Erik Oswald, Exxon Lobbyist, Speaks at November 2021 Interstate Oil and Gas Compact Commission Conference: Audio automatically transcribed by Sonix

Erik Oswald, Exxon Lobbyist, Speaks at November 2021 Interstate Oil and Gas Compact Commission Conference: this m4a audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Erik Oswald:
[clapping] Thanks all for having me here, it's a real pleasure, to talk. Um, I'm a geologist, as Travis said, and spent most of my career trying to get hydrocarbons out of the ground, and now I find myself ready to put it back in the ground. It's a strange world that we live in. Energy transition. That's kind of the topic...It probably is. Or you can buy a quart of milk in Denver, that has a lower greenhouse gas footprint from the competitors, but I'm not likely to pay... and I don't know what they're doing to those cows.So it's a really interesting field in what we're all trying to do is we're trying to navigate that these markets changing,these future markets where we are interacting with Governments, policy makers trying to make sure that they make smart choices. As Grace talked about here recently, and then we're also trying to look into the consumer behaviors within those markets is trying to understand what choices are people going to make. For example, if I could create plastic and there's no other way to make plastic other than as a petrochemical product, and it's foundational to our whole life, it's foundational to the energy transition. You can't make an electric vehicle without plastic, half of it's made of plastic.Would Tesla be willing to pay a premium for plastic that had a lower greenhouse gas footprint, probably. Lubricants. You can't have windmills without lubricants. There's no other way to make the lubricants. Would wind companies pay a premium to say that the lubricants are lower greenhouse gas footprint? Maybe. So these are the kinds of things that we're all grappling with and trying to understand.

Erik Oswald:
And ExxonMobil has actually set up a whole new company to kind of look at that space. It's called Low Carbon Solutions, we just started it this year, and it has two very fundamental objectives. The first is to look at all of our existing businesses around the world, upstream, downstream, chemicals and to lower the greenhouse gas footprint of all those facilities, that's a huge, as you might imagine, a huge effort that will take years, but we're already spending enormous amounts of capital to do that. And then the second and perhaps more interesting objective of that new company is to build these new low carbon businesses to try to figure out what products are going to be integrated in the future. It could be whole new businesses and that's taking petrochemical products, decarbonizing them and seeing if there's a green premium for them or even new products like hydrogen. I'll talk a little bit about hydrogen and see how that plays into the future market. So an expansive set of objectives, and we've just recently announced that we're going to spend over $15 billion in the next five years fulfilling those objectives. So it's something that has a huge amount of capital going into it.

Erik Oswald:
First thing out of the box for us is carbon capture and storage, which is probably something many of you have heard about. So we'll talk a little bit about the details of that. Carbon capture and storage is the process of capturing CO2 in a variety of ways and then sequestering it in the ground, putting it back geologically really where its never going to be seen again. Sometimes you hear the phrase CCUS, utilization and storage, so that's where you might use the CO2 in some fashion, maybe to produce more oil and gas or maybe to create a product. But they're all kind of in this family of capturing CO2 and putting it away. We like this technology because we have a lot of experience in it. We've been doing it for decades. We believe that it's a proven technology. Something that doesn't have any technology barriers, there's always technology to lower the cost of it, but it's sort of ready to go and we're ready to deliver it. If you're interested in Paris or any kind of greenhouse gas target, the administration's targets. If this is something that you're motivated by, then almost all the credible sources will say that CCS plays a huge role in meeting those targets. In fact, they're really it's not possible to meet those targets without having a CCS implemented at a vast, and I mean vast scale. The scale of that [unclear] in a little while to give you a sense of how important it is. It's also something that we believe can be done very safely, it's very it's very familiar to us, it's very similar to same technology suite as many of the things that we do to produce oil and gas fields, seismic well monitoring, and all of the expertise that we've developed over the decades is directly applicable to executing it [unclear]. So that's why we've kind of come out and I'm talking about this and proposing this big project. We do have a number of ongoing efforts. We've been doing this in Qatar at large in Wyoming, which is one of the biggest CCS efforts in the world today, um in Gorgon. Chevron operated in Australia so with active projects, and this slide is just meant to say we have a huge association with a variety of academic institutions, government institutions. This is something that we've been working on since the 80s. Why now? Well, we we felt like now was a point where policymakers are willing to step up to put policy in place that will actually implement this on a wide scale. The Biden administration has stepped up, set its targets. We thought that was an opening to say, OK, if that's the target that you're interested in fulfilling this technology is the most cost effective way to meet those targets.

