The Changing Energy Landscape
Thank you. I appreciate the opportunity to share our views on a subject that got a lot of attention in recent months and that’s unconventional gas.
Global energy demand is rising
But let me start by quoting Maria van der Hoeven, executive director of the International Energy Agency, who recently said this: “Nobody can do without energy. The relationship between economic growth and the demand of energy is crucial, and the availability of energy sources to economies is crucial.”
The point she is making is an obvious one: life without energy would be impossible. And while we can all agree that increased access to energy is something we should be actively trying to achieve, we must also acknowledge that meeting the growing needs of the global community must be done in a safe, responsible and environmentally conscious manner.
Even with advances in efficiency, rising populations and expanding economies will produce a net increase in global energy demand. In fact, in our most recent Energy Outlook we predict that global energy demand will rise by about 30 percent from 2010 to 2040, and this is consistent with the IEA and other forecasters. There’s no denying that this is a significant increase in energy consumption.
So how will the industry meet these demands?
Hydrocarbons retain dominance in fuel mix
For starters, we will need to develop all commercially viable energy sources, including renewables. But for the foreseeable future, traditional hydrocarbons such as oil, natural gas and coal will continue to provide the vast majority of the world’s energy.
We have seen new sources of energy develop as technology has developed. Because of a global drive toward cleaner-burning fuels, we expect natural gas demand will rise by more than 60 percent through 2040, displacing coal around 2025 as the second-largest fuel source. Much of this growth will come from electric utilities and other consumers shifting away from coal in order to reduce CO2 emissions.
With this reduction in coal demand, we expect to see oil and natural gas accounting for 60 percent of global energy demand in 2040.
The shift toward natural gas will carry tremendous benefits for consumers and the environment. Natural gas is affordable, reliable, flexible, efficient and energy dense.
The shift also has implications for security of supply, which has long been a concern for Europe. Recent estimates of global natural gas resources could address this concern. We now know that these resources are not only abundant, but can be accessed by the European market through imports and, we hope, bydomestic production.
And let’s not forget the environmental advantages of natural gas. It is the least carbon intensive of the major energy sources, and when used for power generation, it emits up to 60 percent less carbon dioxide than coal. Increased usage of natural gas in the European power sector will help move us closer to achieving the EU’s goal of reducing its greenhouse gas emissions by at least 20 percent from 1990 levels by 2020.
So natural gas has many positive impacts, but where exactly will it come from? The answer will vary widely by region.
Natural Gas Outlook
Natural gas produced via conventional methods is growing in many regions, but is declining in Europe and the United States.
The decline in U.S. conventional production is offset by the growth in unconventional natural gas production, which I will discuss in greater detail in a minute.
It is unclear today if other parts of the world will achieve a benefit of similar magnitude from unconventional gas production, but we do see it becoming more significant in Asia Pacific and Latin America, from now through 2025. Here in Europe, it’s too early to tell.
This growth in gas has important implications for the global energy map. For years, pipeline infrastructure requirements constrained the expansion of natural gas markets. Producing fields near consumer centers provided most of the supply, but more distant and isolated fields were commonly stranded. The emergence of substantial economic supplies of liquefied natural gas, or LNG, changed this dynamic, and, when combined with increasing market liberalization in more mature markets, significantly expanded the reach of gas suppliers to meet growing demand around the world while also creating new supply options for importing countries. One example is here in the UK, where ExxonMobil is a partner in the recently commissioned South Hook Terminal. At full capacity, South Hook is capable of meeting 20 percent of the UK’s daily gas needs.
Both Asia Pacific and Europe will continue to need significant natural gas imports -- both via pipelines and LNG tankers -- to meet demand. Today, Europe imports about 50 percent of its gas; by 2030 that figure is expected to be more like 70 percent, so the supply challenge is clear.
The bottom line is that natural gas has a significant role to play in meeting future demand, and there is enough supply available for each region to customize its gas consumption to meet consumer needs.
Unconventional gas in particular seems to be getting a lot of attention these days. Considered new, these “unconventionals” are natural gas resources locked in tight, hard rock not traditionally considered quality reservoirs, and in coal seams in locations around the world.
But unconventionals are not new. These are resources that we have long known existed, but were unable to develop economically. Technological and operational advances have only recently enabled us to access these resources in quantities previously unrecognized by even the most optimistic geoscientists.
At ExxonMobil, we recognize the potential of these unconventional resources, and believe they can transform markets. To this end, we have significantly expanded our investments in unconventional natural gas development worldwide — with our merger with XTO, our leadership position in U.S. shale gas development, and our increased exploration activity here in Europe and beyond.
We have experienced great success with our unconventional developments in the U.S. And while it’s still early days in Europe, unconventional gas may have a very significant role to play in ensuring future energy security for the region.
The fact is that we will only know the real potential of unconventional gas for Europe once an early exploration phase has been completed, and that phase has barely started. Until that time, the high resource numbers that some quote are highly speculative. This early exploration phase will require robust support from governments as well as good, open communication from the industry to reassure people not only that the technologies used are tried and tested over many years, but also that in the right hands they do not present a risk to either local communities or the environment.
There was good news the other day when the study by the European Commission’s DG Energy concluded that existing regulations are sufficiently tough and comprehensive to cover this early phase of unconventional gas exploration. We hope that the other studies currently being undertaken also help provide the reassurance needed to enable exploration to continue. This is of great importance if governments are to understand whether this attractive, low carbon energy resource can help them meet their own domestic energy challenges, along with the associated economic benefits.
In addressing the questions often raised about unconventional gas exploration, we need to remind people that just as unconventionals are not really “new,” neither are the two main techniques used to develop these resources.
