-term revenue streams, which are not always available in the voluntary carbon market. Additionally, the risks associated with carbon storage are significant, with lower economic returns, making it difficult for startups in this sector to scale up.

To address these challenges, the company has proposed a more integrated approach where a single entity manages the entire carbon asset chain, from capture to storage and sequestration. This approach, known as whole-chain operation, could help in achieving economies of scale and reducing risks. The company also suggested that transitioning from a voluntary carbon market to a regulated global market could provide additional support for carbon capture and storage projects.

Occidental Petroleum is currently accelerating the construction of its direct air capture facility in Texas, which is expected to capture 500,000 tons of carbon dioxide annually upon completion by the end of this year. This facility will be one of the largest direct air capture plants in the world. The company has invested heavily in this technology as it believes it can drive higher growth rates for its core business.

Direct air capture (DAC) technology involves using chemical or physical absorbents to extract carbon dioxide directly from the ambient air. This technology is different from capture at the source, such as in power plants. The captured CO₂ can then be stored underground or used for various applications, such as fuel or building materials.

Occidental Petroleum has been actively investing in the development and deployment of DAC technology. Its subsidiary, 1PointFive, is building the STRATOS facility in Texas, which aims to capture 500,000 tons of CO₂ annually. The company has also received support from the U.S. Department of Energy for its DAC hub in South Texas. The technology used by Occidental Petroleum for carbon capture is based on its acquisition of Carbon Engineering, which employs a liquid solvent (KOH) absorption and calcium cycle regeneration process.

From an operational perspective, large fans draw air into contactors where CO₂ in the air binds with a liquid solution or solid amine. The CO₂ is then released through processes such as heating, pressure reduction, or electrochemistry, resulting in high-purity CO₂ that can be stored or utilized. Currently, the commercial viability of these projects largely depends on voluntary carbon removal contracts and government funding or tax incentives. The formation of stable cash flows that banks prefer is still in progress, which is why Occidental Petroleum's management has stated that the technology is not yet "bankable" in the short term.