ExxonMobil - Energy Solutions Contributing To U.S. And World Recovery

Tuesday, March 31, 2009 - 00:00

The Editor features Rex Tillerson, Chairman and CEO, ExxonMobil.

On January 8, 2009, Mr. Tillerson addressed the Woodrow Wilson International Center for Scholars. This interview is based on highlights from Mr. Tillerson's address on that occasion. The Editor did not speak to Mr. Tillerson.

Editor: Tell us about ExxonMobil's current contributions to the economy?

Tillerson: Today, the energy industry employs 1.8 million people directly, and another 4.6 million indirectly, and many of these are among our nation's best and brightest. At ExxonMobil, our more than 80,000 global employees include nearly 15,000 scientists and engineers, of which about 1,400 have Ph.Ds.

Energy companies are not just major employers. They are also paying significant taxes. Oil and gas producers paid more than $90 billion in income taxes in 2006 - more than six times the total corporate income taxes they paid in 2002. Last year, ExxonMobil alone paid more than $14 billion in state and federal taxes.

In addition, the energy industry invests billions in emerging technologies - technologies that hold the potential to create new jobs and new opportunities. And our financial success helps stimulate growth across the economy.

For example, the millions of American shareholders of ExxonMobil have benefited from our disciplined investing and operational excellence. Over the past five years, our dividends and share-buyback programs have put nearly $118 billion into the hands of investors and pension funds, the great majority of whom are in the United States - an economic stimulus package in its own right. And over the same period we had total tax expenses of nearly $65 billion in the United States, exceeding our U.S. earnings by almost $20 billion.

But even these numbers understate how important the energy industry is each and every day. The fact is, affordable and reliable energy has a vast multiplier effect that helps every company and every consumer in the American economy.

Even in the midst of our current economic downturn, which includes a return to more historic levels of crude oil prices, my company remains committed to investing in projects and technologies to meet tomorrow's needs. Our business model is based on rigorous and realistic long-term planning. We try to look through near-term events. As part of this planning, we work to recognize risk factors that we know about today and can manage with the acknowledgement that there will be unforeseen risk factors that we will also have to manage in the future.

We look forward to bringing this long-term perspective to bear on the workings with the new Congress and new Administration on the key energy challenges we face.

Editor: Why do the global energy challenges that we face today require integrated long-term solutions and what is ExxonMobil doing today to achieve such solutions?

Tillerson: Americans increasingly understand that we face not one energy challenge, but multiple energy challenges. They understand that there is no single answer to our energy, efficiency, and environmental needs. Indeed, they recognize that we must pursue an integrated set of solutions.

This broad consensus was reflected in the public and Congressional support for lifting the moratorium on development of the United States' vast offshore oil and natural gas resources.

Now that Congress has acted, we must work together to take practical steps to turn this action into reality - by working to facilitate access to these domestic energy resources for new exploration activity. According to a recent study, developing the areas of the United States that have been kept off limits would generate more than $1.7 trillion in new government revenue and create more than 160,000 jobs. Opening up U.S. supplies of oil and natural gas would boost our economy by simultaneously lowering the cost of energy, increasing employment, and providing a new source of government revenue.

This consensus also reflects the realities that govern the global market for energy to which the U.S. economy is inextricably linked. Understanding these realities, including the dimensions and the dynamics of the international energy industry, is crucial to developing an effective policy framework for U.S. and global energy security. You cannot have one without the other.

By enabling advanced economies and innovative companies to create partnerships, work across borders, and train local populations, government can support the most efficient use of resources and human capital. And as we confront our current economic challenges, Congress must resist the urge to turn its back on these proven policies. The United States cannot afford to raise barriers to trade.

To help with this understanding, ExxonMobil prepares a forward-looking document each year, called the Outlook for Energy2.See www.exxonmobil.com/energyoutlook.To develop this forecast, 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 economic expansion - especially in the developing world.

This fundamental fact 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 percent of the world's energy needs through 2030.

The continued abundance of oil is another reason it will remain a vital energy source for the foreseeable future. The United States Geological Survey estimates that the earth was endowed with about three trillion barrels of conventional oil - of which only about one trillion has been produced and consumed to date.

However, these conventional supplies of petroleum are often found in hard-to-reach places. For the sake of U.S. and 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.

As we plan for the future we must remember that it is not just the tremendous growth rate in energy demand that should guide our policies - we must also be guided by an understanding of the magnitude and the timescale required to meet the challenges of growing energy demand.