Our industry has utilized hydraulic fracturing since the 1940s, and we were drilling horizontal wells even before that. These are tried-and-true technologies that have individually contributed to the advancement of the oil and gas industry for decades.
But by combining them, the United States has seen a turnaround in domestic gas production. For the American public, the impact of these innovations has been dramatic and largely unexpected. Within the past few years, it has become apparent that, with the addition of newly recoverable shale gas, we could potentially unlock enough natural gas to meet U.S. demand at current levels for more than 100 years.
In addition to providing a new source of supply, these resources affect job creation, economic growth and government revenues. A recent economic impact study found that the U.S. natural gas industry as a whole accounts for 2.8 million jobs and contributed more than $380 billion to the U.S. economy in a single year. Recent shale gas development is a growing driver behind these numbers. It is likely that other areas of the world could experience benefits in these same areas as their shale gas industry grows.
While the combined application of these techniques has generated progress in the U.S., it has also generated questions from the public and policymakers unfamiliar with the technologies involved. Questions are asked about the safety of hydraulic fracturing, the protection of water supplies and air quality and impacts on local communities.
These are questions that demand clear answers, as public perceptions help shape the policies that govern energy production. If our industry fails to adequately address public concerns, we can expect unfavorable and restrictive policies to result. With rising demand, we must pursue wise policies so that developed – and developing nations – have the energy they need to create jobs, increase economic growth, and raise standards of living.
Operations integrity in unconventional development
Fortunately, in the effort to develop unconventional gas our industry is following proven principles. The technologies and best practices used for drilling shale gas wells are the same as used in conventional oil and gas wells, geothermal wells, and even water wells. They are well established, highly regulated, and proven safe when properly applied.
For instance, we can point to the multiple layers of steel casing and cement that line our wells. These create an impermeable barrier that protects water supplies and the surrounding environment.
Of course, designing a safe well and then drilling one are two different tasks. That is why we focus on building in safety and efficiency, while maintaining the integrity of the wellbore throughout the entire process. By using innovative technologies like directional drilling, we can reduce our environmental footprint.
In addition, unlocking the potential of unconventional natural gas requires us to explain the proven technology of hydraulic fracturing. Through a controlled process, very small fissures are created in the shale, each about half the size of a human hair. These fissures create the channels connecting the reservoir to the well and allow the gas to flow.
To do this, hydraulic fracturing fluids are used in the process. These fluids consist of, on average, about 99.5 percent water and sand. The other additives — less than one percent of the total — consist mostly of common chemicals in differing combinations used to prevent bacteria growth, reduce friction, and perform other essential functions, such as keeping the sand suspended in the solution. Many of these same chemicals are found in household cleaning products, cosmetics, and even food.
ExxonMobil supports the disclosure of the ingredients used in hydraulic fracturing fluids, including on a site-specific basis. We continue to work with others in the industry to develop a comprehensive and workable disclosure policy that will help allay public concerns and increase public confidence in the safety of this process. In the United States, we are disclosing fluid contents on the industry’s FracFocus website. And in Europe, we are making similar disclosures on our website in Germany and Poland, where we are exploring for unconventional resources.
Another legitimate public question with compelling answers is the impact unconventional natural gas drilling will have on local communities where wells are drilled. Our industry has made tremendous strides in recent decades to reduce the surface footprint of operations and facilities. Directional drilling techniques enable us to drill multiple wells in different directions from a single location – reducing the surface area required.
Although the drilling and completion phases of the operation involve sizable structures and heavy equipment, this represents only a small period in the lifespan of an unconventional natural gas well. For the production phase, only the static surface equipment remains — which is a much smaller footprint than a strip mine or wind farm.
The facts, therefore, show that unconventional natural gas can be developed through appropriate design, construction, and risk management. Risk management is, in many respects, the essence of our business. It is what we do, and we do it well.
Working in partnership
When I look around this room I see representatives of many organizations that ExxonMobil works with closely. The new energy development paradigm is one of partnership and, as with any transaction, it’s one where the goal is for both sides to benefit. We seek to become partners with national energy companies around the world, as we continue to prove that we are the full package when it comes to the safe, efficient and financially sound development of hydrocarbon resources. That’s not just unconventionals, but across the full spectrum of resource development.
In addition to working with industry partners, we also recognize the important role governments play in the development of resources. It’s not merely the geology of the rock below the surface that will determine where development goes next. This also depends on conditions above ground, namely the economic and political climate in a given region. Investment and development will favor nations with energy policies that encourage long-term economic planning … recognize the sanctity of contracts …that provide a balanced, stable framework of law, taxation, and regulation … promote free trade and encourage international partnerships … encourage transparency and openness … and establish a level playing field for all competitors.
When such policies are in place, our industry has proven time and time again that we can unlock new supplies of affordable, reliable energy in a safe, secure, and environmentally responsible manner.
So it will be with the development of shale gas and other unconventional resources as they continue to expand worldwide.
In conclusion, transforming the potential of unconventional gas into reality for the world’s energy consumers will not happen automatically. It will require the best of our industry. We will need to invest with discipline … pursue sustained research and development … and maintain our commitment to operating in a safe and environmentally responsible manner.
In addition, industry cannot unlock this potential alone. We will need the cooperation of government and local communities. We will need national and local leaders to open up access. We will need government officials at all levels to uphold stable policy frameworks and administer reasonable regulations. With such policies in place, our industry can invest in unconventional natural gas development with confidence – and communities and consumers can be confident that they will be able to capture the significant benefits flowing from this valuable energy resource.