Sunday, September 23, 2007

Technology's Role in the Future of Energy

EDITOR'S NOTE: Robert Olsen, Chairman of ExxonMobil International, delivered the keynote speech at a major European offshore oil industry conference that was held in Aberdeen, Scotland, on September 4. In view of the importance of the subject matter, we have decided to republish the speech in its entirety, except for the speaker's brief introductory and closing remarks. Regardless of one's opinion of the oil industry, Olsen's analysis of the interconnected energy and environmental crises that threaten, respectively, to wreck the global economy and ruin the global environment, merits serious study and consideration, especially since it runs counter to the doom-and-gloom outlook of the peak oil crowd. One prediction worth noting: by 2030, Olsen says, solar and wind will account for only one percent of global energy demand--"just a fraction of the overall energy mix." ExxonMobil expects that most of the world’s growing energy needs will continue to be met by oil, gas and coal for decades to come.

The complex, intertwined challenges of energy security of supply, economic growth and environmental protection are on the minds of governments and consumers alike, and there are many who frankly are unsure of our ability to handle all three successfully.

Given that the global economy needs continuing supplies of energy to grow, ExxonMobil sees an important future for oil and gas. The earth has a tremendous resource base; our industry has historically proven its proficiency in meeting challenges; and our company and others are investing heavily in new technologies that will enable us to continuously improve.

Today’s global energy sector is truly interconnected, with international oil companies making significant contributions to the development of national resources. That trend is not likely to change--indeed, it is expected to continue to grow significantly. Effective collaboration and innovative technology will be the keys to our success.

Long-term planning is critical to meeting the world's future energy challenges. As such, ExxonMobil prepares a detailed long-term energy supply and demand outlook each year. This assessment is used in our annual business planning process.

The outlook, which extends to 2030, incorporates data and input from a variety of respected sources, including the International Energy Agency and the US Department of Energy.

By 2030, worldwide energy demand will be almost 40 per cent greater than today--close to 325 million oil equivalent barrels per day. And that assumes we will achieve an energy efficiency improvement of nearly 45 per cent by the end of the outlook period.

Most of the growing demand for energy will occur in developing countries where 80 per cent of the world's population lives, as they move toward industrialised societies. Access to energy will not only lead to more economic growth in the developing world, but also assist with improving living standards for the many people who lack even the most basic of necessities. One billion people today lack safe drinking water and 1.6 billion lack electricity.

About 80 per cent of the world's energy needs through 2030 will continue to be met by fossil fuels. Of the other energy sources, wind and solar are projected to grow rapidly. But by 2030, they will still only account for about one per cent of global energy demand - just a fraction of the overall energy mix. So, it will be the conventional energy sources - oil, natural gas and coal - that will need to meet the bulk of the world's energy requirements over the coming decades.

And the resources are available. According to the US Geological Survey, there are more than three trillion barrels of conventional, recoverable oil across the globe. When non-conventional forms are taken into account--such as shale oil and heavy oil--the estimated resource base grows to more than four trillion barrels.

When you consider that since the dawn of the oil industry, we have collectively produced just one trillion barrels, you can see that resources are adequate for the foreseeable future.

The challenge lies in access and timely development. We no longer find and produce oil and gas in the manner our forefathers did in the 1800s. Our industry has evolved over time, and it will be the continued emphasis on technological advancements that will be critical to our future successes.

Technology has long been the answer to our most difficult energy questions. Through the years, innovation has enabled our industry to overcome countless obstacles in finding, producing and delivering a product that so many people consider just another commodity.

From the first wells in Pennsylvania, to today's complex, multi-billion dollar projects, our industry has developed and deployed new technologies throughout its history, with a stunning record of achievement.

For instance, in our Sakhalin operations in northeast Russia, ExxonMobil is using leading-edge extended-reach drilling technology to reach oil and gas reserves that are more than 11 kilometres from the shore. And we're doing it with pinpoint accuracy in some of the most difficult operating conditions in the world.

Recent advances in LNG technologies are enabling natural gas to be delivered safely and efficiently anywhere in the world. For example, new liquefaction trains, which ExxonMobil has developed in partnership with Qatar Petroleum, are 60 per cent larger than the previous generation. That has enabled us to cut costs by more than 25 per cent, making imported LNG globally competitive.