Americans currently consume almost 20 million barrels of oil a day. With significant improvements in energy efficiency, we expect U.S. demand will actually be lower by the year 2030 at approximately 17 million barrels a day - a reduction of almost 18 percent. The efficiency gains outlined in our Outlook are challenging, but we believe are achievable.

However, even with these gains, we expect total worldwide oil demand to grow from the current 85 million barrels per day to about 105 million barrels per day by the year 2030. We expect the current downturn to be temporary. And when economic growth returns we will see strong energy demand return - especially from the developing world.

With this new energy demand, we also foresee an increase in greenhouse-gas emissions associated with energy use. Globally, the Outlook for Energy expects energy-related carbon-dioxide emissions to rise by an average of one percent per year through the year 2030.

These two fundamental realities - meeting enormous demand growth and managing the risk of greenhouse-gas emissions - are the twin challenges of our time.

While the United States is likely to reduce its demand for oil by 2030, in the years ahead we will face stiffer competition for energy resources from growing economies elsewhere - global economies that will be vital to the U.S. economic recovery and growth as well. It is this future that compels us to lay the groundwork today for a long-term, global energy strategy that will meet not just U.S. energy needs, but those of the global economies as well.

Editor: How is that long-term perspective reflected in the current activities of ExxonMobil directed toward finding integrated solutions for new supplies?

Tillerson: Meeting our many energy challenges requires a multidimensional approach. We must formulate and put in place long-term policies that support an integrated set of solutions that help us find new energy supplies, increase energy efficiency and discover innovations that can address climate risks in the most effective manner.

By combining energy, efficiency, and environmental goals, integrated solutions help us develop and deploy new technologies at every point in the energy supply-and-consumption chain. Unleashing the potential of these integrated solutions should begin right here at home. The United States is endowed with enormous oil and natural gas resources.

It is estimated that there is enough oil and natural gas offshore and in non-wilderness and non-park lands to fuel 50 million cars and heat nearly 100 million homes for the next 25 years, providing an important link of time and resources as we work toward future energy solutions.

Technology advances have not stood still in the petroleum industry. For example, a technology recently developed by ExxonMobil has made it economically possible to produce natural gas "trapped" in extremely tight rock formations far below the earth's surface. In Colorado, the amount of gas from one field alone will be enough to heat 50 million U.S. homes for the next decade.

Because natural gas is relatively clean burning when compared to other conventional sources, it has important environmental advantages as well.

Developing new supplies of energy will also require us to develop integrated solutions beyond our borders. As an example, my company is working with others to develop new technologies to provide the economies of the world with greater access to natural gas resources by delivering it in liquid form, or LNG.

The new Q-Max ships that we have developed in conjunction with our partner Qatar Petroleum can transport 80 percent more LNG cargo than current conventional-size ships, yet they require approximately 40 percent less energy per unit of cargo thanks to improved economies of scale and new, more efficient propulsion systems. This technology gives us the capability to economically and efficiently deliver natural gas to markets essentially anywhere in the world, most particularly Europe and North America.

Editor: What is ExxonMobil currently doing to find integrated solutions for energy efficiency?

Tillerson: For those who might doubt the potential contributions of energy efficiency, consider this fact: Here in the United States, since 1970, reductions in energy intensity - or the energy input required per unit of GDP output - effectively met well over half of Americans' growth in energy demand.

Efficient energy use extends the life of the world's resource endowment. It reduces greenhouse-gas emissions. It supports stable, affordable energy for consumers.

And it strengthens our energy security. Over the past 25 years, worldwide gains in energy efficiency have helped lower global energy intensity by about one percent annually. As a result, the global economy is growing more resilient to energy demand and supply shocks.

Many of the most promising opportunities for efficiency gains are in the transportation sector where both incremental and breakthrough innovations can have a big impact.

At ExxonMobil, we have been engaged for many years in on-going collaborations with automakers and engine manufacturers to develop new, energy-saving technologies that can power a new generation of vehicles.

One is a new engine technology called Homogeneous Charge Compression Ignition, or HCCI, which combines the best features of gasoline- and diesel-powered engines. The results could be up to 30 percent better fuel economy and lower emissions.

We are also working with major tire manufacturers, where together, we have developed a new tire-lining technology that uses up to 80 percent less material in the manufacturing process, making tires lighter and keeping them properly inflated. A car with under-inflated tires burns up to an extra tank of gasoline every year.

