Shell and Equinor boost their exposure to carbon capture tech

Shell and Equinor are both investing in new carbon capture technology from Israeli company RepAir in a year that has seen their profits soar. Now the pressure is on to meet net-zero targets, with the low-carbon and renewable sector predicted to grow in the next few years, amid pressure for oil majors to participate in the switch.

• Shell and Equinor have backed Israeli carbon removal startup RepAir
• Carbon capture technology is seen as key to net-zero targets, with the sector projected to reach $4.9bn by 2027
• The iShares Global Energy ETF is up 45.4% year-to-date

Shell [SHEL.L] and Equinor AS [EQNR] are among those backing Israeli company RepAir’s plans to capture carbon directly from the atmosphere. Last week, it announced it had raised $10m to support the feat.

Energy and oil companies have seen record-breaking profits in 2022 as the war in Ukraine has led to soaring oil prices. The sector is outperforming the overall market, but despite this wartime windfall these companies have experienced, they are still under pressure to adapt their polluting businesses models so they can contribute to a net-zero carbon future.

The Shell price appeared unaffected by the news, nudging up 0.4% on the day of 5 December and back down by 0.71% to the close the day after. Equinor fell by 1.2% and 1.3% on the respective days. The same week, Fitch Ratings affirmed a AA Stable Outlook rating for Shell, noting its “lower carbon business lines”.

Year-to-date, Shell’s share price has soared by 46.8%. Norwegian oil major Equinor is also up 47.5% to the close on 14 December. The S&P 500 is down by 16.2% year-to-date by comparison.

Carbon capture: A net zero hero?

Direct capture of CO2 from the atmosphere is seen as part of an overall solution to the ongoing climate emergency and global switch to renewables. The race is on as many companies, including Shell, pledge to achieve net-zero by 2050. “[Carbon capture is] an essential element on top of shifting to renewables and eliminating emissions at the source,” Amir Shiner, CEO of RepAir, said at the time of the funding announcement. “The name of the game is to scale up as quickly and economically as possible.”

Like other traditional fossil fuel businesses in 2022, Shell is embracing carbon capture technology.

In April, Shell announced plans to produce low-carbon hydrogen in a hook-up with German utility company Uniper. The Humber H2ub project is centred at Uniper's Killingholme power station in South Humber.

Norwegian Equinor, meanwhile, is already a pioneer in the field of carbon capture storage (CCS), with plans to store carbon under the sea bed. It built the world’s first carbon capture and storage facility and stores 1 million tonnes of CO2 emissions annually, an effort which has reduced Norway’s emissions by 3% in the past two decades.

Carbon capture on the rise

According to a report by MarketsandMarkets, the carbon capture and storage market will increase at a compound annual growth rate (CAGR) of 15.1% by 2027 and reach $4.9bn, with demand from the construction industry particularly driving growth. At present, the market is worth $2.4bn.

As the technology is so new, there are few pure carbon capture stocks. Aker [AKER] is an engineering firm that caters to oil, gas, wind and carbon capture companies. It has a market cap of $52.9bn as of 15 December and reported revenues worth $19.6m for the third quarter (Q3) of 2022.

Traditional oil majors including ​​Shell, Exxon Mobil [XOM] and Chevron [CVX] also provide exposure to the theme, given they are investing in the arena as pressure mounts to meet looming net-zero carbon targets.

However, many have been criticised for “greenwashing” and not sinking enough profits into renewables. According to research this year from Channel 4, Shell invested 6.3% of its £17.1bn profits into low-carbon energy measures, a third of its investment in oil and gas.

Fund in focus: iShares Global Energy ETF

Shell is the third-biggest holding in the iShares Global Energy ETF [IXC], with a weighting of 7.92%. Its peers Exxon and Chevron are ahead in first and second places. The fund is up by 45.4% in the year to 14 December, reflecting the energy sector’s strong performance this year.

Funds that hold Equinor shares include the AdvisorShares Dorsey Wright ADR ETF [AADR], where the company is currently the fifth-largest holding in the portfolio as of 14 December, with a weighting of 3.54%. The fund is down 22.9% year-to-date.

A fund that focuses more specifically on energy firms that are actively contributing to net zero targets is the VanEck Low Carbon Energy ETF [SMOG]. Its top holding is in clean electricity firm NextEra Energy [NEE] with a weighting of 7.95%. In the year-to-date, the ETF is down 23.4%.