How one oil producer is pursuing “net-zero” oil

Senior Science and Economics Correspondent
Illustration showing a barrel of oil with
Illustration by Nadya Nickels.

On its face, the phrase “net zero oil” may sound like an oxymoron. After all, burning fossil fuels is the primary driver of climate change.

But Texas oil major Occidental Petroleum has a buyer lined up to purchase such a product even before the company has finished building the infrastructure necessary to produce it.

In March 2022, Occidental announced SK Trading International, a South Korean company, agreed to buy up to 200,000 barrels of net zero oil a year for five years after Occidental completes the necessary infrastructure, expected in mid-2025. SK, Occidental’s first and so far only publicly announced customer for its net zero oil, will use the product to produce lower-carbon intensity aviation fuel.

To deliver, Occidental will use direct air capture to remove the same amount of CO2 from the atmosphere as would have been released in the production, delivery, refining and final use of each barrel. Occidental will sequester the captured atmospheric carbon underground in a process called enhanced oil recovery (more on that later).

Society is at the earliest stages of decarbonizing global industrial, energy and transportation systems. While low carbon alternatives for many fossil fuel products exist, it will be particularly tricky to entirely replace oil due to its pervasive and effective use in transportation and manufacturing.

For Occidental, that calculus is an opportunity. “To me the last barrel of oil produced in the world should come from an enhanced oil recovery reservoir using CO2 from the atmosphere,” said Vicki Hollub, Occidental’s CEO, on a November earnings call. “So, we will be doing that.”

Occidental is currently an outlier in the oil and gas industry with its broad investments in carbon management, though experts say others will need to follow to thrive in a world increasingly focused on drastically reducing emissions.

“We certainly have the capabilities and history with managing CO2,” Richard Jackson, the executive who leads Occidental’s United States onshore oil and gas businesses and the company’s carbon management operations, told Cipher. “But you have to hit climate relevant scale.” And that, Jackson said, means capturing “many millions of tons” of carbon dioxide from the air.

From a climate perspective, what matters is how these net zero barrels of oil are used, David Hawkins, longtime veteran of the Natural Resources Defense Council (NRDC) told Cipher.

“Our goal needs to be both to reduce greenhouse gas emissions and to reduce the amounts of fossil fuels we use. That means oil use should be restricted over time to meet needs that cannot feasibly be met by other means,” said Hawkins, emphasizing the need for policy. He declined to predict what those future use cases might be, but many experts expect it will be exceptionally hard to come up with alternatives to oil in the aviation, heavy-duty shipping and plastics industries.

The science behind oil’s dominance

Almost all the energy driving the global transportation sector comes from oil and that hasn’t changed in decades, according to the International Energy Agency.

That’s because liquid hydrocarbons, like oil and jet fuels, are mind-bogglingly energy dense — which makes them ideally suited for powering planes and heavy cargo transportation where immense amounts of energy are needed at a relatively low weight.

“If you gave a whole bunch of the world’s smartest scientists and engineers an infinite amount of money and time and said, ‘come up with the absolute perfect energy storage medium for transportation,’ they would come up with liquid hydrocarbon,” Eric Toone, the chief technology officer for Breakthrough Energy, told Cipher. (Breakthrough Energy also supports Cipher.)

Liquid hydrocarbons are also easy and relatively safe to handle and store at room temperature. “They’ve got every single characteristic you would want — except for the production of emissions, right.”

While some segments of the transportation sector are and will continue to be electrified, liquid fuels are almost certainly going to be used for transportation for decades to come — for at least some use cases, according to Kate Gordon, a lecturer at Stanford who just completed a two-year appointment working as a senior advisor to Jennifer Granholm, Secretary of the Energy Department.

“It’s very difficult to get to a place where we have no liquid fuels in our system,” Gordon told Cipher. Virtually every model she’s seen includes some oil until “pretty late century,” she said.

Building a carbon removal business

In August 2023, Occidental agreed to pay approximately $1.1 billion to purchase the direct air capture company Carbon Engineering. Via its subsidiary, 1PointFive, Occidental is already building one direct air capture facility that will use Carbon Engineering’s technology and has plans to build a second.

The first facility, called STRATOS, is being built in the Permian Basin, a major oil region in West Texas, with a $550 million investment from BlackRock and is slated to begin commercial operations in the middle of next year. When fully up and running, STRATOS will capture up to 500,000 metric tons of carbon dioxide per year. It will be the largest direct air capture facility in the world once it is fully operational, capable of capturing 14 times more CO2 than the Climeworks facility in Iceland currently with that title.

Occidental’s second facility will be built on the Gulf Coast as part of the South Texas Direct Air Capture (DAC) Hub, a program stood up by the U.S. Energy Department that aims to co-locate carbon capture, processing, delivery, sequestration and end-use equipment to demonstrate the technology at scale.

Both facilities will use technology developed by Carbon Engineering that uses an industrial size fan to direct air sucked in from the atmosphere over plastic surfaces covered with a potassium hydroxide solution. The CO2 in the air chemically sticks to the solution. Salt from the solution is then separated out into small pellets, which are heated to release the CO2 as a pure gas that can be sequestered or used.

Occidental plans to sequester the CO2 it captures underground via enhanced oil recovery, a process that allows the company to pump more oil out of an existing well using CO2 (in this case, replacing it with CO2 Occidental has been buying for this purpose).

Enhanced oil recovery is often misunderstood in public discourse, Julio Friedmann, chief scientist at Carbon Direct, a carbon management firm, told Cipher. “A common point of confusion on this is people think, well, ‘You put the CO2 down, and then it comes back up with the oil and then you’re screwed.’ Not true. That actually is not what happens,” he said. “You inject CO2 into the ground. Almost all of it stays there. A little bit comes back up with the oil and then you re-inject it.”

Occidental’s carbon management business could eventually rival that of its oil and gas business, Jackson told Cipher. “The vision is removing atmospheric CO2 at scale,” he said.

This includes using that CO2 to make products ranging from carbon removal credits to synthetic fuels, he added. Companies including AT&T, Boston Consulting Group, TD Bank and Amazon have already agreed to purchase their carbon removal credits.

“There is not another oil and gas company that is investing at the scale and the speed that they are” in their low carbon business, said Savita Bowman, a senior program manager for carbon management at ClearPath, a conservative clean energy group.

Even Hawkins of the NRDC said the move put Hollub ahead of her peers.

“I don’t want to suggest that Vicki Hollub should be praised. Rather, it is noteworthy that she at least seems to recognize there is a problem that requires them to be proactive,” Hawkins told Cipher. “By comparison the rest of the industry does not appear to be even at that first step of the 12-step process.”

Editor’s note: Bill Gates invested in Carbon Engineering and also founded Breakthrough Energy, which supports Cipher. Eric Toone is the chief technology officer of Breakthrough Energy.

Correction: Julio Friedmann’s name is spelled with two n’s. The original version of this story spelled it with one n.