Case study
Case Study Quadrant 1
Ringfence ESG-heavy assets in a separate unit
How ExxonMobil made this work in practice
The problem
“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if’, it’s just a matter of ‘how soon’ – and the sooner the better for all of us,” said IEA Executive Director Fatih Birol. However, while the availability of renewable energy is indeed increasing (“This is the first time in history that these newer forms of renewable energy have outpaced each of the fossil fuels, which remain the world’s dominant sources of energy,” writes Carbon Brief), which is promising for a world at risk from climate change, this growth is still outpaced by rising global energy demand.
That is, renewables currently aren’t expanding quickly enough to meet today’s growing energy needs, meaning that demand for fossil fuels continues to climb. With these data and accepting the idea of a world that wants to grow (and pollute), ExxonMobil CEO stated, “We cannot replace overnight an energy system that took 150 years to build. The size and complexity are simply too vast. Those who would tear down the existing energy system have the wrong problem statement. The problem is not oil and gas. It’s emissions.”
The strategy
The decision to ringfence its low-carbon initiatives under a dedicated business unit, ExxonMobil Low Carbon Solutions, was a direct response to these challenges. By ringfencing its low-carbon initiatives, ExxonMobil can separate its established, high-emission operations, focused on maximizing current demand for fossil fuels, from its forward-looking efforts to develop new low-carbon technologies. This structure leverages Exxon’s unique strengths in molecular transformation and large-scale engineering to create new business models within emerging low-carbon energy markets. In 2023, Woods said, “We bring a unique set of skills and capabilities to the world that we’ve developed over the last 140 years. And it’s generally focused on transforming molecules: hydrogen and carbon molecules.” This knowledge is crucial for advancing low-carbon initiatives like hydrogen production and advanced biofuels. This molecular understanding underpins Exxon’s approach to carbon capture and storage (CCS), allowing it to effectively separate and manage CO₂ emissions for long-term storage.
Additionally, ExxonMobil’s extensive experience in large-scale engineering, on projects such as offshore drilling platforms, refineries, and pipeline networks, further supports its ambitions in the low-carbon arena. This engineering expertise, essential to Exxon’s traditional operations, enables the company to scale complex systems necessary for CCS and hydrogen production, both of which require specialized facilities, storage, and infrastructure. Exxon’s global footprint and capability to execute high-capacity installations give it a unique advantage in deploying these technologies at a level few competitors can match. By drawing on its core strengths in molecular transformation and large-scale engineering, ExxonMobil is well-positioned to exploit its current market competencies while exploring sustainable solutions, securing its role in a cleaner energy future.
Finally, the other advantage is that ExxonMobil has been starting new businesses in countries all around the world. “We have the capability to work with governments, communities, and stakeholders to build businesses from scratch. And, frankly, in the carbon reduction business, we need to do the same thing. So that skill set we’ve developed in our traditional businesses lends itself to application in the low-carbon businesses,” said Woods. This dual approach allows Exxon to meet today’s energy demands while preparing for a low-carbon transition, balancing the needs of an evolving market with the realities of energy production and consumption.
In this respect, he believes that ExxonMobil has an edge. “In managing the transition, it’s not about starting something brand new, with new capabilities,” he said. “It’s about how you shift resources appropriately. That’s a huge advantage compared to companies that must build, from scratch, brand-new capabilities and businesses.”
Woods also believes in focusing attention on those verticals where they have already history and excellence. The company decided that it will not go into wind and solar not because the company thinks there is no market potential in those fields, but because it doesn’t fit with ExxonMobil’s core capabilities. He added, “We will stay anchored in what we know we’re good at. We’re a company that has built its success on transforming molecules.”
The results
ExxonMobil has said it expects to make a ROIC between 10% and 20% from the core low-carbon businesses. This is less than the 20+% it has made from oil and gas in the last years, but the company believes that this form of energy will be subject to much less volatility.
ExxonMobil today operates in five different areas:
1. Carbon capture and storage (CCS)
a. What is it? Carbon capture and storage (CCS) is a process that captures carbon dioxide (CO₂) emissions from industrial processes or power generation at the source and stores them deep underground, preventing them from entering the atmosphere. CCS is seen as a critical technology to decarbonize high-emission industries.
b. Competitive advantage: ExxonMobil has over 30 years of experience in CCS and is the global leader in captured CO₂ volume. Its extensive expertise in geophysics, reservoir management, and large-scale engineering enables it to design, manage, and optimize CCS projects at a scale unmatched by many competitors.
c. Example: In October 2024, ExxonMobil announced that it has secured more than 271,000 acres in shallow waters offshore Texas to develop what will become the largest CCS site in the US. The shared goal was to sequester 50 million tons per annum (mtpa) of CO₂ by 2030, even if ExxonMobil has not shared full details on the capacity targets or startup dates. At the time of writing, ExxonMobil has captured more CO₂ than any other company.
