Meeting global energy supply challenges

Remarks by Russ Bellis, Exploration director,
ExxonMobil International Limited,
during International Petroleum Week in London

16 February 2009

NOTE: This presentation includes forward-looking statements. Actual future conditions (including economic conditions, energy demand, and energy supply) could differ materially due to changes in technology, the development of new supply sources, political events, demographic changes, and other factors discussed herein (and in Item 1 of ExxonMobil’s latest report on Form 10-K). This material is not to be reproduced without the permission of Exxon Mobil Corporation.

Good afternoon, ladies and gentlemen. It’s indeed an honour to be here today at the 95th-annual International Petroleum Week.

I’d like to thank the Energy Institute for planning this conference. This is an event that we look forward to each year.

Today I’ve been invited to talk about an international oil company’s (IOC) perspective on meeting global supply challenges. By 2030, global energy demand will likely be about 35 per cent higher than in 2005, even with substantial gains in energy efficiency. This imminent growth in demand underscores the importance of addressing some of the biggest challenges we face on the supply side.

So when will we run out of fossil fuels? I don’t know about you, but I find myself engaged in regular dialogue with friends and family about the complexities of energy supply and demand. And their concern is undeniably valid because oil and gas are finite resources.

Today I want to emphasise three key points:
First … oil is finite … but far, far from finished.
Second … … technology will shape the energy landscape in ways that we can’t even imagine yet.
And third ... ... collaboration will be critical to meet energy demand growth.

To understand the challenges of energy supply we must first understand the dimensions and the dynamics of the international energy industry.

To help with this understanding, ExxonMobil prepares an annual Outlook for Energy. We bring together the best thinking of our scientists, engineers, and business people in assessing global energy supply-and-demand trends and challenges.

The message of the Outlook for Energy is quite clear: despite current economic conditions, we will continue to experience ongoing growth in energy demand around the world and in the decades to come, and this demand will be driven primarily by population growth that will demand economic expansion - especially in the developing world.

Energy demand is not just set to grow. It is set to grow significantly. By the year 2030, we forecast that the world’s energy needs will be about 35 per cent higher than they were in 2005 - even with substantial future gains in efficiency and taking into consideration the current economic slowdown.

Most of this demand growth will occur in developing countries, where populations and economies are growing most rapidly. China and India will account for more than 40 per cent of the world’s incremental energy demand going forward. The Middle East has also become a substantial new consumer of energy.

This means that we must produce more energy from all available and commercially viable resources. Doing so will require us to increase the use of alternative sources. Many have made progress in recent years. Nuclear, hydroelectric, geothermal, wind and solar energy already contribute, and they will increasingly help our economy as they become more efficient and more competitive.

Developing all our energy resources, though, will also require us to find and produce more oil and natural gas. Fossil fuels 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 in the years to come. Oil and natural gas alone will supply nearly 60  per cent of the world’s energy needs through 2030.

Many believe the supply challenge is one of availability. In effect, that oil and gas are running out … that peak production is near … and that the search for alternatives must accelerate.

Indeed, oil is a limited resource. And alternative energy sources, such as nuclear power and biofuels, will play an increasing important role in meeting growing energy needs.

Despite the huge amount of oil and gas used around the world each day, there are still substantial resources left to be recovered. According to the US Geological Survey (USGS) historical estimates, the world’s oil resource base has grown over time, largely due to technological advances.

ExxonMobil’s projection is very similar to the USGS. We estimate that approximately one-third of the world’s conventional oil resources have been produced to date.

Approximately two trillion barrels of conventional oil have yet to be produced - twice as much as all the oil produced in the past.

Unconventional resources - such as heavy oil and oil sands - are likely to significantly add to the total resource base.

The continued abundance of oil is a reason it will remain a vital energy source for the foreseeable future. However, these supplies of petroleum are often found in hard-to-reach places. For the sake of global energy security, we will need to put in place sound, long-range policies so the energy industry can find and develop these resources. These new energy projects will demand new technologies, massive capital investment and greater cooperation and trade among the nations of the world.

Let’s now move into some of the supply challenges and solutions in more detail.

As an industry, we’re charged to meet the growing need for reliable and affordable energy. Energy that’s necessary to sustain economic and social progress while minimising the effects of this increased usage on the environment.

But those of us here today know this challenge is multi-dimensional, extending far beyond industry to include science, technology, economics and politics. The decisions that are made, and the approaches that are taken, will impact the world’s more than 6.5 billion people, the health of national economies and our environment.

At ExxonMobil, we believe a challenge of this magnitude requires an integrated set of solutions. A set that includes three elements.

First, the need to accelerate gains in energy efficiency. This will conserve supplies, reduce the growth rate of greenhouse-gas emissions and lower energy costs.

Second, we must expand all commercially viable energy sources to enhance the availability of reliable and affordable energy.

And finally, we need to continue to develop and deploy technology to help mitigate the growth of emissions associated with energy use.

Technology has been an answer to our most difficult energy challenges. And it will continue to play a critical role in enabling success in all three of these areas. But today I’d like to focus on the role of innovation and technology as it relates to supply challenges.

As we have discussed, to meet the growing demand through 2030 and beyond, quite simply we’ll need more energy. That means more oil … more natural gas … more coal … more nuclear … more biofuels, wind and solar, and other fuel sources.