Erik Oswald:
And we're ready to deliver that technology. The industry is ready to deliver that technology. We need sound policy and regulation in place to be able to execute it, and that's the conversation that's been going on here for most of this year. We're looking at a bunch of other projects, these are the ones that we've sort of publicly talked about all around the world, there's probably another 30 on there that are actively being analyzed. So it's a very big effort. You'll see a lot of press releases, a lot of people talking about working together on CCS. But if you look cumulatively at all, there's about twenty six operating CCS projects in the world today. Together, they have a capacity to put something like 40 million tons of CO2 per year in the ground.

Erik Oswald:
So I'm going to talk to you about a project that puts 100 million tons of CO2 into the ground, and that's really where this thing kind of needs to go is to these large scale hub projects. So this is the idea we've talked about in the spring. It hasn't been branded yet, but we call it Houston Hub. The idea is really pretty straightforward. There's a map of Houston. All those red dots are sized by the amount of CO2 emissions, and you can see there's a lot of them. You know, that's one of the things that's really unique about Houston. It has a tremendous industrial hub that produces huge amounts of products that society needs. There's no other way to make those products, other than through the big petrochemical complex that's there. And so they have a huge advantage here. One, they're all pretty close together. And two, they happen to be right next to the probably the best sequestration geology on the planet. And that's in the Gulf of the shallow waters of the Gulf of Mexico, about 30 or 40 miles offshore offshore there of Galveston. So it's a unique competitive advantage that Texas has that Houston has. And really, the Gulf Coast has very similar orientation. Lots of large petrochemical facilities directly adjacent to this great geology, which is essentially huge thicknesses of Miocene, very high quality Miocene in sands, but have a good seal rock on top. So that's what gives it a great head start over many other places. And so you can see if you want to compete in a marketplace, where decarbonized products are going to get a premium that Houston can step out in front of that competition and start to produce products that are going to demand a premium in the world today. If we do it right, if we set the right policy and regulatory framework in place we can outcompete say Europe, they may have a more cumbersome regulatory policies [unclear]. And we certainly have the ability to outcompete Asia, where they're not really included into this this market yet. You know they have other issues, they are trying to bring people out of poverty. That's why they're producing called increase energy with coal, they have higher priorities right now [unclear].

Erik Oswald:
So let's talk about this project a little bit. There's about 50 emitters, big emitters sources. You can gather those together with about three hundred and fifty miles of pipeline. It's it looks like almost all of that pipeline work can be done within existing easements, that's the advantage of being in a big petrochemical complex, there's a lot of pipe already in the ground and easements already existing. It comprises all different kinds of sources chemical plants, hydrogen plants, Baytown refinery. Our Baytown refinery is one of those big dots there in the ship channel. There's coal fired power plants, energies, coal fired power plants down there, sugar land in the southwest part. So there's a whole host of different types of CO2 sources, and all those sources have different concentrations of CO2 that we're trying to capture. So the idea is you gather all that up and you move it offshore. We think if we start, start the project now, if we could get policy in place this year, we could be putting away 50 million tons a year by 2030 and 100 million tonnes a year by 2040. Well on our way to helping Houston go to a carbon neutral goal. Let's calibrate that a little bit. A hundred million tonnes. I'm a geologist, I was used to dealing with tonnes of CO2 as a unit. One hundred million tonnes of CO2. That's like taking all of the cars in Texas off the road every year. So it's a huge chunk of the CO2 problem. Or if you like to plant trees and a lot of people talk about planting trees to deal with greenhouse gas emissions. That's like planting all of California in trees every year. So it's a huge chunk of you know work in the CO2 emissions problem. The sobering thing is, I talked about all these studies that said that sequestration has to be an essential part of making any of these greenhouse gas goals, countries that are making the amount of CCS that they're talking about is between five and ten billion tons per year. So we're looking at a world where there's 50 or a hundred of these kinds of projects going on. So it's a sobering thing. Now I can easily get my head around 10 or 15 of those, and a lot of them are in the Texas Gulf Coast area or Louisiana because of this beautiful confluence of lots of emissions close to a great sequestration area. A lot of countries,they don't have that. They've got maybe the emissions and they don't have the geology. So they're going to have to put the CO2 on a boat, the boats going to have to be in a different country. Things get really expensive when that stuff starts to happen. So that again, that's a challenge for the world, but a competitive advantage for Texas and the Gulf Area. Hopefully we can take advantage of it.

