BlackRock Places $550M Bet on Occidental’s DAC Project STRATOS

BlackRock Inc. will invest $550 million on behalf of clients in Occidental Petroleum’s STRATOS, the world’s largest Direct Air Capture (DAC) plant under construction in Ector County, Texas.

BlackRock, through one of its funds, has inked a deal with Occidental’s subsidiary 1PointFive to form a joint venture that will own STRATOS. This development marks a sign of growing investor confidence in the nascent DAC technology, noted by Vicki Hollub, Occidental’s CEO:

“This joint venture demonstrates that direct air capture is becoming an investable technology. BlackRock’s commitment in Stratos underscores its importance and potential for the world.”

Occidental shares jumped by 1.7% following the announcement. BlackRock’s massive investment follows major developments in the space. It also comes after the oil producer’s announcement of acquiring a DAC company Carbon Engineering for >$1 billion.

A Boom for Carbon Removal Credits

The substantial BlackRock investment accounts for about 40% of the DAC project’s total $1.3 billion cost. So far, it’s one of the biggest investments in this carbon capture technology. By reducing Occidental’s share of the cost, the oil major can allocate more capital to its oil and gas operations.

DAC pulls CO2 from the air to bury underground or use in making products like concrete and aviation fuel. Both Occidental and ExxonMobil projected DAC could become a multi-trillion market by 2050, as scale decreases the costs.

STRATOS can suck in 500,000 tons of carbon dioxide from the atmosphere annually and sequester the planet-warming gas underground. That amount is equivalent to the carbon pollution of producing 1 million barrels of oil. As such, it makes the project eligible for generating carbon removal credits.

Demand for carbon removal credits is strong as they’re viewed as superior to other types of carbon credits relying on questionable emissions accounting, claimed Occidental. Industry estimates also show rapid increase in these credits (tech-enabled) as the world strives to reach net zero emissions by 2050.

Source: Ernst & Young (EY) report

This year has seen plenty of corporate buyers signing purchase agreements with 1PointFive to buy the credits. Notable corporations like Amazon and Airbus SE have already committed to purchasing some of the credits to offset their emissions.

Days ago, TD Bank Group also bought 27,500 carbon removal credits from 1PointFive, signifying a historical deal in the finance industry.

The project is slated to begin operations in 2025 and has reached 30% completion.

This first-of-its-kind large-scale DAC plant is a test for a technology that will play a crucial role in decarbonizing the global industry, according to the International Energy Agency. Scale up of this technology is essential in the quest to net zero as shown below.

The U.S. government also identifies it as one the solutions to reduce carbon emissions. Through the Department of Energy, the government revealed its $1.2 billion funding package for two DAC projects, one of them is STRATOS.

The energy giant seeks to gain revenue from the project, running from $580 – $810 per ton of captured CO2. A portion of that amount, $180, comes from tax incentives provided by the Inflation Reduction Act. This stands in contrast to project costs running between $400 to $500 a ton, but will drop as more DAC facilities are working.

Occidental also anticipates a rise in demand for carbon removal credits, especially as airline operators seek avenues to neutralize their emissions. The company believes that these credits will be more cost-effective than emission reductions delivered by sustainable aviation fuels (SAF).

About 90% of the captured gas will be available for selling carbon removal credits.

Boosting Confidence in DAC

The joint venture between 1PointFive and BlackRock serves as a substantial investment for the latter in Texas. More so where the world’s largest asset manager has faced pushback over the past two years for its support of ESG and sustainable investment funds.

Lawmakers in the state have accused the company of boycotting the oil and gas industry. They also have taken measures to limit investments by state and local agencies in BlackRock shares and funds. But the asset manager responded that its clients had invested more than $300 billion in Texas.

BlackRock expressed appreciation in working with Occidental to help develop the world’s biggest DAC facility. The company’s CEO, Larry Fink, further noted that the energy giant’s expertise in the matter can significantly scale the decarbonization technology.

The DAC facility will create employment opportunities for over 1,000 people both for its construction and operational phases. It also highlights the role of energy companies in climate technology innovation, Fink also noted.

But the project is not without risks. Opponents have raised concerns that it can potentially be used in old oil reservoirs to increase crude oil production.

Still, for BlackRock, companies that invest in technologies like Occidental’s DAC will emerge successfully in the next few decades. Its significant investment in Occidental’s STRATOS underscores the growing confidence in DAC technology, promising to revolutionize carbon capture and contribute to global decarbonization efforts.

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