2. Hydrogen production
a. What is it? Hydrogen production, especially low-carbon hydrogen, involves creating hydrogen fuel with minimal emissions. Hydrogen can be used as a clean fuel for heavy industries, transportation, and energy generation, offering a potential solution for sectors that are hard to electrify.
b. Competitive advantage: ExxonMobil’s experience with hydrogen production spans decades, as the company produces over a million metric tons of hydrogen annually for its refineries and chemical plants. This background, combined with its deep expertise in complex project management, positions Exxon well to expand into low-carbon hydrogen at scale.
c. Example: In 2023, ExxonMobil started developing a large-scale low-carbon hydrogen production facility in Baytown, Texas. The facility is expected to be the largest of its kind globally, producing up to a billion cubic feet of low-carbon hydrogen daily and over a million tons of low-carbon ammonia annually. The facility aims to convert natural gas into virtually carbon-free hydrogen, capturing nearly 98% of the resulting carbon dioxide. The facility is expected to be the largest of its kind globally.
3. Lower-emission fuels
a. What is it? Lower-emission fuels are alternative fuels with reduced carbon footprints compared to traditional fossil fuels. These include biofuels and renewable diesel, which are especially important for reducing emissions in sectors like aviation, maritime shipping, and heavy-duty trucking.
b. Competitive advantage: ExxonMobil’s extensive knowledge in fuel refining and biofuel production, coupled with its ability to scale production and integrate lower-emission fuels into existing infrastructure, gives it a unique edge in developing these alternatives. The company’s global supply chain and infrastructure allow it to distribute lower-emission fuels efficiently.
c. Example: In 2023, the ExxonMobil affiliate Imperial Oil invested $539 million to build the largest renewable diesel facility in Canada. The plant, which is expected to become operational in 2025, will produce over seven million barrels of renewable diesel annually (primarily from locally sourced feedstocks), reducing emissions by an estimated three million metric tons of CO₂ per year.
4. Lithium extraction
a. What is it? Lithium extraction is the process of obtaining lithium, a key component for batteries used in electric vehicles and energy storage. As demand for battery technology grows, sustainably sourced lithium has become crucial for supporting the renewable energy transition.
b. Competitive advantage: ExxonMobil brings advanced chemical engineering expertise and innovative extraction techniques that minimize environmental impact and increase efficiency in lithium extraction. Its focus on sustainable extraction methods sets it apart from many traditional lithium suppliers.
c. Example: In early 2023, ExxonMobil acquired the rights to 120,000 gross acres in southern Arkansas, where it plans to utilize direct lithium extraction (DLE) technology. This process will extract lithium from saltwater and convert it onsite into battery-grade material, with the remaining saltwater re-injected into underground reservoirs. DLE is a more sustainable approach, producing fewer carbon emissions than traditional hard rock mining and requiring significantly less land.
5. Direct air capture
a. What is it? Direct Air Capture (DAC) involves using specialized filters to extract CO₂ from ambient air (contrary to CCS that is extracting CO₂ from industrial processes). This technology can be deployed in various locations, offering flexibility in addressing global CO₂ emissions. The captured CO₂ is then compressed and stored underground, preventing its release into the atmosphere. This is not easy, as the concentration of CO₂ in the air is very low, making DAC quite complex.
b. Competitive advantage: ExxonMobil leverages its extensive experience in CCS and large-scale engineering to develop a unique DAC system. The company’s expertise in chemical processes and project management positions it to create scalable and economically viable DAC solutions. Additionally, ExxonMobil’s existing CO₂ transportation infrastructure, such as the pipeline network along the Gulf Coast, supports efficient implementation of DAC technology.
c. Example: On Valentine’s Day 2024, ExxonMobil launched a pilot project at its Baytown, Texas facility to test its proprietary DAC design. Interestingly, the main hurdle lies in achieving what CEO Darren Woods has called the “holy grail” of emissions technology, that is, making it commercially viable. To reach this goal, costs must be reduced by at least 50%, as capturing atmospheric CO₂ is challenging due to its low concentration; about 2,000 tons of air need to be processed to capture just one ton of CO₂.
Conclusion
The Low Carbon Solution ringfenced by ExxonMobil allows the company to capture new growth opportunities and accelerate its green transition. And even if ExxonMobil’s creation of Low Carbon Solutions has not fully dispelled concerns over its fossil fuel reliance, it has enabled the company to position itself as a key player in the future of energy.
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