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Seizing new energy opportunities in Asia through international partnerships
Remarks by Andrew P. Swiger
Vice President, Exxon Mobil Corporation
Asia Oil & Gas Conference
Kuala Lumpur, Malaysia
June 7, 2010
Thank you. It is a pleasure to return to Kuala Lumpur for the Asia Oil & Gas Conference, and a privilege to deliver this year’s State of the Industry address.
Since this conference was first held fifteen years ago, it has emerged as one of the premier gatherings of energy industry leaders from not only the Asia-Pacific region, but from across the globe.
This could not have happened without the visionary leadership of PETRONAS. ExxonMobil is proud to partner with PETRONAS in again sponsoring this annual conference — just one element of our close relationship, which extends from our work together to develop Malaysia’s energy resources, to partnerships in energy projects from Indonesia to Chad.
Each year, this gathering offers all of us in the Asian oil and gas sector the chance to share experiences, consider challenges, identify opportunities, and prepare for the future.
It is more important than ever that we do so again this year. The global economy has been through major upheavals recently, impacting developed and developing economies alike. No sector has been spared, including ours.
After years of steady increases, global energy demand took a sharp downward turn last year. This should come as no surprise. The nexus between economic growth and energy demand is strong.
Energy is the lifeblood of modern economies, and crucial to the daily lives of people everywhere. This fundamental linkage between economics and energy has significant ongoing implications for our industry, a subject I will return to shortly.
Another development in recent years has been the increased public awareness of the environmental impacts of energy use.
This of course includes concerns about the risks associated with climate change, but also other environmental priorities, such as the need to manage supplies of freshwater, which are often involved in energy production.
The recent blow-out and resulting oil spill in the Gulf of Mexico has also raised awareness of environmental impacts, as well as the importance of upholding the highest standards of safety. As I speak today, ExxonMobil is continuing to provide assistance in responding to the spill, and we stand ready to support efforts to determine how such an incident can be prevented from happening again.
Some may interpret these two developments — the global economic downturn and growing environmental concerns — as the “new realities” behind this year’s conference theme. And, from the perspective of recent memory, these developments may indeed appear “new.”
But for those of us in the industry who take a longer view, this “new reality” is actually familiar territory, and is emblematic of the enormous challenges that have long characterized our industry.
The economic environment we face today is not the first major downturn we have experienced. And, while events of the magnitude of the BP Deepwater Horizon incident are tragic and notable exceptions, the reality is that our industry has consistently improved its environmental performance while working in increasingly more challenging locations.
Today, in discussing the state of our industry, I will outline the global energy trends that transcend the volatility of the last two years. I will also discuss the way international partnerships can enable us to seize the opportunities these long-term trends offer. And, finally, I will highlight the importance of enabling such productive partnerships in the future. Despite the recent upheavals we have seen, the state of our industry is strong — and it will have to become stronger still to meet the economic and environmental challenges we face.
Despite the recent decline, global demand for energy is expected to increase by almost 35 percent by the year 2030, as compared to 2005 levels. Driving this enormous increase will be growing energy needs in developing nations, as their economies expand and diversify.
In fact, between 2005 and 2030, energy demand in non-OECD countries is expected to grow by about 65 percent, while growth in OECD countries will remain essentially flat. Many of the countries contributing to this increase are found here in Asia. This region promises to be an engine of future energy demand growth.
This significant, long-term increase in global energy needs is perhaps the most important reality our industry faces. It presents enormous challenges and opportunities.
The challenge is not one of resource scarcity, as some may suppose. Abundant hydrocarbon resources exist to fuel our growing world economy — including vast quantities that technology advances have helped unlock in recent decades. The U.S. Geological Survey estimates that the Earth’s endowment of conventional oil resources alone tops three trillion barrels — with only about one trillion barrels consumed to date. Substantial unconventional resources also exist to help meet demand in coming decades.
Although Asia is often highlighted as a growing consumer of energy, the region’s significant hydrocarbon resource base will also enable it to play an important role in the global supply of energy.
The real challenge is developing these abundant supplies in economic, efficient and environmentally responsible ways. It is no easy task, as you are all aware. Marshalling the enormous financial capital, technological ingenuity, engineering skill and management expertise required to safely and effectively produce oil and natural gas in a variety of challenging environments has always tested our industry’s capabilities.
Unfamiliar with this history of accomplishment, some claim the era of “easy oil” is over. In reality, it never began. The energy industry has only made it look easy. Nevertheless, it is true that we are today taking on greater challenges, such as unlocking natural gas from tight formations, drilling extended reach wells over 10 kilometres long and producing in arctic environments. To meet these challenges requires more investment, more technology, and more skill than ever before.
