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Meeting the global supply challenge
Remarks by Rex W. Tillerson
Chairman and CEO, Exxon Mobil Corporation
APEC Dinner Keynote
Singapore
November 13, 2009
It is a pleasure to have this opportunity to address friends and colleagues from government and industry assembled for the APEC CEO Summit.
I’d also like to recognize the work of the APEC Business Advisory Council. By providing the expertise and experience of business and industry, the Council makes a valuable contribution to APEC every year – and it helps in developing policies that can increase growth and opportunity throughout the Asia-Pacific region.
For the energy industry, we have seen these contributions most recently in the discussions surrounding the Strategic Energy Framework, which we hope will guide future APEC discussions.
The framework highlights the importance of expanding and diversifying energy supplies, increasing efficiency, advancing technologies for clean coal and renewables and promoting free trade.
I commend the Council on its efforts to make these important goals APEC priorities – especially in light of the location of this APEC meeting – here in the region’s major oil refining and petrochemical center.
The discussions at APEC on energy issues will be particularly critical in the years and decades ahead because energy demand growth in the Asia-Pacific region is projected to outpace the growth of energy supplies within the region.
Singapore has chosen to focus this year’s APEC discussions on “Rebuilding the Global Economy.” Of course, affordable and reliable energy supplies are critical to that task.
To ensure continuing growth, prosperity, and energy security, APEC member nations will need to support policies that encourage investment, expand international trade and spur technological innovation.
This evening, my remarks will focus on why these policies will be so important to meeting the global energy supply challenge.
I will begin with a discussion of the importance energy plays in economic development.
Next, I will discuss the size and scale of energy demand and how we must meet these demand challenges with both teamwork, collaboration and technology.
And finally I will outline the government policies we will need to help businesses unleash the human ingenuity that is our best hope for meeting the global energy supply needs – in a safe, secure, environmentally responsible way.
The Importance of Energy to the Economy
Solving our energy challenges will require leaders of both government and business to understand the realities governing world energy markets and the global economy.
First, global energy demand is set to grow – and it is going to grow significantly in the decades to come.
History demonstrates that energy demand and economic growth do go hand in hand. The International Energy Agency predicts that the world’s total energy demand will likely be more than 33 percent higher in 2030 than it was before the economic recession. This long-term growth is expected even after we take into account the lower energy demand resulting from the current global economic downturn and the significant increases expected in energy efficiency.
Most observers further agree that the Asia-Pacific region will be at the forefront of future economic expansion, and energy demand in the region is expected to grow even more dramatically. According to our own projections, energy demand in the Asia-Pacific region is expected to rise approximately 65 percent over the next 25 years – substantially outpacing global demand growth.
As we discuss the world’s growing energy needs, we must remember that this growing energy demand reflects, and enables, progress.
For developed nations, reliable energy fuels the technologies and services that enrich and extend life. Energy powers advanced computers, improved transportation, expanded communications, cutting-edge medical equipment and procedures, and much more.
For developing nations, expanding reliable and affordable supplies of energy supports and even accelerates changes that improve and save lives. Reliable energy means expanded industry, modern agriculture, increased trade and improved transportation. These are building blocks of economic growth that create the jobs that help people escape poverty and create better lives for their children.
APEC’s diverse membership represents nations along this entire continuum of development – with many rising nations poised to take a new leadership role in the global community.
To meet the enormous demand for energy that enables all economies to grow, the energy industry must operate at an enormous scale and over a very long time horizon. These dimensions and timelines can be difficult for many people, including policy makers, to grasp. But understanding them is essential to developing the solutions to the challenges we face.
The world currently uses the equivalent of about 235 million barrels of oil per day to fuel transportation, generate electricity, run farms and factories, heat and cool homes and much more.
Not only is this an enormous challenge in terms of its scale, it demands long-term planning and discipline. Time in the oil and gas industry is not measured in business cycles, and it’s certainly not measured in government election cycles. It is measured in generations. The energy we use today is the product of investment decisions and technical work that were undertaken decades ago. And the energy we use tomorrow will be the product of decisions that we undertake today.
