By Avi Salzman

Exxon Mobil CEO Darren Woods took a swipe last week at an industry that normally doesn't come up on oil and gas earnings calls: nuclear power.

In normal times, oil and gas rarely crosses paths with nuclear. But these aren't normal times. Fossil fuel energy companies are getting much more involved in electricity markets, and starting to butt heads with companies that provide electricity -- like the owners of nuclear power plants.

Woods mentioned nuclear while he was outlining a new business line on Exxon's fourth-quarter earnings call: building natural-gas power plants to provide electricity to customers like tech companies that own AI data centers. Chevron is also looking to sell power from natural-gas power plants.

They would be competing with nuclear power in that arena. Nuclear companies have been some of the biggest winners of the AI boom, because tech companies have agreed to pay them above-market rates for the power from their reactors. One advantage of nuclear power is that it's carbon-free, and it can help tech companies that have been trying to reduce their emissions. Shares of Constellation Energy, the country's largest owner of nuclear reactors, have more than doubled over the past year, and small reactor company NuScale is up 700%. Exxon has risen just 5%.

Woods said that Exxon can compete with nuclear, because the natural-gas power plants it intends to build would be outfitted with technology that would capture the carbon emissions the plant produces, liquefy them and store them underground in perpetuity. The oil giant already owns the largest network of carbon pipelines in the country after buying pipeline owner Denbury in 2023. Exxon is "well-positioned to meet surging demand from data centers for low-carbon power and on a timetable that alternatives such as nuclear simply can't match," he said.

He has a point there. Nuclear power plants generally take more than a decade to build, whereas natural gas plants can be built in three to five years depending on how quickly companies can secure equipment like turbines.

And if Exxon can actually capture the vast majority of the carbon that the plants produce, they could rival nuclear plants in terms of emissions. Woods said the carbon capture aspect of the plants is the company's big advantage -- he thinks Exxon can make more money by selling the "cleaner" power to tech customers than it could by simply selling natural gas power into competitive electricity markets.

But there are also downsides to Exxon's proposed natural-gas power plants. The Institute for Energy Economics and Financial Analysis notes that carbon capture and storage has a "troubled history of cost overruns and delays," and projects have tended to capture less carbon than initially expected.

And oil companies don't have a great history in the electricity industry. Exxon doesn't break out results for electricity-related business, because it has limited operations today. But French oil giant TotalEnergies details its earnings from its Integrated Power segment that generates and markets electricity. That includes areas like wind and solar power, which have struggled lately. In the latest quarter available, TotalEnergies said that the Integrated Power segment generated 9.5% returns on average capital employed, the lowest of all of its segments. Producing oil returned 15.6%, and refining and chemicals returned 27.4%.

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

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February 03, 2025 18:18 ET (23:18 GMT)

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