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Turbulent times for chemicals: coping with challenges through sustainability
Remarks by Steve Pryor
President of ExxonMobil Chemical Company
European Petrochemical Association Conference, Berlin Germany
October 5, 2009
Thank you all very much. I am delighted to be here.
I'd especially like to thank the EPCA Board of Directors for allowing me this opportunity to talk with you about sustainability in the petrochemical business.
You may be asking yourself: why exactly is a "petroleum guy" talking about sustainability in petrochemicals?
It's true that the bulk of my career has been in the Downstream. However, at ExxonMobil, refining and chemical manufacturing are tightly integrated to maximize the value of every molecule and minimize costs. Our Downstream and Chemical organizations also share best practices and serve many of the same industries.
So I feel right at home being back in Chemicals, for the third time. And as this also happens to be my third trip through the downcycle, I know that a disciplined, long-term approach through the ups and downs of the business cycle is key to long-term success.
Our industry, as you know, is facing significant challenges. These include a weak industry environment, unprecedented capacity additions and the challenge of reducing greenhouse gas emissions. Yet, to remain competitive in this cyclical global industry, we must continue to deliver ever-increasing value to customers and to society while protecting the environment for future generations.
Said differently, to be successful, our industry must be sustainable. Sustainability, as defined by the United Nations in 1987, means "meeting the needs of the present without compromising the ability of future generations to meet their own needs." According to the U.N., it requires balancing economic growth, social development and environmental concerns. The key is finding the balance, because as the World Energy Council stated in a 2007 report, policies which fail to contribute to economic and social development will themselves not prove sustainable.
The challenges facing our industry — essentially the challenge of sustainability — is not a new one. I would submit that over the past century, our industry has been successful, because it has been sustainable, continuously raising the bar in delivering products that keep us safe, healthy, warm, cool, fed, in motion and connected .... while, at the same time, reducing environmental impact.
Underpinning this progress has been innovation — in feedstocks, manufacturing processes and products. Innovation in these three areas has and will continue to underpin the chemical success story.
So let's take a brief historical look at how innovation has shaped our industry, because examining the past informs our thinking about the future. I will focus on the ethylene chain, which is the foundation of the petrochemical industry.
At the turn of the last century, the modern day chemical industry started here in Germany using coal as the primary feedstock, from which were generated coke oven gases, coal tar, followed by Fisher-Tropsch liquids.
Over time, however, the increasing cost of coal along with safety, health and environmental concerns drove the industry to refinery-based liquids as the primary feedstock. Starting in the 1920's, U.S. refiners were equipped with thermal crackers to produce fuels, which were also a source of reactive olefins for the emerging petrochemical business.
The advent of catalytic cracking in the 1930's, followed by steam cracking in the 1940's, provided larger volumes of lower-cost ethylene, which in turn drove product innovation. But it was the commercialization of polyethylene in the 1950's that spurred the development of lower-cost ethane cracking.
And since the 1960's and 70’s, there has been ongoing innovation in catalyst development and monomer generation, resulting in an explosion of new products.
So you can see that over the past century, the interplay of innovation in the use of lower cost feedstocks, more efficient and cleaner manufacturing processes to run those feedstocks, and game-changing products has created what is today a three trillion dollar per year global industry. It’s an industry whose products are an essential part of every facet of the modern economy, touching 96 percent of all manufactured goods. In addition to these stunning economic and social achievements, our industry is making a major contribution to the environment as well.
A recent study conducted by McKinsey and Company and reviewed by the Öko Institute indicates that for every unit of carbon dioxide emitted by the chemical industry over the product lifecycle, more than two units of carbon dioxide are saved by society through the use of products and technologies enabled by our industry. The net effect is that the world's greenhouse gas emissions are 8 to 13 percent lower today than they would be without the use of products of modern chemistry.
Contributing to this positive impact are improvements in the energy efficiency of our chemical operations. For example, in the EU, chemical production rose by 60 percent between 1990 and 2005, while energy consumption was stable. This equates to the chemical industry reducing its energy intensity by 3.6 percent annually, with a 30 percent absolute reduction in greenhouse gas emissions.
So having discussed the sustainability of our industry on a macro level, let's take a closer look at three examples of sustainable chemical products that deliver economic, social and environmental benefit to society.
My first example deals with sustainability in textiles and fibers. Polyester emerged as a substitute for cotton some 40 years ago. Many would assume that cotton, a natural "renewable" fiber, better promotes sustainability than polyester, a derivative of the petrochemical, paraxylene.
However, cotton requires large quantities of water, competes for available land and has higher production costs and lifecycle greenhouse gas emissions than polyester. Moreover, cotton can't match the versatility of polyester, and the engineered performance of the new polyester microfibers. As a result, polyester has become the world's fiber of choice, the production of which is estimated to now exceed cotton and all other man-made fibers combined.
