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Banker sees carbon storage as trillion-dollar opportunity for oil, gas

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Essential Energy Insights - September 17, 2020

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Banker sees carbon storage as trillion-dollar opportunity for oil, gas

The oil and gas industry can lead in carbon extraction and storage by reverse-engineering offshore reservoirs: "Instead of taking things out, we put them back in."

➤ There is room for a trillion-dollar company in the atmospheric services field.

➤ Kick-starting the low-carbon future is a Kennedy moon-shot moment for a U.S. president.

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John Gibson, Tudor Pickering Holt & Co.'s chairman of energy technology.
Source: Tudor Pickering Holt & Co.

John Gibson, the head of energy investment bank Tudor Pickering Holt & Co.'s energy technology shop and a self-described "space baby," rang a few bells across the oil and gas industry in November 2018 with a note to clients about fear. A futurologist, Gibson sees climate change as the industry's opportunity for growth, but only if companies set aside their fears of threats to their current business.

The opportunity is atmospheric services: taking carbon dioxide out of the atmosphere and putting it in storage.

Gibson's father worked in the Redstone rocket program, a precursor to NASA, and Gibson did his graduate work on meteorite strikes while working as a geologist and then a midstream and services executive for a succession of companies built and sold to bigger fish such as Halliburton Co. and Emerson Electric Co.

Gibson spoke with S&P Global Market Intelligence about a future without fear for the carbon-intensive industries. The following is an edited transcript of the conversation.

S&P Global Market Intelligence: In your vision, oil and gas transforms into the atmospheric services industry, a carbon extraction and storage industry. Why is the oil and gas industry better suited to doing that than any other industry?

John Gibson: If we look at the carbon cycle in general, things are typically measured in gigatons, which are a billion tons. The atmosphere itself is holding about 800 gigatons [of carbon] at any moment. Fossil fuel emissions on an annual basis are estimated to be around 32 to 35 gigatons.

[University of Texas researchers] wrote a paper on Miocene offshore depleted gas reservoirs on the Texas Gulf Coast. They went through and looked at the Gulf Coast, and they came back and said, "How much space [for carbon] do we have there?" Well, it turns out that the Miocene alone — offshore, well-defined, well imaged — has the potential to hold up to 32 gigatons. That's a year's worth. For the planet.

This is the futurologist in me: The list of good things about being offshore are enormous because you're taking no chance with your potable or drinking water, no surface owners, the list is just too good to be true. If you are going to make this work, this is nirvana. The complexity of it is quite low.

Can you imagine one day when we have CO2 storage lease sales? Or maybe even the reverse: You have CO2 storage [where] the government makes payments to you to take the blocks, sort of a reverse auction.

If you read the papers, North America is estimated to have the capacity, through saline aquifers, as well as depleted reservoirs, to handle somewhere between 2,000 and 22,000 gigatons of CO2 storage. ... If we get up to 20,000 ... that's 600 to 700 years, nearly 1,000 years of storage of what we're emitting from fossil fuels.

You have to remember, this is 32 out of 800 gigatons ... we really only have a 5% contribution to the carbon cycle, so that's the problem we have to tackle. This isn't like tackling the whole 800.

Do you see a future where we find other uses for CO2? Or its stored for 1,000 years and let's not worry about it?

You have a lot of people working on the creation of plastic from CO2. That's probably a couple of decades out. You've got people that are using CO2 to make solids and sequestering it as the equivalent of a concrete block. We see CO2 used to replace water in some of the cementing activity that we have in the oil and gas industry. We can get cement, reduce our water use and sequester CO2.

People are snooping around for economic uses for CO2. We've yet to see the real value of those yet, but they're coming.

Looking at the number of companies in the oil and gas industry, each a laboratory, what qualities does a company looking to the future have that others don't?

Great leadership that understands the value proposition and is not risk-averse, like the majority of people today, where their quarterly numbers are more important than their vision and direction and future value. One of the people speaking on this the most that I admire at the moment is [CEO] Vicki Hollub at Occidental. You can pull any of her investor relations reports or her talks. I won't speak for her, but ... she's speaking eloquently about the low-carbon future at Occidental.

Is it going to be large companies or small companies? It's going to be companies with leaders that see a way to create value for shareholders through being carbon-smart. We're going to see everything from mom-and-pops to a trillion-dollar carbon company. We'll have an Amazon equivalent in atmospheric services. There's enough CO2 out there that you don't have to put much of a price on it for it to get to be a good-sized market.

Does a supermajor-sized company like BP PLC or Exxon Mobil Corp. have the ability to transition to an Amazon of atmospheric services? Or is it going to be a mom-and-pop that grew up to be a supermajor?

I actually believe the supermajors do [have the ability] because they have an international footprint. As soon as they figure how out to do it and we've gotten the cost in the right place, they will be a major driver because of their footprint, their capital structure. The competencies they have in producing in deep reservoirs, in [enhanced oil recovery], I can't imagine them not being a major participant.

There is going to be a mechanism for carbon to be a real market. To be valuable to shareholders, there will be a good margin in it. It'll be another revenue stream for an oil and gas company.

What kind of young people need to be hired for a future we can't see? Who should oil and gas companies be hiring to get ready for this low-carbon future?

It's actually the same skills that have been taught prior: I mean a lot of this is reservoir engineering, geology, geophysics. We're repurposing them. Instead of taking things out, we're putting things back.

That's just part of the solution. There's a huge piece where its going to be the commercialization of CO2. The creation of plastics, solids, absorption techniques, replacing water with CO2 — it's very exciting to think about because as we get into this ... for us to colonize other planets, we have to learn how to manipulate atmospheric conditions for the benefit of our lives, and we're just now starting that.

Remember when Kennedy said we're going to send a man to the moon and bring him back safely? We now have had a whole generation of presidents that manage things and don't create vision. We need just a moment in time when a president steps forward and creates a vision, something like, "We will be able to control our atmosphere to prevent negative consequences, and we'll do it within the next decade."

Some variation of that vision changes our planet forever. We can do more in a decade than people understand when we have the money, the focus, the research. I think we'll make extraordinary leaps forward.

I just think with a great vision that the United States, in particular, starting right here in Texas, in the Miocene, can set an example of how we can get carbon out [of the atmosphere]. It's not about carbon, either, it's how we can manage the atmosphere to the benefit of the whole of the planet.

I don't think people understand how hard we're working at understanding carbon capture. How much we're investing in low carbon. We don't really admit all this, but we're going to be the ones to solve it because of our competencies, our knowledge of the subsurface. Those are stories that need to be told.