Europe will be one of the primary beneficiaries of these efforts. Two European LNG regasification terminals are currently under construction - Adriatic LNG at Rovigo, Italy, and South Hook at Milford Haven, Wales. Combined, the two terminals will have the capacity to process 2.8 billion cubic feet of gas per day. Both are expected online in 2008.

But not only are we working on technology to access new resources, we are also working hard to get more out of existing ones. Maximising recovery from existing fields offers tremendous potential.

The development and application of enhanced oil recovery methods such as waterflooding, gas injection and thermal recovery of thick and heavy oils have extended the productive life of hundreds of fields across the globe.

Here in Europe, our innovative multi-fracture and multi-zone stimulation technologies have helped us access tight gas reserves in places like Germany, allowing us to produce gas resources that were previously unattainable. As these technologies continue to evolve, they will play a major role in increasing recoverable resources from fields throughout Europe, and the world.

These types of breakthrough technologies are making the unconventional resources conventional, and enabling us to produce energy more effectively, more efficiently and with less environmental impact than ever before.

No discussion about the realities facing our industry today would be complete without addressing the issue of greenhouse gas emissions and climate change.

This challenge, like the others I have discussed this morning, is also of immense duration and scope. It is a global issue, with potential impacts touching all corners of the world.

The evidence shows that the earth's average temperature has warmed about seven-tenths of a degree celsius in the past century. Many global ecosystems, especially polar ones, are showing signs of warming. CO2 emissions have increased during this same time period, and the burning of fossil fuels and changes in land use are two significant drivers of the increase.

Whilst climate remains a continuing area of scientific study, it has become increasingly evident that climate change poses risks to society and ecosystems. Therefore, it is prudent to take actions that address these risks, keeping in mind the central importance of energy to the world economy.

Studies have shown that significant advances in energy efficiency, along with expanded use of nuclear and alternatives, can deliver substantial emission savings. But if we are to stabilise CO2 levels in the atmosphere it will require more dramatic technological breakthroughs, given the rapidly rising global energy demand. Significant efforts need to be directed towards this goal, without a pre-determined view on what the eventual winners will be.

This is the reason that ExxonMobil is taking action to reduce greenhouse gas emissions today, and why we are supporting breakthrough technology research to help reduce the "gap" tomorrow.

Our industry has been quick to seek improvements in energy efficiency in its own operations. In addition, many in our industry have recognised the need for new technologies and are investing in research. Let me give you some examples of what ExxonMobil is doing in these areas.

Since 1999, the steps we've taken to improve energy efficiency at our own facilities have resulted in the avoidance of 12 million metric tons of greenhouse gas emissions last year alone ... the equivalent of taking about two million cars off the road.

Much of that reduction is due to our commitment to cogeneration at our refineries and chemical plants. Today, we have interests in 85 cogen units worldwide, with a combined capacity to provide about 3,700 megawatts of power ... enough electricity to meet the demands of nearly seven million European homes.

We are also partnering with automobile and commercial engine manufacturers on R&D programs that could yield fuel economy improvements in internal combustion engines of up to 30 per cent, with lower emissions.

Our partners in addressing climate change include governments, too. ExxonMobil and others are teaming up with the European Union to assess the viability of geological carbon storage, based in part on our experience in the North Sea Sleipner gas field, where we've sequestered one million metric tons of CO2 each year since 1998.

This initiative--CO2ReMoVe--is working to advance carbon capture and storage technologies by studying current projects at sites throughout Europe and Algeria. This approach holds great promise in becoming a major contributor to reduced emissions over the coming decades.

We're also a founding sponsor of the Global Climate and Energy Project, based at Stanford University, which epitomises the approach to exploring step-changing technology. By accelerating research into promising new energy technologies with economic and environmental potential on a worldwide scale, scientists at GCEP are moving toward breakthroughs that could lead to meaningful, worldwide emissions reductions.

GCEP scientists are researching how hydrogen and solar energy can be made economic; how engine and fuel systems can be made significantly more efficient; and how biofuels can be made more abundant. With a 100 million dollar commitment, ExxonMobil is proud to serve as the lead sponsor for GCEP's groundbreaking work.

Just as technology has continually been the driver of progress in our industry, I am confident that future technological advances will enable an effective response to the challenge of climate change.