Okay so obviously, there's a lot of country companies involved in something like that, you know, 15 or 20 make up about 80 percent of that CO2. And that's one of the big challenges you've got to get all these different organizations working together. You've got communities that have to be brought into this, lots of different communities, and then you've got federal and state policymakers and regulatory agencies. So a lot of people having to integrate into the project, I've been working upstream projects my whole career for 30 years. I've never worked on anything that had 11 companies working together, let alone multiple government agencies and committees and all of that. So that's I think a huge challenge is how do we how do we integrate [unclear]? There's a there's a lot of benefits here that that can bring folks together on this. When you scrub CO2 out of these facilities, the current rate of capturing CO2, in a lot of this is with scrubbers.You also scrub NOx and SOx. And as most of you know, Houston has a real ozone issue. It has air pollution issues. So this is a huge step towards improving air quality in the greater Houston area, and you're kind of getting a freebie, because you're paying for it to work as a CO2 project but NOx and SOx in particular come along with that investment. That's an important issue, really the most important issue for the community when we talk to communities, they're not particularly interested in their greenhouse gas footprint, but they're certainly interested in their air quality. So when we talk about environmental justice or community engagement, that's kind of high on their list. Huge jobs. I don't know if we had cost on the last slide. A hundred billion dollars capex to execute something like that... Opex is pretty expensive. But capex is the big chunk. So a one hundred billion dollars to take one hundred MTA away. That creates a lot of jobs. You know a lot of pretty high skill, high quality jobs, conservatively 40, 50, 60 thousand jobs to execute just on Houston project. If you do five of these in Corpus, [unclear], Baton Rouge, you can kind of move these things all along the Gulf Coast, and you've created a whole set of careers for people as that [unclear].

Erik Oswald:
So there's a lot of benefits, there's a lot of reasons to do it, but it's certainly a lot of challenges to pull out. I mentioned hydrogen. So I won't get into the details here, but I just want you to be familiar with how does hydrogen come into the picture? Because people are starting to talk about hydrogen a lot. There's two general ways to think about hydrogen. First, let's take Baytown refinery. Let's take our refinery. Big complex, lots of different facilities. There's probably hundreds of different sources of CO2 coming out of that facility. When you put a big scrubber on there to address those CO2 emissions, it's a big piece of kit. You know it's like a building the size of pile of pipes that you have to kind of stick on there. If you have to do that one hundred times in a big facility.You run out of room really quickly. It becomes just logistically very difficult. So an alternative way of working that is you pull methane out of the facility. You make hydrogen from the methane and you use hydrogen as the fuel of interest in your facility. And then when you make hydrogen from methane, you get a pure stream of CO2, which is very easy and cheap to grab and sequester. So it's called fuel switching that basic idea. So that's one thing that's likely to be going on when we do these big hub projects is fuel switching, so lots of more hydrogen being created. There's also hydrogen currently being created in the Houston ship channel [unclear]... Produced hydrogen and now they have decarbonized hydrogen. So if you were going to start a new industry, say on hydrogen trucks or hydrogen and shipping, Houston becomes the first place you would want to go because you have abundant, cheap decarbonized hydrogen to start up that industry. And that's really the big question, and hydrogen is you can envision a lot of future markets, I can envision a place where a big segment of the trucking industry switches to hydrogen in a few decades. I can envision maybe shipping moving into that direction in a few decades, but that's a big risk. You're betting on markets that don't exist today, and so it's very difficult for these companies to make these big investments, you know to try and anticipate these markets. But that's the hydrogen world, and it's going to be exciting. There are certain countries that have made that are all in on hydrogen. Like South Korea. They are all in on hydrogen. They think all the vehicles are going to be hydrogen industry is going to run on of hydrogen. Japan's very interested in hydrogen. Other places have have moved away from it, so it'll be variable around the world and we'll have to watch and see how these markets develop. A bunch of companies have joined up to kind of work this project, so I think in the future you'll see ExxonMobil standing up a lot less to talk about Houston Hub. And it'll be this group of the refining companies that are going to figure out how to work together, to advocate for it and talk about it. They had their first meeting. I think there's four other three or four other companies that have joined up since this slide which will be coming public in the next week or so. But you can see it's an outstanding group of folks with all different kinds of skills, so that gives you a lot of encouragement you know that we have that sort of talent pool coming together [unclear]. And I think it'll be I think it'll move gradually. You know, I think there's a lot of these companies that are going to do things immediately that are within their control. They might be able to capture a cheaper, higher, higher concentration CO2 stream and do something locally with it. And we'll see that activity moving ahead.