In addition, for most nations, the energy that powers their economies requires a vast, very complex infrastructure. New supplies of energy can come from hundreds, even thousands of kilometers away – often originating deep below the ocean’s surface, the arctic reaches of the globe, or drawn from layers of rock once thought impenetrable.
To conquer such challenges requires not only long-term planning, but also continual technological development, and effective risk management – especially as the world’s energy resources are increasingly found in difficult or hard-to-reach places.
And it requires an unprecedented level of new investment on the part of the world’s energy sector. The International Energy Agency estimates that the energy industry will need to invest more than $25 trillion in the world’s energy supply and infrastructure by the year 2030 to meet the expected growth in demand.
Developing All Economic Energy Sources
The fact of enormous and growing demand for energy around the world means that every nation must pursue public policies that allow industry to develop energy from all available and commercially viable resources.
Nuclear, hydroelectric, geothermal, wind and other alternatives all have an important role to play in meeting the world’s needs. When and where these are competitive, they help increase the overall supply of energy that is essential to growth.
Developing all our energy resources will also require us to find and produce more fossil fuels. Hydrocarbons currently provide the vast majority of the world’s energy – and due to their availability, their affordability and their versatility, they will continue to do so. Oil and natural gas alone are projected to supply nearly 60 percent of the world’s energy needs for the next 25 years.
With this increased energy demand comes of course a second challenge: reducing greenhouse gas emissions associated with energy use and managing the risks of climate change.
Globally, we expect energy-related carbon-dioxide emissions to rise by almost one percent per year on average for the next 20 years, even as we make substantial improvements in energy efficiency and shift to a less carbon-intensive energy mix. Much of this emissions growth will come from rapidly developing nations, as they work to improve living standards and expand economic opportunity.
Clearly, stemming this rise in greenhouse gas emissions is a great challenge and one that will require every nation, industry, and consumer to help.
As nations work together to reduce emissions, we must remember that all people, in developing and developed countries alike, deserve access to energy, because all people deserve the opportunity to improve their fortunes and better their lives.
The energy policies we formulate going forward must ensure that the energy supplies needed for development are available to rising nations as well.
Free Markets and Integrated Solutions
Our best hope for meeting these challenges is to harness the power of free markets and new technologies.
History shows that when capital and ideas flow freely and property rights are protected by law, investors, entrepreneurs, and companies will invest in new technologies – leading to innovations that fundamentally shape our economies and our way of life over time. On the energy front, the sum of these innovations represents a set of integrated solutions – solutions that leverage technology to expand energy supplies, increase efficiency, and reduce emissions.
We know that investments in innovation and cooperation unleash human ingenuity. That ingenuity can, in turn, bring far-reaching technological advances that transform the economy, protect the environment, and increase energy security.
For its part, ExxonMobil is committed to disciplined and long-term investments in technologies that hold the promise of meeting the energy challenge – here in the Asia-Pacific region and beyond.
Expanding Supplies of Natural Gas
One of the keys to expanding supplies and reducing emissions is by investing in technologies that can bring more natural gas to the Asia-Pacific region.
Natural gas is expected to be the fastest growing major energy source over the coming decades – increasing globally by more than 50 percent by the year 2030 and by more than 150 percent in the Asia Pacific region alone. By then, natural gas is projected to have overtaken coal as the world’s second-largest energy resource. Given that natural gas emits up to 60 percent less carbon-dioxide than coal when used to generate electricity, this has important implications for the environment.
Today, power generation accounts for about 35 percent of the world’s total energy usage, and is expected to account for more than 50 percent of the increase in global energy needs by the year 2030.
In the Asia Pacific region alone, power-generation demand will grow by close to 100 percent over the next two decades.
The growing market for liquefied natural gas will play an increasingly important role in meeting this demand. And my company is leading the way in growing this market.
