The oil company pivoting to carbon storage and data centers

California approves first commercial carbon storage project at former oil field

California Resources Corporation has started injecting carbon dioxide into depleted oil reservoirs at Elk Hills Field in Kern County. The project, called Carbon TerraVault 1, marks California’s first approved commercial carbon capture and storage facility. It aims to store up to 48 million metric tons of CO₂ over its operational lifetime.

This development signals a broader shift in how former oil companies are repurposing legacy infrastructure. CRC is capturing emissions from its own natural gas power plant and storing them underground in geological formations that previously held fossil fuels. The company plans to expand this model to serve external clients, particularly data center operators seeking low-carbon energy sources.

For UK businesses tracking international carbon markets and storage technologies, this project offers insight into how geological sequestration is becoming commercially viable. It also highlights growing tensions between energy-intensive digital infrastructure and climate commitments. The approach may influence UK policy as the government develops its own carbon capture and storage clusters in industrial regions.

Two depleted reservoirs converted for permanent carbon storage

Carbon TerraVault 1 uses two specific geological formations at Elk Hills Field. The depleted 26R and A1-A2 reservoirs now serve as permanent storage sites for carbon dioxide. These formations previously produced oil and natural gas for decades, which means CRC has extensive geological data about their capacity and integrity.

The company received approval to operate Class VI geologic sequestration injection wells. This well classification, regulated by the US Environmental Protection Agency, is specifically designed for long-term CO₂ storage. Initial capacity stands at approximately 1 million metric tons per year, with potential to increase to 1.46 million tons annually as the project expands.

The storage site covers roughly 5,745 acres of land. CRC is capturing emissions directly from its natural gas power generation facility at the same location. This proximity reduces transportation costs and infrastructure requirements, making the economics more favorable than projects requiring long-distance CO₂ pipelines.

Depleted oil and gas reservoirs offer particular advantages for carbon storage. Operators already understand the rock formations, pressure characteristics, and sealing properties from decades of extraction activity. This historical data reduces geological uncertainty and makes monitoring more straightforward compared to storage in untested formations.

Federal incentives drive expansion of commercial carbon storage

The Biden administration has committed $12 billion in subsidies for underground carbon storage through the Inflation Reduction Act and Bipartisan Infrastructure Law. These incentives have changed the financial case for carbon capture projects across multiple industrial sectors.

Tax credits now make carbon capture economically viable for cement manufacturers, steel producers, and power generators. Previously, most carbon storage projects required government grants or regulatory mandates to justify the capital investment. The enhanced tax credits provide a more predictable revenue stream based on the volume of CO₂ permanently stored.

Industry analysts estimate the global carbon capture and storage market could reach $4 trillion by 2050. The European Union has set a target of storing 50 million tons of CO₂ annually by 2030. These projections reflect both policy commitments and industrial demand for decarbonization solutions.

However, the economics remain sensitive to policy changes. Carbon storage projects typically require 10 to 15 years to deliver returns on initial investment. Companies entering this market are effectively betting that carbon pricing and storage incentives will remain in place or strengthen over time.

Data center operators seek carbon capture to meet power demands

Technology companies are increasingly interested in natural gas power plants coupled with carbon capture systems. A report by Carbon Direct, published in June, estimates that gas generation with CCS could meet 63% of projected US data center electricity demand.

This interest stems from the massive power requirements of artificial intelligence systems. Data centers running AI workloads need consistent, high-capacity electricity supplies that renewable sources currently struggle to provide at the required scale and reliability. Natural gas with carbon capture offers a potential solution that delivers both capacity and lower emissions.

Exxon Mobil has announced plans for high-reliability gas plants specifically designed to serve data center clients. The company is targeting 90% CO₂ capture rates at these facilities. Other energy companies are developing similar proposals, recognizing data centers as a growth market for captured-carbon natural gas.

This trend has attracted political scrutiny. Senate Democrats, including Sheldon Whitehouse, Martin Heinrich, and Chris Van Hollen, launched an investigation into Meta, OpenAI, xAI, and six other technology companies. The investigation focuses on their reliance on gas-powered data centers and associated environmental impacts.

The investigation reflects broader concerns about whether carbon capture genuinely reduces emissions or simply enables continued fossil fuel use. Critics argue that focusing on CCS delays the transition to renewable energy. Proponents contend that it provides a necessary bridge technology while renewable capacity scales up.

California project navigates state environmental regulations

California has historically maintained strict environmental standards that limit fossil fuel expansion. The approval of Carbon TerraVault 1 required CRC to demonstrate that the project would reduce net emissions rather than extend fossil fuel operations.

State regulators reviewed the project under California’s climate commitments, which include achieving carbon neutrality by 2045. The project had to show that captured and stored CO₂ would remain permanently underground and that operations would not increase local air pollution.