Erik Oswald:
And then along with that, we'll be building up this much larger, much more developed project.It will be complex for a couple of years. What needs to happen for this? And this is my last slide, and this is what I spent most of my life going back and forth to Washington, D.C. talking to policy makers about, there's really three general areas that are going to be required if we want this whole hub concept to flourish across the Gulf Coast and across the United States. The first is a production tax credit, which we have in place. It's called the 45Q. And it basically gives you a tax credit for the amount of CO2 that you put in the ground. Right now, the credit is $50 a ton. That works really well if you have a pure stream of CO2, like maybe off of an ethanol plant or something like that. But if you have anything that's more dilute than that, you need far more compensation to be able to recover your capital, your investment. So that that number needs to be more like a hundred dollars really to get these hubs started. And then there's other details of this tax credit [unclear]... So we're spending a lot of time talking to lawmakers about that. We think that a lot of the other countries that have started on CCS infrastructure, namely the U.K. and Norway and the Netherlands, they've made investments on infrastructure to get the project started. Like big pipeline projects, or you know working the sequestration project. So we'd like to see DOE funding to kind of get those initial investments made. The tax credit doesn't cover the pipeline or the sequestration part of the cost it only covers the capture part of the cost. So we'll see how that evolves, and then there's a whole host of sort of regulatory issues starting with right now that federal government doesn't even have the right ability to to allow offshore sequestration. So we got to get that out of the way? And then you've got to move into a process of how will you assign acreage for that? How will you regulate wells, the classic permitting issues? So the whole host of things you have to go through. Probably. Ultimately, the big challenge, too, is liability you have to deal with liability once you put all the CO2 in the ground how's liability going to be handled? So Lots of things to be worked on. The good news is in the in the bipartisan infrastructure bill that just passed last week, there's real good language on the government's CO2 storage ability. So those issues have largely been addressed. And my guess is it will be signed into law here shortly, since it sits on the president's desk. In the in the Build Back Better, which is the other big giant pile of money slash legislation that's being considered that there's other there's other things on the tax credit that are in play. They have an 85 dollar tax credit that's in play. It's sort of a corrective language, so I think it's actively being discussed in Congress right now.

Erik Oswald:
Oh, and then I guess also a bipartisan infrastructure bill, we also have seen grants, so they'll make awards for hydrogen hubs and CCS hubs. And there's billions of dollars at play for that so Houston will certainly be competing for those activities.So I'd say they've made a real strong first step at facilitating these things to start to grow. And then there'll be a lot of horse trading here for the rest of the year and we'll see where BBB goes, to see how it ends up [unclear].Still, a lot of work to do. Ok, so I think I'll stop there and very happy to answer any questions you have. Thanks very much.

