Presentation by Elissa P. Sterry
Manager, Economics and Energy, ExxonMobil Corporation
at Bibliothèque Solvay ~ Brussels, Belgium
September 28, 2004

Good morning.  It is a pleasure to be here today, and I welcome the opportunity to discuss Exxon Mobil Corporation's view of the energy outlook before this distinguished audience.

As leaders responsible for formulating a strategic framework for Europe's energy future, your deliberations hold great promise for the more than 450 million people who will share in its destiny.  

We at ExxonMobil are committed to continued cooperation and support as you contemplate the best energy policies for the future.  

With his legendary penchant for understatement, Albert Einstein once observed that "the whole of science is nothing more than a refinement of everyday thinking."

So it is when devising a sound energy strategy, that a refinement of everyday thinking is an unending but necessary challenge.  We are also mindful of the need to revisit our strategies – testing to see if they are equal to the current and emerging realities in the world’s energy markets.  

This morning, I will highlight several key parts of ExxonMobil’s long-range economic and energy outlook, and touch upon some of the issues that are especially relevant for Europe.

It will come as no surprise to anyone here that there is a strong, historic link between economic growth and energy demand.

There is a widespread recognition that the discovery and use of hydrocarbon fuels in the 20th Century brought with it ever increasing levels of prosperity.  A period during which the earth's population rose fourfold, from 1.7 billion in 1900 to more than 6 billion today.

Among the most significant achievements was bringing to billions of people the freedom to attain a better quality of life and a more hopeful future. However we still have a great challenge ahead.  At present, there are still about 1.6 billion people in the world who do not have access to electrical power and some 2.4 billion use traditional sources of energy such as wood and dung to meet their home cooking and heating needs.

Still today, energy is the engine that drives economic growth and increases living standards.  And we expect that economic growth will continue to be the primary driver of energy demand.  

The global economy has grown at an average rate of about three percent per year since 1970, and we think it will continue at that pace – on average – over the next few decades.  

We expect global energy demand will grow at about 1.7 percent per year – rising from today’s 215 million barrels per day oil equivalent to about 335 million barrels a day by 2030 – an increase of more than 50 percent in absolute consumption.

Sustained economic development and increasing personal wealth, particularly in emerging Asia continue to be key drivers in energy demand.  

Wind and solar energy will also grow rapidly, but are likely to reach only about a one percent share of the world's energy needs in the outlook period.  

In the very long term, we expect the energy mix to become more diversified, however, for the foreseeable future, fossil fuels are the only forms of energy having the scale and versatility to address the world's energy demand challenge.

Thus, oil and gas – representing 60 percent of energy supplies today – will remain the dominant energy source well into the middle of this century.

Here in Europe, the outlook is somewhat different.  We expect total energy demand to grow only about 0.5 percent per year on average through 2030.  Oil demand will hold steady, and therefore its share of total energy will decline.  

Gas will continue to grow strongly, driven by its use as the preferred fuel in power generation.  This will take its share of total energy from about a quarter today to about over 30 percent by 2030.

Coal’s share of European power generation requirements will continue to decline falling from about 1/3 today to about 25 percent in 2030.   In contrast, coal use worldwide will continue to grow and will remain the primary fuel for power generation.

We expect the use of non-fossil fuels in Europe to grow modestly.  Although, nuclear power's share of power generation will fall from close to 40 percent today to somewhere near 30 percent in 2030.

Biomass, wind and solar energy will grow rapidly, the latter in double digits, but will likely contribute no more than around six percent of Europe’s total energy requirements.

Going forward, Europe will continue to have substantial energy resources.  But as indigenous oil and gas production declines, there is likely to be a steady increase in oil and gas imports.  

New energy supplies will come from the Middle East and Africa, as well as Russia and the Caspian.

For example, the International Energy Agency's recent outlook indicates the European Union's net oil imports may grow from nearly 75 percent of supply in 2000 to about 90 percent by 2030.  