For example, in Qatar, we have worked closely with our Qatari partners to build four of the world’s largest liquefied natural gas trains. And earlier this year, three of them began production.
These trains allow natural gas from the Qatar’s North Field to be super-cooled into liquid and then transported by ship to markets all around the world – with Asia as a major beneficiary of these expanded supplies.
We have also developed with our partner Qatar Petroleum new LNG tankers that can transport up to 80 percent more LNG cargo than current conventional-size ships. These vessels are also exceedingly more energy efficient than conventional tankers. In fact, energy efficiency has improved by 40 percent per delivered BTU of LNG. And in an example of the benefits of international cooperation and trade, these advanced ships, which will help build a truly global market for LNG, are all constructed in Korea.
ExxonMobil is also seeking to deliver LNG supplies from other areas of the world to meet the needs of the Asia-Pacific economies. In August, we agreed to terms with PetroChina to sell more than 2.2 million tons of natural gas each year from Australia’s Gorgon-Jansz field to fuel China’s growing economy.
Refining and Petrochemical Complexes
Another important part of ExxonMobil’s efforts in Asia is our effort to increase the capacity and energy efficiency of petrochemical refineries.
Just two days ago we celebrated together with our joint venture partners Sinopec, Saudi Aramco, and the Fujian Government the successful completion and start up of the Fujian Integrated Refining and Ethylene Project. The Fujian world-scale refinery and petrochemical complex will process 240 thousand barrels per day of crude and produce 800 thousand tons-per-year of ethylene and 700 thousand tons-per-year of paraxylene. The complex also includes a 250-megawatt cogeneration facility, which will help improve energy efficiency and reduce emissions associated with this new facility.
I am proud to say that ExxonMobil also has a world-class, integrated manufacturing site right here in Singapore. The Singapore facility is producing the types of products that will be important to our future. The Singapore chemical plant is producing stronger plastics for use in lightweight automobile parts, which will help increase fuel economy and reduce emissions.
Moreover, we are in the process of adding a new multi-billion dollar petrochemical complex to our Singapore facility. This addition will more than double the size of our chemical plant and it will also include a 220-megawatt cogeneration facility and employ the latest technology to further increase efficiency.
At this second petrochemical complex, we will produce new polyethylene plastics for films. These advanced plastics reduce the thickness and weight, but not the strength, of plastic wrap and packaging.
This breakthrough will reduce transportation costs, reduce greenhouse emissions, and translate to energy savings across the entire supply chain.
In Korea, we are building a manufacturing facility in Gumi to accommodate additional demand for our battery-separator film for lithium-ion batteries. This will enable the more widespread use of hybrid and electric vehicles. The new manufacturing plant will be completed in 2010.
These are just a few examples of the many investments that are being made to meet the energy challenges in the Asia-Pacific region.
Principles of Policymaking
All of these projects require long-term planning and investment discipline. Many would not be possible without the cooperation and ingenuity of joint-venture partners from other companies and nations. The success of these projects is a tribute to the power of teamwork and technology to provide solutions to difficult energy challenges.
But meeting the global energy supply challenge will require even greater long-term investments of time and money.
That is why business and government must work to build energy policies that maximize the use of markets, encourage free trade, protect contracts and the rule of law, and provide a sound and stable policy environment.
The goals laid out in the past by APEC Energy Ministers and through the Council process are important starting points for building and aligning effective, free market policies within APEC to encourage investment in energy solutions.
However, if we fail to enact policies that encourage investment and innovation, the consequences will be felt by nations and economies the world over. Without the research and development into new technologies, it will be more difficult to expand energy supplies, increase efficiency, and reduce emissions.
For developing nations in particular, decreased investment and diminished energy supplies will be especially costly.
There is one more area where government policies need to be guided by sound principles – and that is in the effort to mitigate the risks posed by rising greenhouse gas emissions.
