BlackRock’s $550m carbon capture deal has ‘classic infra-like protections’

BlackRock’s $550 million investment into the world’s largest direct air capture facility announced last week benefits from “more classic infrastructure-like protections”, according to Doug Vaccari, managing director in the group’s diversified infrastructure team.

The deal will see it partner with New York-listed oil and gas producer Occidental to build Stratos, a Texas-based direct air capture plant designed to capture up to 500,000 tonnes of CO2 per year. Its construction is 30 percent completed, with the site slated to be commercially operational by mid-2025, BlackRock and Occidental said in a statement. The joint venture with BlackRock was proposed by the investment firm, according to Vaccari.

“We approached Oxy around the idea of forming a partnership to accelerate the development of their low carbon business,” he told affiliate title Infrastructure Investor.

While Vaccari declined to state the total cost of the project, Occidental first outlined an up to $1 billion cost in March 2022, although expansions to the site have since been announced. Vaccari also declined to specify details of any offtake agreement, but stressed BlackRock’s confidence in partnering with a company the size of Occidental, which operates oil and gas assets in the US, Middle East and North Africa.

“What drew us to this specific investment in DAC is the strong investment grade company sponsor in Oxy behind it, which allows the project to benefit from more classic infrastructure-like protections around construction, operating costs, availability and offtake,” said Vaccari.

Infrastructure Investor understands the $550 million commitment is being deployed in stages, dependent on certain milestones, although Vaccari declined to comment on what those milestones are.

The International Energy Agency said last year about 32 large-scale plants need to be built per year up to 2050 to reach net-zero goals. While it has received little attention from institutional investors, there are 28 direct air capture facilities commissioned worldwide, according to the International Energy Agency. Vaccari, however, does not believe the Stratos site suffers from any nascent technology risk.

“All of the key components used in this facility exist in the world today and are used, for example, in how we make cement and cool buildings. The real magic of the carbon engineering technology is putting all these together,” he added.

Stuck in sequestration

The deal is being funded from BlackRock’s Global Infrastructure Fund IV, which has raised about $5 billion of its $7 billion target. While this is BlackRock’s first direct air capture investment, the fund’s predecessor – the $5.1 billion Global Energy and Power Infrastructure Fund III – has previously attempted carbon capture sequestration through a pipeline investment.

The firm partnered with Valero Energy Corporation and Navigator Energy Services in March 2021 to develop an industrial scale carbon capture pipeline system, spanning more than 1,200 miles of pipelines across five Midwest states with the capability of permanently storing up to 5 million metric tonnes of carbon dioxide per year.

However, last month, Navigator announced the project had been cancelled, citing “the unpredictable nature of the regulatory and government processes involved, particularly in South Dakota and Iowa”, with South Dakota’s regulators denying a pipeline permit in September.

BlackRock declined to comment on the move or state how it had invested in the project. The total cost of the project was about $3.4 billion, according to Iowa court documents.