These growing import requirements will be driven by expected reductions in Norwegian and U.K. liquids production of about 60 percent and 75 percent, respectively, during this period as the North Sea basin continues to mature.  

The trend is similar for gas, where the outlook indicates that the EU's net imports may grow from about 45 percent of supply in 2000 to 70-80 percent in 2030.

Demand for efficient and environmentally friendly natural gas is the fastest growing of the world's major sources of energy.  

In fact, gas demand has outstripped domestic gas resources in the major consuming regions.

Coincident with a tightening supply in mature markets, new technology developed by ExxonMobil and others has greatly reduced the cost of making liquified natural gas, or LNG, to allow for more economic transport to consumers in distant markets.  

As a result, we are seeing many new agreements for the production and delivery of LNG being concluded in recent years.

As an example, Qatar Petroleum and ExxonMobil signed a Heads-of-Agreement for a $12 billion project to supply 2 bcfd of LNG from Qatar to the United States for a 25-year period starting in 2008.  

This followed a similar agreement signed a year earlier for the delivery of a similar amount of LNG into the United Kingdom.

The challenge of supporting worldwide demand growth also requires accelerated efficiency gains.  The world has become consistently more efficient in the use of energy for more than three decades.  

We think efficiency improvements will continue in personal transportation and power generation, driven by the introduction of new technologies, and regulatory initiatives to reduce emissions.

In this context, world energy intensity is projected to accelerate from a rate of decline around  .8% per year historically, to 1.3% by 2030 driven by new and improved technology.  

Maintaining energy supplies adequate to meet the expected level of demand will continue to be an enormous challenge.  

For example, world oil consumption in 2030 will reach over 40 billion barrels per year – an amount equivalent to 150 percent of the total oil discovered in Alaska.

It has always been the task for our industry to find, produce, and deliver energy products in an economic and environmentally sound manner – to meet demand and offset natural field decline.  

But clearly, the pressure to perform intensifies as demand climbs and resources become harder to find and more costly to develop.

Meeting growing energy demand will require access to resources and timely development.  Access to acreage in all regions will also help promote diversity of supply and aid efforts to provide greater energy security.

The International Energy Agency estimates that $200 billion in annual average investments will be needed to develop and supply the oil and gas that the world will need through 2030 – and the investments required for power generation will be even larger.

Such staggering investments will only be forthcoming if market participants see attractive risk-return opportunities.  Investors will ultimately decide whether the opportunities have merit.  

Governments will be accountable for creating conditions necessary to attract investment capital.  

If we collectively fail to meet the challenge of providing adequate, affordable energy supplies, economic growth may well be compromised.  Fortunately, such an outcome is neither inevitable nor likely if we act wisely.

We can support economic growth and improve living standards by seeking innovative and responsible ways to develop and utilize the world’s resources.  

Sustained application of technological advances will help meet supply, efficiency, and environmental challenges with energy that is cleaner, plentiful, reliable, transportable, and affordable.

Research and development of new energy technologies are clearly vital to meeting future needs, and advanced technology has been a particular strength of the oil and gas industry.

In fact, our ability to develop the technologies for finding, producing, and delivering energy has been central to having both adequate and affordable supplies.

New hydrocarbon detection approaches, like 3D and 4D seismic imaging, allow us to find more oil and gas with less environmental impact. Advanced drilling techniques, like horizontal drilling, also allow us to avoid sensitive areas by accessing resources from kilometers away.  And improvements in the efficiency of liquefying natural gas, can help bring new resources to competitive markets.

For consumers, continued improvements in the efficiency with which energy is used and cleaner-burning internal combustion engines and engine systems are likely to predominate in transportation applications.

In 1900, fewer than 10,000 cars were produced worldwide. This year, automakers will manufacture more than 60 million passenger cars and light-duty vehicles.  

Vehicle numbers will continue to rise with economic growth and increases in personal income.  

Greater petroleum use and a heightened focus on achieving additional environmental improvements have led to plenty of talk about alternative vehicles and fuels.  

