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Weathering the storm:
Building a brighter energy future together
Rich Kruger
President, ExxonMobil Production Company
SPE ATCE 2009
New Orleans
October 5, 2009
Thank you. As General Chairman of this year’s Technical Conference and Exhibition, it’s my pleasure to welcome you. We’re pleased to be here in New Orleans for the 2009 program. It’s not obvious here at the convention center, but the city of New Orleans is still in a state of recovery from the devastating effects of Hurricane Katrina. Today, it’s hard to believe that more than 80 percent of this city was under water.
In the wake of that storm, people in this city came together and showed tremendous resolve. They found the motivation to rebuild and to rebuild better and with a stronger foundation. This resolve was made possible through a shared vision of the future, an understanding of the challenges at hand, and perhaps most importantly, a mindset that everybody must work together. The fact that this resilient city is playing host to our conference, four short years after the most destructive storm in its history, is a tribute to the progress that has been made.
We meet now in the middle of a different kind of storm. A storm characterized by uncertainty — uncertainty for the global economy and uncertainty for the oil and gas industry. We are experiencing a period of significant volatility and change and, as we all know, our industry is not immune to its effects.
But our industry is used to dealing with volatility and change, and we’ll weather this storm as well as we have weathered all others.
We know this, of course, because the world’s growing population is going to require increasing amounts of energy in the future. As an industry, it is our responsibility — as it has been throughout history — to supply this energy.
Simply put, our challenge is how to satisfy the world’s growing demand for energy while minimizing impacts on the environment. In 2008, we used the energy equivalent of approximately 245 million barrels of oil to fuel cars, run farms and factories, power schools and businesses, heat and cool homes, and generally, to raise the standard of living throughout the world. Two hundred forty-five million — that’s a tremendous number. Think about it for a moment — the scale of our industry — 245 million oil equivalent barrels a day. Each and every day. And that number is going to get bigger as populations grow and developing economies strive for the living standards we each enjoy.
The fact that we can supply that much energy is an achievement that gets overlooked in developed countries. Countries where access to energy is taken for granted. Taken for granted because the energy we provide is reliable and affordable. But we know that energy supplies are not taken for granted by those who live without them. The 1.6 billion people around the world who live without electricity do not take energy for granted; the 2.5 billion people who rely on basic fuels such as wood and waste do not take energy for granted; the 2.7 billion people with incomes of less than $2 per day do not take energy for granted. People who spend large portions of their day gathering fuel to heat their homes and cook their food remind us of the social and economic importance of energy. And they remind us that as serious as today’s global economic situation is proving to be, it is only temporary.
History shows us that human ingenuity and productivity will not be suppressed for long. The world economy will recover, and when it does, so will energy demand.
Growing populations in developing countries will drive this increased energy demand — energy demand which is expected to be 35 percent higher in the year 2030 than it was in 2005. Meeting this growing demand will require that we develop all economic and environmentally sound sources of energy. This includes oil and natural gas, which are abundant, versatile and affordable.
Now, if you’re brave enough to discuss energy outside of industry events like this, you’re sure to encounter many different perspectives and very strong opinions. Misconceptions about our industry are common — misconceptions dealing with things like: where supplies come from, how energy is priced, and the potential impact of alternatives are common.
This is why it is so important that we join the debate. Talking about our industry with family, friends, neighbors and classmates is one of the most effective ways of changing perceptions. Everyone in this room is an ambassador for the industry, and there’s a lot we can do to improve energy literacy.
For example, when it comes to fears about peak oil, we need to help people understand the full picture, using history as a guide. Of course, logic tells us that peak oil theory must be true. We’re working with a fixed amount of oil and gas, and at some point we can expect production to peak and then, inevitably, decline. But when we dig a little deeper — no pun intended — we see that the assessment of the world’s resource endowment continues to grow over time. Growth not because the Earth is creating more oil and gas but growth because of technology, or more specifically, because of advances in technology.
Ninety years ago in 1919, the foremost experts at the time predicted that world oil production would peak by 1928. When I joined this industry, 28 years ago, one of my college professors told me I was making a mistake — a mistake because the U.S. would run out of oil in 10 to 15 years and the world would run out in 20 to 25 years. In fact, world oil production capacity is still increasing today. And the experts' assessment of remaining oil and gas reserves is more now than it was 28 years ago — despite what has been produced over the period.
So what's the deal? What do these experts miss? What don't they consider? In a word — technology!
Looking for examples? Take deepwater. Deepwater oil and gas only became a part of the world's resource base about 20 years ago when technology made it technically and economically feasible. Today, industry is producing millions of barrels a day in the deep water. Oil and gas in ultra-deepwater only became feasible in the last 10 years. I wonder where we will be 10 years from now.
My guess is that the future holds more of the same, especially as we make advances in LNG, tight gas, shale gas, oil sands, shale oil, enhanced recovery and new or incremental sources. And that’s good news for our industry and good news for the world's consumers.
Huge investments over many decades have enabled oil and natural gas to meet close to 60 percent of the world’s enormous energy needs today. And, projections are that oil and natural gas will continue to account for a majority of the world's energy supplies through at least the year 2030.