Governments also play an important role in mitigating the risks of climate change. Many thoughtful policy proposals have been put forward aimed at reducing greenhouse gas emissions.

ExxonMobil's goal is to be a constructive participant in the dialogue about various policy options and to help progress thinking on this important issue. To that end, we are participating in a number of discussions with policymakers, environmental leaders, industry representatives, think tanks and trade groups.

Any effective and sustainable approach to addressing climate risk must incorporate common-sense, proven risk-management principles--assessing costs and benefits, while taking the actions most likely to achieve benefits at the lowest cost.

Policies must also balance the need to address climate risks with the continual need to meet the energy requirements of economic development, improving public health, and assisting in lifting people out of poverty in the developing world.

In general, we believe that maximising the use of markets to select and deploy technologies will best serve society's interests in the long term. Where a variety of needs and options exist with different costs and scale, markets work well.

Achieving a uniform and predictable cost for carbon across the economy would enable market mechanisms to work effectively to this end. Uniformity ensures economic efficiency, whilst predictability facilitates good decisions affecting energy consumption today, and investment in the technologies needed to reduce emissions over time.

Administrative simplicity and transparency for both companies and consumers are also essential characteristics of an effective policy framework. This helps businesses plan their investments and helps consumers understand the impact of policy on the goods and services they purchase.

Given the global nature of the challenge, effective policies should also offer a path to global participation. Focusing on the developed world alone cannot constrain global CO2 emissions. Failure to bring in the developing world will create imbalances, and could make the problem worse.

Finally, we must ensure that any sound policy continues to adjust as climate science develops, and we can see the impacts of climate policy on the world's economies.

We know that the European Union has designed and is operating a cap-and-trade system in an effort to control greenhouse gas emissions from large sources. Indeed, it is a system that our businesses in Europe continue to operate under with success.

However, what businesses operating in Europe are seeking is a uniform and predictable cost for carbon. Through the first phase of the trading scheme, we have seen carbon prices fluctuate widely between a high of 30 euros and a low of 25 euro cents per tonne.

As further policy frameworks are developed, we believe that other policy mechanisms might be more effective in providing a clear, long-term price for carbon. We believe these alternative approaches should be equally analysed and debated.

For example, an upstream cap-and-trade system--that is, a system placing a limit on carbon at the point where the fuel enters the commercial world rather than at the point of emission--offers potential advantages in terms of efficiency and simplicity. It reduces the number of regulated entities and provides a uniform cost of carbon to the entire economy.

Similarly, a carbon tax could enable the cost of carbon to be spread across the economy as a whole in a uniform and predictable way.

Of course, all these policy options carry significant challenges as well as potential benefits. Poorly considered versions of any policy can have negative consequences.

My purpose in sharing these thoughts with you is not to make a definitive case for one system over another. I do so to show that decisions of this kind are complex, that policy options need to be given careful consideration, and that constructive dialogue is crucial to meeting the climate change challenge.

I would be remiss if I did not also discuss the important role governments play-- not only in implementing effective climate policy, but also in helping the world maintain an affordable, reliable flow of energy.

The path to energy security does not lie in attempting to insulate domestic economies from the global marketplace. Instead, it lies in open, competitive markets, international trade, diversity of supply, and the strengthening of relationships between producing and consuming nations.

The value of such an interconnected marketplace is that energy security is enhanced when there are more participants, better relationships, and more diverse sources of supply.

The projects our industry undertakes span decades, require huge investments, and utilise cutting-edge technologies that evolve throughout project lifecycles. Long-term planning is critical--planning that looks beyond the current business cycle, relies on stable frameworks, and goes beyond political term limits.

As a result, the role governments play--in maintaining stable fiscal and regulatory environments and in allowing access to energy resources--is crucial to future energy security. They are vital to an industry that is highly capital-intensive and operates over such long time horizons.

Our industry has proven time and again that it will accept risk, even for projects that require massive investment. But only if measures are in place that allow us to operate effectively and resolve issues fairly. The tremendous energy infrastructure that successfully moves oil and gas around the world is proof that the industry will make large and prudent investments when it perceives long-term value and a reliable level of stability.

And that is the key.

When governments encourage investment, when oil and gas companies focus on developing new technologies, and when both work together to protect the environment, together we can successfully develop the energy the world needs to power growth and prosperity in the future.