Longer term, for example, fuel-cell vehicles may become competitive if the remaining safety, technical and economic hurdles can be addressed.

For now, the internal combustion engine remains the only economically viable option available and will be the primary vehicle technology for many years.

Given this reality, technologies that improve the ICE's efficiency and emissions performance can not only meet consumer needs but also have a positive effect on the environment – for decades to come and sooner than other alternatives.

Fortunately, many things are being done to achieve such improvements.  

Just as scientists and engineers are working on alternatives, they are also working on ways to make internal combustion engine-based vehicles even more efficient and environmentally attractive.  

We believe that the best efficiency improvements will come by addressing the engine and fuel as a system, rather than considering each in isolation.  

It's also essential to assess the energy used and the emissions produced in the whole system – including making a fuel, delivering it, and using it in a vehicle.

Some promising options include existing hybrid vehicles – which combine an internal combustion engine with an electric motor-  today are already 2x as efficient as their traditional ICE counterparts.  In the future, emerging technologies which combine the efficiency of a diesel engine and the lower emissions of a  gasoline engine, can stretch these improvements even further.

Part of this work involves gaining a better understanding of the complex interactions that occur when different types of molecules are burned in an internal combustion engine.  

Working with automakers, we're investing in research to move these technologies from laboratory concepts to the showroom floor.  

We expect this knowledge will lead to new fuel/vehicle systems having higher efficiency and lower emissions.

Consumers will keep on driving the competition to find the right solutions to meet their specific needs for safe, reliable, affordable and efficient cars.  

But over the longer term – and even past 2030 – new energy solutions must be developed in order to meet our energy needs and to manage our environmental challenges.

Clearly, this has been a central concern for European governments, who have chosen to approach lower greenhouse gas emissions with a cap and trading system.  

If not done carefully, a cap and trading system may put European investments, growth, and competitiveness at risk.

In our view, technology is the key to offering reductions in future emissions – including the transfer of the most advanced and environmentally safe technologies to developing countries.

At ExxonMobil, we invest 520 million EURO a year on research and development to discover new technologies and advance their commercial applications.  

Given the fundamental link between energy use and economic progress, every effort should be made to develop effective, long-term solutions that minimize the risk of climate change from energy use without causing social and economic harm.

To this point, we believe that scientific research must continue to better understand global climate change and the best policy options.  

That's why we remain committed to action.  

For example, ExxonMobil has over 80 cogeneration installations in more than 30 locations worldwide.  These units have a capacity of nearly 3,000 megawatts of electricity – more than enough to supply the residential electricity demand in The Netherlands.  In addition, ExxonMobil has projects under construction to expand cogeneration capacity by another 25%.  

We are also continuing important research on long-term technologies including advanced vehicles and fuels, improved internal-combustion engines, and CO2 separation and storage.

In addition to our own research activities, ExxonMobil sponsors a wide range of energy research at universities and other institutions.  The most significant is the Global Climate and Energy Project – or GCEP – a 10-year, $225 million research effort to which ExxonMobil has pledged $100 million.  

Stanford University is leading the effort in which scientists and engineers from universities and companies including ExxonMobil, General Electric, Toyota, and Schlumberger will work on a wide range of issues associated with energy needs.

GCEP holds great promise for yielding new technology that can help us continue to produce reliable and affordable energy while reducing greenhouse gas emissions in a cost-effective way.  

This effort includes identifying the most promising technologies, accelerating their commercial applications, and overcoming cost, performance and safety issues.

We believe that a research effort of this magnitude is necessary because the expected population and economic growth, particularly in developing countries, is expected to significantly increase energy demand and emissions, even as advances in overall energy efficiency occur.

I believe that the energy industry's best years lie ahead – surpassing even the greatest achievements of the century just passed – a future in which innovation, performance, and integrity will be absolute prerequisites for success.

As I said at the outset, economic progress and the prosperity of people everywhere depend on abundant and affordable supplies of energy.  This is true today and will be true tomorrow.  

Working together, I have every confidence that we can help build a brighter future and a better world.

Thank you.