Wayne Christian:
Yes. Just wondering at what point in the future, I see a lot of this is initially funded by taxpayer dollars. Is there any long term plan that that amount decreases or is this continual plan of taxpayer funding?

Erik Oswald:
Yeah, this is a great question. Maybe one of the most central questions in the whole discussion. For those who didn't hear - the question was about, is there a plan to transition from full taxpayer subsidy of of these activities into more market-based subsidies? And we would certainly see it playing that way because if you did this at scale, like the gigatons of sequestration that I was talking about operating under that 45Q tax credit, there would be no revenue from corporate income tax. It would be entirely eaten by that so we scored it and they'll realize that. So I think we envision that there's nothing in the policy that hardwires that, and the the chicken or the egg problem is everybody needs to go get capital to do this. And the bank is going to require that they have a mechanism in place to recover their investment, even if a utility rate of return. So they need that full 45Q thing to go get the capital to start it out. But that's the challenge. If you take that away they won't get capital to start the project, and it's unlikely that they would build to scale. We would envision, and as I talked about in the beginning, the way the only reason that we're kind of in the game is because we see these future markets growing. So we see that's where the markets going to go. And then once companies start to benefit from that market development, the politicians I imagine would be pretty quick to support [unclear]. But we'll see, I think you're on the you know, that's really one of the central questions, one of the most difficult things about this. It's an expensive endeavor, and we all are going to pay for it, either as taxpayers or as consumers because there's no other source of funding for that to happen so the question is really are we going to pay for it either as taxpayers, or pay for it as consumers. So the bottom line is, if you're asking the taxpayer to pay for this, what's the net decrease in global temperature? Yeah, huge. Huge questions about the efficacy of, let's even take the net zero situation. Let's say we meet the Paris again. And of course I'm an earth scientist so I love having that conversation when I'm not onstage. But there's a whole other set of questions about, OK, what does that buy you. What's the probability that I really impact the climate with that investment that I made.

Questioner:
[Unclear] says point zero two degrees Celsius by 2050. Pretty, pretty, hard to imagine...

Hillary Olsen:
Hi, Hillary Olsen from UT Austin, and I, too am a geologist so I have sort of a geological question. Yeah, you when you were talking about offshore, you mentioned federal waters. So I wondered, does that mean that's your preference over state waters for Texas or or can you tell us what you're thinking is about that?

Erik Oswald:
Yeah, great question. So the way we kind of notionally envision that sequestration project working is one hundred million tons per year of CO2 is going to one hundred injector wells each that would be something like one MTA per well, that's the kind of way we think about it, and you can you can make that work in a huge thickness of Miocene sands, thousands of feet of high quality pay with a good caprock, and you set up plume, like a steady state plume. This is a saline aquifer injection, and you set that up, and so you need the wells spacing something like three to five square miles, you need room around that well. So that's sort of sectional well spacing. So you're talking about like a 400 square mile area to run a sequestration grid like that, now it'll probably be more complicated than that at the end of the day. But that gives you sort of a rough feel of what you're really looking for is a huge area. And the things that are your friends are undrilled, no old infrastructure around, no old wells to cause problems. So, you know going out into the Gulf of Mexico and finding 400 square miles, that doesn't have a well, that's a whole challenge in itself, right? But that kind of gets you out there in ways. And then economically, you're trying to stay on the shelf so that you can use the jackup to keep your rig cost down. So, so that's kind of big project thinking. Now, just like the way oil and gas is, there's going to be a whole spectrum of big megaprojects that big IOCs undertake and then these small, one or two well kinds of things, that smaller companies will undertake. And so I think there's plenty of room as you come back into state waters, and onshore for the activity to, you know, to be very robust. For something like this, you need some room, which is a challenge.

Sara Longan:
Hi, thank you. I have a follow on question, from a couple of those earlier questions.Is there a hybrid approach? Is there a public private partnership? You demonstrate progress but you iterate that high demand. In your thoughts aside from government funding and ultimate regulatory approval, do local and state government agencies have a place to play here to get into the market utilizing public lands and public reservoirs? And Alaska might have that space you're looking for?

