Exxon Enters the Electricity Business, Takes a Swipe at Nuclear
Overview of Exxon’s New Business Strategy
Last week, during Exxon’s fourth-quarter earnings call, CEO Darren Woods made headlines by taking a jab at an industry seldom mentioned in oil and gas earnings reports: nuclear power. In an era where fossil fuel companies are increasingly expanding their horizons into electricity markets, this unusual crossover suggests a significant shift in strategy. Exxon is venturing into natural-gas power plants with the aim of providing electricity to tech giants that heavily rely on AI data centers.
Competitors and Market Dynamics
Other fossil fuel heavyweights, such as Chevron, are also seeking to capitalize on the electricity market by offering power generated from natural gas. This move has positioned fossil fuel companies in direct competition with operators of nuclear power plants, who have recently gained from a boom in demand for electricity driven by burgeoning AI technologies.
The Appeal of Nuclear Power in the AI Boom
Nuclear plants have benefited significantly from tech companies agreeing to pay premium prices for reactor-generated power, largely due to the zero-carbon profile of nuclear energy. This attribute aligns with tech firms’ objectives of reducing their carbon footprints. The success of nuclear companies is reflected in the market performance of stocks like Constellation Energy—the largest owner of nuclear reactors—which has seen its shares increase over 100% in the past year, while NuScale, a small reactor company, has surged by approximately 700%. In contrast, Exxon’s share price has stagnated with only a 5% rise during the same timeframe.
Exxon’s Competitive Edge: Carbon Capture
Woods asserts that Exxon can effectively compete with nuclear energy, attributing this capability primarily to the planned incorporation of carbon capture technology in their natural-gas power plants. This technology aims to capture, liquefy, and safely store carbon emissions underground indefinitely. Following its acquisition of Denbury in 2023, Exxon now possesses the most extensive network of carbon pipelines in the U.S.
Time to Market as a Key Advantage
Woods emphasized that Exxon’s initiatives are poised to meet the growing demand for low-carbon energy from data centers more rapidly than nuclear alternatives can. While nuclear facilities typically take over a decade to construct, natural-gas power plants can come online in just three to five years, depending on the acquisition of essential equipment like turbines. If Exxon can effectively manage carbon emissions, it could position itself competitively alongside nuclear power in the clean energy landscape.
Potential Drawbacks to Natural Gas Power Plants
However, the proposition of Exxon’s natural-gas power plants is not without its pitfalls. The Institute for Energy Economics and Financial Analysis has highlighted a “troubled history” of carbon capture and storage initiatives, pointing out that many projects have faced cost overruns and delays while capturing less carbon than anticipated. Additionally, the historical performance of oil companies in the electricity sector indicates a rocky road ahead.
Lessons from TotalEnergies’ Experience
Exxon’s electricity-related endeavors are currently minimal, as the company does not provide a detailed breakdown of its income from this sector. In comparison, French oil giant TotalEnergies has reported earnings from its Integrated Power segment, which includes various renewable sources like wind and solar power—both of which have faced recent challenges. In its latest quarterly reporting, TotalEnergies revealed that its Integrated Power segment generated a mere 9.5% return on average capital employed, making it the least profitable division compared to traditional oil production (15.6%) and refining and chemicals (27.4%).
Conclusion: Navigating the New Energy Landscape
As Exxon Mobil makes a concerted effort to transition into the electricity market, capitalizing on the demand for low-carbon power, the company faces both opportunities and challenges. While the ability to leverage carbon capture technology and faster construction times for natural-gas plants may afford a competitive edge over nuclear, historical precedents in cost overruns and the company’s lack of substantial experience in the electric sector warrant caution. As this landscape evolves, it remains to be seen how Exxon’s strategies will play out amidst the ongoing competition between fossil fuels and nuclear energy.