Hydrocarbons are not the only energy sources to meet the world’s growing needs. Although oil, coal and natural gas are expected to represent approximately 80 percent of the global supply mix through 2030, nuclear energy and renewable sources such as wind, hydroelectric, geothermal, biofuels, and solar energy will play a significant role. All economic energy sources are needed to meet the challenge.
At ExxonMobil, we recognize this. Although we are the world’s largest publicly traded oil and natural gas company, accounting for about three percent of the world’s oil supply, we are also investigating other technologies which could help supplement the critical role that oil and natural gas will play in the decades to come.
Last year, we announced that we have partnered with Synthetic Genomics for research and development of next-generation biofuels from photosynthetic algae. We are testing the hypothesis that algae biofuels could become commercially viable and achieve sufficient scale to make a meaningful contribution to the future energy mix.
The benefits of algae as a biofuels source are potentially significant. Among other advantages, readily available sunlight and carbon dioxide used to grow the algae could provide greenhouse gas mitigation benefits. Growing algae does not rely on fresh water and arable land otherwise used for food production. And algae have the potential to produce large volumes of oils that can be processed in existing refineries to manufacture fuels that are compatible with existing transportation technology and infrastructure. It is early days in this research, and the obstacles we face are formidable, but the potential is great.
Another important “source” of energy that will continue to factor large in our future is energy efficiency. By using energy more effectively through new technologies and new practices, we can displace demand on a significant scale. In fact, gains in energy efficiency through 2030 are expected to reduce global energy-demand growth by approximately 65 percent.
At ExxonMobil, we recognize the potential of energy efficiency in our daily operations. For example, we are a world leader in cogeneration — an efficient process for simultaneously producing electricity and heat or steam used for industrial processes.
ExxonMobil currently has an interest in 4,900 megawatts of cogeneration capacity at more than 30 sites around the world. New facilities under construction in this region will boost our cogeneration capacity to more than 5,000 megawatts by next year.
Developing abundant yet challenging oil and gas resources, expanding supplies of all economic sources, increasing energy efficiency and reducing environmental impacts are key elements in the integrated set of solutions needed to meet the world’s energy challenges.
Our industry is up to these challenges. When given access to resources and a sound and stable policy framework under which we can invest and operate, we have proven the ability to make the necessary investments, develop the new technologies, and forge the strong partnerships required.
It is to the nature and necessity of such strong international energy partnerships that I would like to turn to next. The state of our industry is based fundamentally on the strength of partnerships. Specifically, it is partnerships between international oil companies, or IOCs, and national oil companies, or NOCs, which are the lynchpins of the global energy industry today.
IOC-NOC partnerships play such a crucial role because they are responsible for some of the world’s most successful and valuable energy projects, producing enormous quantities of oil and natural gas under challenging circumstances in a safe, efficient and environmentally responsible manner.
The unique structure of IOC-NOC partnerships partially accounts for this success. They are typically characterized by mutual investment and strong integration. Both partners normally have a substantial financial stake in the success of a project. They share the risk and the reward. This mutual commitment fosters the trust and reliability crucial to any partnership.
In addition, NOCs and IOCs bring their respective strengths to the partnership. With their access to resources, their experience in specific operating environments, their understanding of local regulations and, most importantly, their grasp of the host nation’s long-term needs and aspirations, national oil companies deliver what no other industry actor can.
To complement these strengths, IOCs offer unmatched strengths of their own. ExxonMobil, for example, is a leader in technology research and development. We employ over 16,000 scientists and engineers, have invested over 4 billion U.S. dollars in research and development over the past five years and are responsible for some of the industry’s most significant scientific and engineering breakthroughs.
We also bring a wealth of experience in project execution in a variety of challenging environments. From the oil sands of Canada to the savannahs of Central Africa to the artic ice of Russia’s Far East to the archipelagoes of Southeast Asia, we strive to deliver projects on time, on budget, and in-line with the highest standards of safety and environmental performance. Strong project management and execution experience is especially important in the current challenging cost environment.
Combining these strengths into an effective collaboration requires an additional quality — strong communications between partners. Although their goals may be aligned, and contributions may be complimentary, the specific needs of each partner may be different.
For NOCs, for example, the national resource which they steward may represent the single most important asset in their portfolio. For this reason, NOCs often understandably treat this asset with extraordinary care, and seek to utilize it to advance the national economy as whole. Effective dialogue between IOCs and NOCs throughout the lifecycle of the project is essential to understand this important and evolving priority. Good listening is the key to good communication — and listening to our NOC partners is ExxonMobil’s priority in every project we undertake.
