Chevron to triple low-carbon investment

Oil giant plans to spend $US10bn through 2028 on technologies such as biofuels and hydrogen.

Chevron’s Genesis oil rig platform in the Gulf of Mexico near New Orleans. Picture: AP

Chevron is tripling spending in its new low-carbon unit, which chief executive Mike Wirth said he sees as a viable business.

The Californian oil giant is pledging to spend $US10bn ($13.5bn) through 2028 on biofuels, hydrogen production, carbon capture and other technologies, up from a prior commitment of around $US3bn.

Mr Wirth said the spending boost reflected optimism in Chevron’s new energies unit, announced in July to oversee the company’s low-carbon investments. Chevron now expects the unit to generate more than $US1bn in operating cash flow by 2030.

“We’ve reached a point where we’ve got enough knowledge of the technologies,” Mr Wirth said.

The increased green investment still represents a fraction of what Chevron is spending on oil and gas projects. In December, Chevron said its capital spending would range from $US14bn to $US16bn a year through 2025. The planned low-carbon investment would amount to roughly 10 per cent of that.

Mr Wirth said Chevron’s strategy would allow the company to reinvest in its legacy business, while exposing it to new opportunities, as the nascent transition to lower carbon-emitting energy sources unfolds. Chevron could invest more in low-carbon energy, if certain policy incentives were put in place, he said.

Mr Wirth has said Chevron supports a price on carbon as the primary policy mechanism to spur the energy transition. Such a price could result from a carbon tax or cap-and-trade system, but Chevron hasn’t endorsed a specific regulatory regime.

A carbon price could improve the economics of carbon capture, for example, allowing Chevron to capture emissions, store them, and sell carbon emission offset credits to other companies.

Chevron CEO Mike Wirth.

Mr Wirth has branded the company’s strategy as “higher returns, lower carbon”. Chevron fleshed out its plans in a presentation to investors on Tuesday.

“We’re trying to create options as the energy system evolves,” Mr Wirth said. “We would hope to spend more than this in the future, predicated on certain things that may come to pass.”

Investors are increasingly asking oil companies to diversify beyond fossil fuels and articulate a strategy for charting how they will navigate tightening global regulations on oil and gas.

The Wall Street Journal previously reported Chevron is preparing to defend itself against a potential challenge from activist investors like the one by hedge fund Engine No. 1 that roiled Exxon Mobil earlier this year.

Chevron’s plans don’t involve investing in solar or wind power generation, which Mr Wirth said were mature businesses that offered little profit opportunity for the company.

Mr Wirth told analysts that the company believed its new low-carbon investments can earn double-digit returns immediately, whereas investing in wind and solar power would yield less than a 10 per cent return.

Instead, the company planned to increase production of biofuels and hydrogen and has signed a handful of such deals with industrial companies and airlines in recent weeks. Chevron also said it would capture or offset 25 million tonnes of carbon emissions a year.

Chevron hasn’t made a net-zero commitment to reduce greenhouse gas emissions, and Mr Wirth said the company would not set targets which it did not have a plan to achieve.

Instead, Chevron has made pledges to reduce its carbon intensity – or emissions as a proportion of total energy produced – and says it has met those targets.

Beginning last year, several large European oil companies, including BP and Shell, committed to reduce to zero the net carbon emissions produced by the assets they own. Exxon Mobil is considering a similar pledge.

In May, nearly 61 per cent of Chevron’s shareholders voted in support of a proposal – which Chevron had urged investors to reject – that the company cut emissions created from the use of its products.

Chevron will publish an update on its emission-reduction efforts later this year. Mr Wirth said it would also update investors on its thinking about net zero.

“We’re not opposed to it all,” Mr Wirth said of such goals. “But for us to declare we believe we can get there, we need to have confidence we can.”

The Wall Street Journal