Providing these varied forms of energy will require substantial investments in infrastructure around the world. It will also demand advanced technology to reduce the cost of production and delivery to consumers.

Let’s take a look at some supply-side technologies that will help us meet these challenges.

New technology is the key to unlocking future opportunities. At ExxonMobil, a portion of our Upstream research programme is dedicated to high-risk, high-reward projects that have the potential for significant business impact. We call this breakthrough research.

It begins with a structured innovation process that focuses the creativity of our researchers on the foremost business needs and potential prizes. Let me give some examples of breakthrough projects at various stages of maturity.

Discovery-stage projects include next-generation seismic imaging and innovative reservoir modelling to build on our industry-leading reservoir simulation capability.

The evaluation-stage projects include two methods for recovery of unconventional resources. The first offers a new approach for recovering bitumen, a naturally occurring tar-like substance primarily used for paving roads, whilst our Electrofrac process has the potential to convert shale oil into producible hydrocarbons with less surface disturbance than other methods.

Two examples of our recent breakthrough technologies are Multi-Zone Stimulation Technology for unlocking tight gas and our R3M method for controlled source electromagnetic detection of hydrocarbons. Each process has recently been recognised with industry awards for the truly breakthrough advances that they represent. Sustained commitment to technology development over the long term continues to deliver a strong competitive advantage for us.

Technologies such as 3D seismic imaging and horizontal drilling have enabled us to access more reservoirs ... and recover higher percentages of what we reach. In our Sakhalin operations in northeast Russia, for example, we’ve been using leading-edge directional drilling technology to reach oil and gas reserves more than seven miles from the shore. That’s roughly the distance from this building to the Millennium Dome.

Our innovative multi-fracture and multi-zone stimulation technologies have enabled us to access tight gas reserves in places such as Colorado and Germany. The rock must be cracked to allow gas to seep through the fractures and into the wells, and this new technology is allowing us to produce natural gas from sources unattainable and uneconomical just a decade ago.

And advances in LNG technologies are enabling natural gas to be delivered safely and efficiently anywhere in the world. For example, new liquefaction trains, developed in partnership with Qatar Petroleum, are 60 per cent larger than the previous generation, and the new LNG tankers are 80 per cent larger than what was available just two years ago. That’s enabled us to cut costs by more than 25 per cent, making imported LNG globally competitive.

Technical achievements such as these require the intense collaboration of hundreds of scientists and engineers, plus a significant investment in research and development over an extended period of time. Innovation in our industry neither occurs in a vacuum nor occurs overnight. It also doesn’t happen with inconsistent or wavering commitment.

Let me now elaborate more on the role of collaboration and explain how joint ventures between international oil companies, national oil companies and host governments contribute to expanding supply.

Resource-owning governments, national oil companies and international oil companies have important roles to play to meet growing energy demand.

Consider that much of the Earth’s remaining recoverable oil resources are found in complex geologic formations, in remote locations and under harsh conditions. Technology is needed to overcome these challenges and bring these resources to market.

By both developing and deploying these needed technologies on a global scale, international oil companies, such as ExxonMobil, are critical to meeting the energy supply challenge.

But of course, resource-owning governments and national oil companies with whom we collaborate are absolutely essential.

Host nations’ governments that provide a stable political and economic environment naturally have an advantage when it comes to attracting large investments. Along with that, national oil companies bring a unique understanding of their natural resources.

International oil companies complement these roles by bringing together people, technology and proven operations and project management capabilities.

But host nations today also have changing expectations and needs. More than ever, they seek relationships with their international partners that run deeper than resource development. Things like technology transfers … skills training … infrastructure support … and economic development.

By bringing together experienced people, technology, standards of excellence in operations and project management, international oil companies can work collaboratively with national oil companies to add more value to both the host country and the IOC – "Growing the Pie".

The ExxonMobil operated Sakhalin-1 development in Russia’s Far East is a good example of the benefits of strong NOC-IOC relationships. In that development we are partners with a Japanese firm (SODECO) and two NOCs – Rosneft and ONGC. We developed and applied technologies to allow first oil ahead of schedule, created 13,000 local jobs, awarded contracts worth over $4 billion to Russian companies and, over the life of the project, expect to deliver direct revenues to Russia exceeding $50 billion.

Such relationships are not forged in an instant, or in a vacuum. They are based on a long-term and enduring commitment to partnerships with host countries that span multiple decades. As an integrated international oil company, ExxonMobil harnesses over 125 years of global experience, bringing its partners unique capabilities in cutting edge technology development, project management, disciplined cost and safety controls and massive investments in research and development.

In conclusion, the supply challenge we face is not an issue of availability. Abundant resources do exist to meet the world’s growing energy needs.

As we look at the energy landscape for the next several decades, we must develop all economic sources of energy as part of a comprehensive set of solutions.

With the support of stable investment environments, predictable policy and regulatory frameworks, access to attractive acreage, and the unique strengths national oil companies bring to the table, we can work together to meet the energy challenges of today and tomorrow. Through this type of collaboration, international oil companies are able to establish effective joint ventures and apply the advanced technologies in our portfolios.

But we don’t just develop new energy technologies. We apply and manage them effectively, and we do so in an environmentally-responsible way. It’s through this innovative integration that international oil companies such as ExxonMobil are helping meet the world’s supply challenge.

Thank you for your attention.