One particularly productive partnership of ours has been in the area of vehicle-battery technologies. In 2007, we unveiled new separator films, developed by our petrochemical company, for lithium-ion batteries. These films have the potential to improve the energy efficiency and affordability of next generation hybrid electric vehicles. If just 10 percent of the light-duty vehicle fleet were hybrids, carbon-dioxide reductions would be the equivalent of taking five million cars off the road.

And finally, our scientists and engineers are working with those from other industries on breakthrough technology that could advance the use of hydrogen fuel cells. This new technology, which has been under development for more than a decade, will be applied first to industrial vehicles, such as forklifts. Our approach - quite different than most - converts traditional hydrocarbon fuels, such as gasoline, into hydrogen directly on-board a vehicle, eliminating the need for separate facilities for producing and distributing hydrogen. Measured on a "well-to-wheels" basis, this on-vehicle hydrogen fuel system could be up to 80 percent more fuel-efficient, and emit 45 percent less carbon dioxide, than today's internal-combustion engine.

I have given you these few examples to make the point that there is much that can still be done with the energy resources and systems we have today. And they will be important to a comprehensive set of solutions.

Editor: Are there integrated solutions to lower emissions?

Tillerson: Integrated solutions also hold the promise of helping reduce greenhouse-gas emissions. The first and most significant step is to continue the energy-efficiency gains mentioned earlier.

Businesses of all types, including my own, must systematically work to improve efficiency and environmental performance throughout our facilities the world over. Since 2004, ExxonMobil has invested more than $1.5 billion in activities that improve energy efficiency with a companion reduction in greenhouse-gas emissions, and we will be spending about half-a-billion dollars over the next few years.

Through efficiency actions taken in 2006 and 2007 alone, we reduced our greenhouse-gas emissions by about five million metric tons.

Notwithstanding these types of improvements, with rising energy demand, especially in developing nations, we expect an increase in greenhouse-gas emissions. For example, by the year 2030 China's emissions will be comparable to the combined emissions of the United States and Europe.

My greatest concern is that policymakers will attempt to mandate or ordain solutions that are doomed to fail, and we will be set back even further from necessary and viable solutions.

One policy option that is intended to reduce emissions and which has received much attention is a cap-and-trade system. But before we rush to enact such a system, we must ask whether it can best achieve our shared goal of actually reducing greenhouse-gas emissions.

Such a system was put in place in the European Union. Unfortunately, the European scheme is struggling to achieve the overall reductions that its supporters had hoped for.

One of the reasons for this is that cap-and-trade systems inevitably introduce unnecessary cost and complexity that undercut their effectiveness.

It is important to remember that a cap-and-trade system requires a new market infrastructure for traders to trade emissions allowances. This new "Wall Street" of emissions brokers will take the emphasis away from the goal of reducing carbon emissions and focus its attention on trading on price volatility. For businesses and consumers, these market gatekeepers and resultant price swings add cost and they create uncertainty.

Also, cap-and-trade systems, because of their complexity, have inherent problems with verification and accountability. They require a vast expansion of administrative and regulatory officials to ensure emissions allowances are not exceeded. This is another cost for businesses and consumers to bear.

There is another policy option that should be considered, and that is a carbon tax.

As a businessman it is hard to speak favorably about any new tax. But a carbon tax strikes me as a more direct, a more transparent and a more effective approach. It avoids the costs and complexity of having to build a new market for securities traders or the necessity of adding a new layer of regulators and administrators to police companies and consumers. And a carbon tax can be more easily implemented. It could be levied under the current tax code without requiring significant new infrastructure or enforcement bureaucracies.

A carbon tax is also the most efficient means of reflecting the cost of carbon in all economic decisions - from investments made by companies to fuel their requirements to the product choices made by consumers.

In addition, such a tax should be made revenue neutral. In other words, the size of government need not increase due to the imposition of a carbon tax. There should be reductions or changes to other taxes - such as income or excise taxes - to offset the impacts of the carbon tax on the economy.

Finally, there is another potential advantage to the direct-tax, market-cost approach. A carbon tax may be better suited for setting a uniform standard to hold all nations accountable. This last point is important! Given the global nature of the challenge, and the fact that the economic growth in developing economies will account for a significant portion of future greenhouse-gas emission increases, policy options must encourage and support global engagement.

Editor: Do you have any final comments?

Tillerson: The American people have made clear they want to make energy a national priority. Our government must play an important role in this effort. First, our country's tax and regulatory framework should be stable and consistent to promote the long-term investments that are required. Second, our country should continue to allow more access to domestic reserves. And, third, our country should press forward with free trade.