Exxon Mobil Gets More Confident Its Lithium and Hydrogen Bets Will Pay Off

Exxon said in a corporate update this past Wednesday that it will increase its overall low-carbon investments to $20 billion through 2027, up from its prior target of $17 billion. About half its spending is going toward reducing the emissions from its own operations. That could mean electrifying the process of hydraulic fracturing, or reducing methane emissions from its wells. The other half will come from new business lines.

Exxon has backed away from some previous low-carbon efforts, like generating energy from algae. But it has been ramping up investments in areas like carbon capture and storage. That process involves capturing the carbon emitted from industrial activities, liquefying it, and pumping it underground to keep it from adding to global warming. The company is also starting to invest in cleaner hydrogen, which can be a replacement for natural gas in some operations.

Exxon’s most notable recent investment is in lithium mining. The company has started drilling wells in Arkansas to extract lithium, and plans to have enough supply to power 1 million electric vehicles by 2030.

“In many ways, extracting lithium from deep brine reservoirs is similar to our existing businesses,” said Exxon CFO Kathryn Mikells. “It involves upstream skills like geoscience and reservoir management, as well as efficient drilling.”

Exxon has previously said it will ensure that its low-carbon businesses produce returns of more than 10%, but it now expects average returns of 15% from the cleaner businesses. That’s still below the 30% returns it says it can make from fossil fuels, but it does show that its low-carbon investments are becoming more profitable. And the 30% oil-and-gas returns are dependent on high prices. Over the past decade, oil prices have been volatile and have frequently fallen below Exxon’s expectations.

Analysts at Redburn Atlantic says Exxon’s low-carbon investments are becoming much more substantial.

“The significance of this increase in low carbon spend should not be understated,” they wrote.

It could, in fact, represent as much as 24% of Exxon’s spending by 2027. But the analysts did raise concerns that investors won’t like these kinds of investments.

“Investors have been skeptical of European Majors’ renewable and low carbon investments and there may well be similar skepticism towards Exxon’s growing investments in this space,” they wrote.

Investors aren’t the only skeptical ones. The company’s messages on climate investments have been mixed. On one hand, the head of Exxon’s low-carbon business, Dan Ammann, has said these initiatives could eventually drive more revenue for Exxon than oil. On the other, Exxon has said the goal outlined in the Paris climate agreement of net zero carbon emissions by 2050 is too unlikely to include in its financial predictions. And its update on low-carbon spending didn’t include its expected acquisition of
Pioneer Natural Resources,
which wasn’t a major spender on low-carbon businesses.

Environmental groups have criticized big oil companies for shying away from aspects of the Paris agreement. The International Energy Agency calculated that oil and gas firms spent just 2.5% of their budgets on clean energy in 2022. To hit Paris goals, they would have to up that commitment to 50% by 2030, on top of their plans to decarbonize their own operations, the IEA says.

“If companies really want to demonstrate they are aiming for a net-zero future, they must advocate unequivocally in favor of Paris-aligned climate policy—somewhere the industry has been largely absent,” said Andrew Baxter, senior director for business energy transition at the Environmental Defense Fund, or EDF, in a statement.

The EDF says Exxon still trails peers in low-carbon spending. Its budget puts it on track to spend about 14% of its capital on these areas between 2022 and 2027, while
BP
had already set aside 30% as of last year.

Write to Avi Salzman at avi.salzman@barrons.com