Around the world, nations and governments are discussing this important issue and how governments can most effectively reduce greenhouse gas emissions. If we are guided by free market principles that encourage innovation, investment, and collaboration, I believe human ingenuity will find new, undreamt-of ways to meet our shared goals.
Here are some of the principles that can help lead to effective policy making – and which can help us evaluate policy options.
First, a successful greenhouse gas reduction policy needs to establish a uniform and predictable cost on emissions to be considered in all economic decisions.
Second, the best way to ensure that carbon costs are minimized is to allow markets to select the best methods to reduce emissions through new investments and technology. This avoids putting governments in the position of picking winners and losers.
Third, we need to seek to minimize administrative complexity. Our shared goal is to reduce emissions at the lowest cost to society.
To do that we must keep administrative costs low so that market participants can invest in technologies that actually reduce emissions – not become bogged down in bureaucratic demands or incur the costs of financially burdensome regulatory systems.
Fourth, we should seek to maximize cost transparency. By providing this transparency, companies and consumers can assess the costs for themselves in light of their own needs and resources, allowing them to make the best decisions possible.
Fifth, the most effective policies should encourage global participation. Energy is critical to progress and economic opportunity in both developed and developing countries. Thus, for long-term emissions reductions to succeed, every nation must be involved. Developed nations cannot do it alone. Developing nations cannot be expected to forgo economic growth and advancement.
Thus, any greenhouse gas emissions reduction policy must take these realities into account and encourage every nation to participate in the most appropriate way to meet our shared goals for reducing emissions globally.
And of course, there will need to be periodic reviews and assessments to ensure that nations can adapt to any changes in climate science that might come about, changes to technologies, or economic circumstances.
At a minimum, it would seem that a good first step that countries might find alignment around would be a commitment to an ever-improving greenhouse gas intensity performance – that is lowering greenhouse gas emissions per unit of GDP production.
If the political will exists to do more, then policy options should be carefully thought through and considered.
In the context of the current debate within the United States about regulating greenhouse gas emissions, these principles have led us to agree with many policy experts and economists in supporting the implementation of a revenue-neutral carbon tax.
In contrast to the inherently complex policy options such as cap-and-trade systems, a carbon tax can create a transparent, uniform and predictable cost on greenhouse gas emissions across a national economy.
That transparency and predictability of costs encourages every business, every industry, and every consumer to become more efficient and do their part to reduce emissions through the daily decisions they make.
Making the tax “revenue neutral” means that the revenue from the tax would be returned or recycled to the economy through reductions in other taxes or through a simple dividend to consumers.
In addition to being a more sound policy option than alternatives currently being discussed in the United States, I believe a revenue-neutral carbon tax could be a workable policy framework for countries in the Asia-Pacific region as well.
Energy Policy and the Future
The energy policies we establish today will affect economic growth today – and for decades to come. As we look to the future, it is clear that hope and opportunity are on the rise in the Asia-Pacific region. With the right principles guiding energy policy, the progress we have seen in this region can continue.
The dynamic growth in the Asia-Pacific region in recent decades reminds us that that innovation and economic development depend on the free flow of goods, services, capital and expertise across borders. Within the membership of APEC, we have seen how cooperation and trade can open the doors to industrial development and economic growth.
We must build on these principles of trade, cooperation and innovation.
The growing demand for energy will be one of the great challenges of our time. But we have every reason to remain optimistic. Every day, business and industry around the world prove the transformative power of human ingenuity.
It is this ingenuity and the natural desire to improve life that has unleashed the innovations and advances in technology that astound us all. And there is more to come.
Entrepreneurs, innovators, and business leaders, like those in this room, must continue to work with government.
By enabling companies to create partnerships, work across borders, and help develop local populations, government can be a critical partner in fostering ingenuity and help bring new and lasting solutions to our most pressing challenges.
Working together, we will meet the global energy supply challenge, enable more nations to advance and develop and create greater opportunity for all.
I thank you for your kind attention.