Erik Oswald:
Yeah, yeah. I think it's a great idea. And I don't think it's something that I think there needs to be a lot more thinking and work in that space. I'd say initially that the kinds of things that give us, ExxonMobil, trepidation about coming onshore. Litigation, lots of landowners. It's a it's a more complicated operating environment. Not that you can't overcome those things. You couldn't, we've been onshore for 150 years. They're just more complicated, so I think that that's an area that there's probably a lot to be gained there and maybe it's not from the big giant projects, but from a whole host of smaller projects. Remember what really drives this is all of those, all of those emitting emitting areas are so close together that you can gather them up and take them to a place. But when you look at a map of where the emissions are in the United States, there's plenty of stranded emissions that are going to require local solutions. And that's I think where the mid and small companies are going to step in [unclear] and be able to help. So it's a it's a good question, but we haven't really. We're we're we're really focused on trying to get the federal government to do the things it needs to do to facilitate this. Because if we can't do that, CCS isn't really going to be a big part of the story. And you're not going to have the scale and volumes to generate the future markets which you need. The story, while it will be a big and I think lots of players will be involved in the story. I think initially it has to be done in scale in a big way. But anyway... one more question.

Gregg Goodnight:
What about this one, anyway? Anyway you look at the big picture, the net zero by 2050, which is the phrase everybody uses. We just finished COP26. China won't decarbonize till 2060. India, the third largest producer, is looking at 2080, Russia doesn't even want to talk about it. So if you see the net zero by 2050 with that on a global basis is a dream. Now, why should U.S. taxpayers pay for decarbonization of our society to have its cost and its competitiveness impact, and these other countries not do anything? I mean, what what is in that? We have all the pain and whatever gain there is is distributed globally.

Erik Oswald:
Yeah, for me, it kind of goes back to that intro statement that I made. The way we think about this is not as the Crusaders for the climate fix, but we're looking at markets we're looking at ways for the company, the city, the state and the country to gain advantage. And those those markets already are well on their way to developing. So it's really about winning in those markets. It's a strange deal for a scientist, but people, people are willing to pay a green premium, all around the world they're showing that they're will to do that. Why they're doing that? That's another question. There are all lots of markets that are, I mean people bought sugar free to people. There's all kinds of markets that are unhinged from hard facts. So the way I look at it as a scientist is alls I need to think about is, is there is there a risk? Yes, there's a risk. Is it catastrophic, inevitable risk? Not in my mind. But there's risk. And so if we're going to work on this you know as a as a society, if we're going to work on this risk, then my only ask is, let's do it as efficiently as possible. Find me the cheapest way to put the most CO2 in the ground. And that's what I'm willing to engage in the conversation on. This is about one hundred dollars a ton to put large amounts of CO2 in the ground. We all are currently paying subsidies to the electric vehicle industry of about four hundred and fifty dollars a ton to put CO2 into the you know, as a way to [unclear] avoid CO2, so we're already kind of paying that what many of us don't know that we're doing that. There's lots of discussion and tactics in your legislation that's being considered in Congress about direct air capture, which is probably the most expensive way to pull a very dilute CO2 out of the air and sequester it in the ground.That runs at six to seven hundred dollars a ton, so we're subsidizing that through the actions of the government right now. So the way I sort of approach it is um if we're going to spend money on this, let's spend smart money. My angle is that if it's a competitive advantage for the country, for the city and the company. And that has this market question. Ok, well, that's interesting. But how long is it going to take for that market to develop and when can the taxpayer back away from the subsidy. So that's the question.

Unidentified:
[clapping] Everyone give it up one last time for our two speakers. I'm excited to announce that Katie is going to be the next chairman of this committee, so at the next meeting, you'll see her leading this. Katie, do you want to say a few words?

Unidentified:
No. All right. [unclear] Thank you for being here. So look in the back if you're interested and shoot me a note. Yes, look for that.

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