Occidental Petroleum (OXY -1.74%) believes carbon capture and storage (CCS) will eventually become a massive market. The oil company estimates it could be a $3 trillion to $5 trillion global industry in the future. It’s not alone in that view. Oil giant ExxonMobil (XOM -1.68%) estimates that there could be a $4 trillion market for capturing and storing carbon dioxide by 2050.

Both oil companies are working toward capturing this potentially multitrillion-dollar market opportunity. Occidental recently signed a deal with a potential partner to develop what could be its next direct air capture (DAC) facility in Texas. The company’s early leadership in carbon capture and storage puts it in a strong position to capture a meaningful portion of what looks like a massive opportunity.

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Building a carbon removal powerhouse

Occidental Petroleum and its subsidiary 1PointFive signed an agreement with XRG, the investment company of Abu Dhabi’s ADNOC, to evaluate a joint venture to develop a DAC facility in South Texas. As part of the deal, XRG will consider investing up to $500 million into a facility that could capture 500,000 tonnes of carbon dioxide per year.

The oil company noted that the announcement follows several significant milestones in developing DAC technology. That includes progress on constructing its first DAC facility in West Texas. The STRATOS facility is on track to begin commercial operations this year. That facility would also capture up to 500,000 tonnes of carbon dioxide per year. It’s partnering with investment giant BlackRock, which agreed to invest $550 million into the project.

Occidental was also awarded up to $650 million in funding from the U.S. Department of Energy to help support the development of its South Texas DAC hub. The initial 500,000-tonnes-per-year DAC facility would only be the beginning of this hub. The site has the potential to support up to 30 million metric tons of carbon dioxide removal each year through DAC facilities. Meanwhile, the site has about 165 square miles of acreage that has the potential to store up to 3 billion tonnes of carbon dioxide in underground saline formations.

Commercializing a nascent industry

Occidental Petroleum has also been working to commercialize its DAC technology to make money from its investments. A major aspect of its strategy has been selling carbon removal credits to companies seeking to reduce their carbon footprints. For example, it signed an agreement with Microsoft last July to sell 500,000 metric tons of carbon dioxide removal credits over six years to support the technology giant’s carbon removal strategy. That was the largest single purchase of carbon removal credits enabled by DAC technology. These credits will support Occidental’s STRATOS DAC facility. The oil company has signed agreements to sell carbon credits to several other companies, including AT&T, Amazon, and TD.

The oil company has also signed other commercial agreements related to carbon capture and storage. In 2022, the company signed an agreement with SK Trading International to supply it with up to 200,000 barrels of net-zero oil for five years. Occidental will inject about 100,000 tonnes of captured carbon dioxide into the ground, offsetting the entire lifecycle emissions of this crude oil — that is, extraction, transportation, shipping, refining, and use.

Occidental also recently signed a 25-year agreement with fertilizer maker CF Industries (CF -0.21%) to store 2.3 million metric tons of carbon dioxide per year at its Pelican Sequestration Hub in Louisiana. This agreement will support a low-carbon ammonia production facility that CF Industries and its joint venture partners are building in Louisiana.

ExxonMobil signed two similar agreements with CF Industries in recent years. Last year, it agreed to transport and permanently store 500,000 metric tons per year of carbon dioxide captured at a complex in Mississippi, which will reduce the site’s emissions by 50%. In 2022, Exxon signed a landmark commercial agreement with CF Industries to store up to 2 million tonnes per year from a facility in Louisiana. CF Industries is one of six commercial customers Exxon has lined up in recent years, representing 16 million tons of carbon dioxide per year.

Occidental and Exxon believe these commercial agreements are only the beginning. Occidental thinks it could eventually make as much in earnings and cash flow from CCS as it currently does from oil and gas. Meanwhile, Exxon believes CCS could be a multibillion-dollar business for the company. Furthermore, given the long-term contracted nature of its CCS projects, the technology will help reduce its earnings volatility in the future.

Slowly taking steps toward capturing a potentially massive opportunity

Occidental Petroleum continues to make progress in growing its CCS platform. It’s working on lining up funding partners such as XRG and agreements to commercialize its DAC facilities and sequestration hubs. This strategy could create a lot of value for investors in the future if CCS grows as big as the company believes it will become. It makes Occidental a more compelling long-term investment opportunity in the oil patch.