As the leading producer of paraxylene, ExxonMobil continues to expand capacity to keep up with this growing demand.
The point is that just because a natural material like cotton is renewable, it doesn’t mean it can match the balanced sustainability benefits of the products of modern chemistry.
The second example deals with the sustainability of our products in automotive applications. If you have not already done so, I would invite you to visit ExxonMobil's energy efficiency car in the lobby and registration area. This see-through car features light weight plastic parts, which reduce the weight of the average automobile by nearly 10 percent, leading to a 6.6 percent improvement in fuel economy. Other fuel-saving products featured are synthetic lubricants and state-of-the-art, butyl rubber innerliners for tires, which use 80 percent less raw material than current innerliners and improve air retention by 10 percent.
The potential contribution of these products to vehicle fleet energy efficiency is significant. If just one-third of the U.S. auto fleet used them, it would save about five billion gallons of gasoline annually and reduce greenhouse gas emissions equivalent to taking eight million cars off the road.
My final product example is as thin as a human hair; but it has revolutionized the electronics world, transformed how we communicate, and is now positioned to usher in a new generation of hybrid and electric vehicles. I am talking about battery separator film, a business ExxonMobil helped pioneer. Battery separator film is a polymer film used in lithium-ion batteries, which allows the free flow of ions between the anode and cathode while safely insulating them.
The lithium ion battery was introduced in 1991 and is responsible for miniaturizing the electronics industry by replacing nickel cadmium batteries. I’m sure many of you at one point owned cell phones the size of a brick. Well, continuous improvements in the separator film helped make lithium-ion batteries lightweight, with higher energy and power capability. Now, cell phones fit easily in your pocket. And today most portable electronics, from laptop computers to power hand tools, are powered by lithium-ion batteries.
Recent breakthroughs using new polymer and processing technologies have led to the development of new separator films that can withstand the more demanding requirements of hybrid and electric vehicles. If 10 percent of U.S. cars were hybrid vehicles, the greenhouse gas emissions reduction would be equivalent to taking another five million cars off the road.
In short, battery separator film is a compelling example of how modern chemistry is changing the world.
I hope you've taken away from this discussion of our history and products that the chemical industry has been successful because it has been sustainable — delivering economic, social and environmental benefits. Looking to the future, how can our industry continue to prosper and grow in the challenging environment ahead? How do we raise the bar and build a more sustainable future? I would cite four things we must do.
First, we must continue to invest in innovation — in low-cost feedstocks, manufacturing processes and products. For example, in steam cracking, a technology Exxon invented in 1941, our company continues to pursue improvements and breakthroughs — in feedstock flexibility, energy efficiency, environmental performance and costs, as well as in product performance. Even after some 70 years of technology development, we still see enormous opportunities for innovation.
Bio-based feedstocks and products, which today represent less than one percent of the mix, will play a growing role. However, history shows that development, scale-up and penetration of new technologies takes decades, just as is the case with alternative energy. Hence, our industry must continue to invest in petroleum-based technology and production capacity, while pursuing alternative sources.
Next, we must improve consumer use of energy. This means developing product solutions that save energy and reduce product usage, thereby helping customers to improve their sustainability performance. A good example is ExxonMobil's metallocene-based film resins, which allow customers to use less packaging while maintaining performance. Demand for these value-added resins has been recession-proof, demonstrating that sustainability is good business.
Third, we must step up our industry's advocacy efforts on policy options for curbing greenhouse gas emissions. Policy-makers must understand that the chemical industry is part of the solution to climate change, as demonstrated by the recent McKinsey study. Sound public policy should not impede our ability to compete, causing the leakage of production, emissions and jobs to countries without costs on greenhouse gas emissions.
Finally, we must strengthen product safety management and enhance public confidence. That is the objective of REACH, of the American Chemistry Council's advocacy efforts to update the U.S. Toxic Substance Control Act; and of the Global Product Strategy developed by the International Council of Chemical Associations. But regardless of the regulatory framework in your region, product safety is every company's responsibility. Voluntary efforts to provide transparent, standardized information on the safety of priority chemicals should be accelerated. Beyond that, our industry should support research and innovation in product safety testing methods.
Let me close by saying that, I am very optimistic about the long-term prospects for our industry. According to the World Bank, the global economy will nearly double to about 75 trillion dollars per year by 2030. ExxonMobil estimates that petrochemical demand will continue to grow faster than the economy for the foreseeable future, especially in Asia-Pacific, which will represent over half of world demand by 2015.
As in the past, to participate successfully in this growth requires looking through the ups and downs of the business cycle and steering a steady course. Industry leaders, regardless of size, will be focused and disciplined, continuously improving operational integrity, environmental impact, product performance and long-term shareholder returns.
And as in the past, innovation in chemistry will enable progress throughout the world and help to build a more sustainable future.
Thank you and I’ll be happy to respond to any questions.