When the unique structure, complementary strengths and commitment to communication of IOC-NOC partnerships are brought together, remarkable results are possible — for the host government’s citizens, for the companies’ shareholders and for the world’s consumers.
To see such a successful partnership in action, look no further than the hosts of our conference. Malaysia is a model, with PETRONAS in the lead.
ExxonMobil has been privileged to partner with PETRONAS since its formative days, and we have watched with admiration as they have grown into a highly-respected international competitor.
In fact, our presence in Malaysia dates back 117 years, when our predecessor company first supplied lubricants, paraffin, solvents and oil for use as lighting fuel. As the Malaysian economy grew over the next half-century, we grew along with it, establishing our first service station for automobiles here in Kuala Lumpur in 1921.
In the 1960’s, we began oil exploration in Malaysia, and discovered the Tapis oil field in 1969, followed by a number of other significant discoveries. Seven years later, we signed our first production sharing contract with the newly formed PETRONAS. A productive partnership was born, and has been most recently renewed with an agreement in 2008.
This latest contract includes commitments to implement an enhanced oil recovery project at the Tapis field, and will be the first ever large-scale project of its kind in Malaysia. It is due to start up in 2013, with gross investment forecast to exceed 1 billion U.S. dollars. The Tapis project represents yet another major step forward to develop Malaysia’s full energy potential.
It also represents another step forward in developing the full potential of another invaluable Malaysian resource — its people.
In 1978, when Exxon began production operations in Malaysia, less than 50 percent of our approximately 300 employees were Malaysian nationals. Today, 97 percent of our 2,082 employees are Malaysian nationals. The new production sharing contract builds on this positive trend, offering a wide range of benefits to the Malaysian supplier community and additional long-term job opportunities for the national workforce.
And the collaboration between ExxonMobil and the Malaysian people extends beyond Malaysia’s shores. We currently have 111 Malaysian employees who are contributing to our success in projects worldwide. In all, ExxonMobil has invested more than 15 billion U.S. dollars in Malaysia over four decades. The number of Malaysians employed in our projects here and around the world prove to us it has been a wise investment.
To ensure the people of Malaysia also see the value of this investment, we have worked to align our partnership with Malaysia’s Vision 2020, a plan to transform Malaysia into a high-income nation in this decade.
We share the government of Malaysia’s long-term perspective, and are proud to make a meaningful contribution to the realization of this ambitious but attainable vision.
We also share the principle of inclusiveness at the center of Malaysia’s recently introduced New Economic Model, which outlines a new approach to policy formulation where a diversity of views, from both the public and private sectors, are encouraged and valued.
Malaysia’s visionary approach to our partnership points to another important reality in today’s global energy system — the critical role governments play as enablers of successful IOC-NOC collaborations and of greater oil and natural gas production to meet the world’s growing energy needs.
When governments facilitate investment by oil companies in the energy sector, they can make a significant contribution to success. They can do so by encouraging dialogue, protecting the sanctity of contracts, and upholding stable legal, tax and regulatory frameworks, as the government of Malaysia has done.
In the debate regarding policy options to address climate change, for example, dialogue with the energy industry can help government officials understand the potential costs of any new regulatory framework.
Dialogue between government and industry is equally important in the area of safety and environmental performance. The spill in the Gulf of Mexico has brought this issue to the forefront of public attention, but the rigorous systems most of our industry has in place to minimize accidents and their environmental impacts remain misunderstood by many.
At ExxonMobil, for example, we instituted our Operations Integrity Management System in 1992 to address all aspects of safety, health, security, environmental and social risks at our facilities worldwide. This system involves 11 elements — from risk assessment, to training, to emergency preparedness. The culture of safety compliance we have created has contributed to our being recognized by Lloyd’s Register of Quality Assurance for “being among the leaders in the extent to which environmental management considerations have been integrated into our ongoing business practices.”
Let me conclude by reasserting that the state of the oil and gas industry in Asia and around the world is strong.
This strength lies in the enduring, mutually beneficial partnerships forged between international oil companies and national oil companies, such as the historic and productive partnership between PETRONAS and ExxonMobil here in Malaysia.
Drawing upon their unique qualities and complementary strengths — and enabled by stable, long-term government support — such partnerships can help us reach beyond the new realities we face and help us meet the energy needs, environmental goals, and economic aspirations of the nations of Asia and the world.
Thank you.