Local air quality remains a concern for communities near Kern County industrial sites. Environmental groups have raised questions about whether carbon capture projects adequately address particulate matter, nitrogen oxides, and other pollutants from natural gas combustion. These pollutants affect local air quality regardless of carbon capture rates.

The project also required extensive geological surveys to confirm the integrity of the storage formations. Regulators needed evidence that stored CO₂ would not migrate into groundwater or leak back to the atmosphere. CRC used seismic data, pressure testing, and well logs from decades of oil production to demonstrate containment capacity.

California’s approach may influence how other states regulate carbon storage projects. The state combines support for carbon reduction technologies with stringent requirements for environmental protection and community impact assessment. This dual focus creates both opportunities and compliance challenges for project developers.

Key details about Carbon TerraVault 1

• The project uses two depleted reservoirs, designated 26R and A1-A2, at the Elk Hills Field in Kern County, California.
• Total storage capacity reaches up to 48 million metric tons of CO₂ over the project’s operational lifetime.
• Initial sequestration operates at approximately 1 million metric tons annually, with potential expansion to 1.46 million tons per year.
• The storage site covers roughly 5,745 acres of land at a facility that previously produced oil and natural gas.
• Carbon dioxide comes from CRC’s own natural gas power generation plant located at the same site.
• The US government has allocated $12 billion in subsidies for underground carbon storage through recent climate legislation.
• Industry projections estimate the global carbon capture market could reach $4 trillion by 2050 as countries pursue net zero commitments.

Former oil companies repurpose infrastructure for carbon storage

California Resources Corporation’s transition from oil extraction to carbon storage reflects a broader industry pattern. Companies with geological expertise and depleted reservoirs are positioning themselves in the carbon management market. This shift offers a potential second life for infrastructure that would otherwise become stranded assets.

For these companies, carbon storage provides a way to maintain operations and workforce while aligning with climate policy. The geological knowledge gained from decades of hydrocarbon extraction translates directly to understanding storage formations. Well drilling, pressure management, and geological monitoring skills remain relevant in the new business model.

However, this transition raises questions about the role of fossil fuel companies in climate solutions. Some stakeholders argue that allowing these companies to profit from carbon storage enables them to continue extracting and burning fossil fuels. Others contend that their expertise and existing infrastructure make them best positioned to deploy storage capacity quickly.

The business model depends heavily on continued policy support. Without carbon pricing, storage mandates, or substantial tax credits, most carbon storage projects cannot compete economically with unabated emissions. Companies entering this market are making long-term bets on climate policy remaining stable and strengthening over time.

UK businesses should note that similar dynamics are emerging domestically. The government has identified industrial clusters in Teesside, Humberside, Merseyside, and Scotland for carbon capture development. Companies with operations in these regions may face both requirements and opportunities related to carbon storage infrastructure in coming years.

Implications for energy-intensive industries and supply chains

Carbon capture projects like CTV 1 may affect how energy-intensive sectors approach decarbonization. Industries struggling to eliminate process emissions, such as cement and steel production, are watching these developments closely. If geological storage becomes widely available and economically viable, it could provide an alternative to costly process changes.

Supply chain implications are also emerging. Companies making net zero commitments may start favoring suppliers with access to carbon capture. This could create competitive advantages for manufacturers located near storage infrastructure. Conversely, businesses without such access might face higher carbon costs or exclusion from certain supply chains.

The data center dimension adds another layer. If technology companies secure low-carbon power through natural gas with CCS, they may indirectly drive demand for carbon storage capacity. This could accelerate infrastructure development but also concentrate storage resources in regions with high data center activity.

For UK manufacturers selling into US markets, understanding these developments matters. American buyers increasingly scrutinize supplier emissions, particularly in sectors with high embodied carbon. Projects like CTV 1 may set precedents for what counts as credible decarbonization in commercial relationships.

Trade policy could also evolve around carbon storage. As carbon border adjustments and product carbon footprinting become more common, companies using carbon capture may claim lower emissions in international trade. This could affect competitive dynamics in carbon-intensive sectors like chemicals, metals, and building materials.

Government resources on carbon capture and storage policy

UK businesses can find detailed information about domestic carbon capture policy through the Department for Energy Security and Net Zero’s carbon capture and storage resources. The government provides updates on cluster development, funding opportunities, and regulatory frameworks.

The business models for carbon capture projects explain how government support mechanisms work in the UK context. These documents cover revenue structures, risk allocation, and commercial terms relevant to companies considering involvement in CCS projects.

For companies with US operations or supply chain connections, the Environmental Protection Agency provides guidance on carbon capture reporting requirements and Class VI well permitting. Understanding US regulatory approaches can help UK businesses working with American partners or customers.

Businesses seeking support with carbon reporting, net zero strategy, or supply chain decarbonization can access our net zero program for carbon reporting compliance. We help SMEs navigate emissions requirements, including emerging issues around carbon capture and supply chain transparency. Additionally, SBS Academy training on carbon management provides practical guidance on evolving technologies and regulatory requirements.