But this hasn’t always been the case.
The history of energy over the last century provides some perspective. Perspective about how new sources of energy enter the supply mix. At the beginning of the 20th century, coal and wood provided roughly 95 percent of the world’s energy needs. From that point forward, it took more than half a century for oil — a cleaner and more versatile fuel — to surpass coal as the world’s largest energy source. It has taken nearly 50 more years to develop the technologies and build global infrastructure so that natural gas — an even cleaner-burning energy source — can play a prominent role in the world’s energy mix.
Today we have solar, wind, nuclear, and biofuels helping meet our energy needs. But history shows us we must realize the long timeframes necessary to develop the technology and infrastructure that allows new energy sources to reach truly global economies of scale. Alternatives can and do play an important role, but today's conventional sources are necessary to supply the energy needed to fuel the world's ultimate economic growth.
Make no mistake about it, our industry must be supportive of new energy alternatives. Why? Because the global energy demand challenge is matched by a global environmental challenge — a challenge to curb greenhouse-gas emissions and address the risks of climate change.
Thanks to greater energy efficiency and the growing use of cleaner energy sources such as natural gas, greenhouse-gas emission levels are expected to decline in some developed economies. In the United States, energy-related carbon-dioxide emissions are approaching a plateau and are expected to decrease over the next two decades. These trends are set to continue and potentially accelerate, not only in the United States, but in other developed countries as well.
However, the challenge for developing economies is more daunting — daunting in the sense that energy demand is increasing as growing populations strive for higher standards of living. For example, by the year 2030, China’s carbon-dioxide emissions will be comparable to those of the United States and Europe combined. This is despite the expectation that China’s energy use and emissions will be much lower on a per-capita basis. Nonetheless, the net effect of these trends will be an increase in greenhouse-gas emissions worldwide.
Even with dramatic gains in efficiency and the use of less carbon-intensive fuels, rising demand for energy will push carbon-dioxide emissions higher through the year 2030. No single energy source available today solves the dual challenge of meeting growing energy needs while reducing emissions.
And no single energy source will solve it tomorrow. So what is the answer?
The most effective way to address the world's energy and environmental challenges over the long term is to seek integrated solutions. Integrated solutions that address the supply, security, efficiency and environmental goals we all share. These solutions range from producing hydrocarbons more effectively, to using them more efficiently, to improving existing alternative sources of energy, to developing completely new sources. It’s going to take everything and everyone working together.
Our success will be determined by how well we bring together industries, governments and people from all over the world in a shared vision for a brighter energy future. But success will also require timely access and significant new investment in order to find and develop the resources required to meet the demands of the immediate future.
We can’t forget that in our quest to find new sources of energy, we must also continue to supply the energy that fuels our economy and security today. In fact, expected near term demand growth calls for our industry to increase oil and gas production above today's levels.
Making this happen will take partnerships and collaboration because developing today's energy resources requires a combination of factors and talents that no single entity can claim. I meet frequently with government officials and national oil company executives around the world. As I listen to their concerns, it strikes me that host nations' expectations are changing. More than ever, they seek relationships that go beyond resource development — relationships that include technology transfer, skills training, infrastructure support and economic development.
In today’s world, we see impulsive reactions to the marketplace. But for a globally critical industry like ours, short-term distractions can have enduring and detrimental long-term effects. However, if we plan for the long term, we can stay the course through short-term marketplace disruptions because in the long term, fundamentals rarely change.
As an industry, it’s important that we look past short-term economic events and political expediency. We must appreciate the essential role that partnerships play in delivering the energy the world needs. Host governments that provide stable political and economic environments will have an advantage in attracting investment capital. Similarly, national oil companies can bring a unique understanding of a country's natural resources. And local suppliers can provide a dependable, cost-effective supply chain for goods and services. The world's universities can provide educated, national workforces. Social interest groups can help with linkages between local communities and cultural and environmental sensitivities. Energy companies can complement these roles by bringing together people, proprietary technologies, proven operational practices, and project management capabilities. Ultimately, by working together we can deliver greater value to resource-rich nations, more energy supplies for the world’s consumers and a reasonable return for energy companies’ shareholders. Working together, it can indeed be a win-win-win proposition.
But it’s also a long-term proposition because projects typically operate for decades. Accordingly, we must build partnerships to last.
Will it be easy? Absolutely not. But with a shared vision, a long-term perspective, and a commitment to agreements, together we can meet the world's energy challenges.
Each of us here today has a stake in the future success of our industry. We also have a responsibility to billions of people who rely on the energy we produce — even if they don’t understand or appreciate the effort required to do so.
Those of us industry veterans in the room understand this responsibility and have dedicated our careers to its pursuit. But in the years to come, that responsibility will transfer to the bright young minds in the audience today.
I encourage the students here to take a look around you. Take pride in this industry and the progress it has achieved. But don’t take that progress for granted. You have a tremendous opportunity and responsibility to use your education, talent and creativity to make this world an even better place.
Energy has the power to do just that. And I can’t imagine a better profession to be in right now to make your mark on the world.
Thank you for your attention today. I hope you enjoy this year’s conference and exhibition.
