It is always a pleasure to address CERAWeek — and that is particularly the case this year, and on this day, as we take on the great and consequential question of the next 30 years.
Our industry has long been accustomed to looking out at far horizons and planning for the future we see — and the world we hope to make better.
Today I plan to talk about the successes that have brought us to a historic moment, stress the imperative of technological advancement and discuss how the next 30 years will require a paradigm shift in how we — as leaders in business, government, and society — should understand the role uncertainty, innovation, and policy will play in the shaping the world for the better.
The Historic Moment
Before we look forward or look back, however, we must ask where we stand right now.
Although the public and many policymakers are just beginning to realize it, we are living at a historic moment in the evolution of energy markets.
The fact is the global energy portfolio is more diverse than at any time in world history.
Our industry has pioneered new technologies that can safely reach ultra-deepwater resources. We have advanced the technologies and infrastructure for the global delivery of liquefied natural gas (LNG). We have integrated technologies in new ways, allowing us to access vast unconventional oil and natural gas resources. Our industry also continues to advance and improve its ability to responsibly develop new supplies of energy from oil sands.
Across the global supply chain, we are expanding high-impact processes such as cogeneration, which increase efficiency and reduce emissions. And we are making long-term investments in research and development that are helping in the creation of products that maximize the value and efficient use of energy resources, while increasing safety, improving human health and protecting the environment.
The challenge we face in the decades ahead is: How do we sustain and, indeed, accelerate such advances in energy technology?
Framing the Challenges Ahead
Once we understand the fundamental realities that govern energy markets, we can see why this question is so important.
Simply put, the world’s energy needs will grow tremendously over the next 30 years.
According to projections, the world’s population will grow from about 7 billion today to nearly 9 billion people in 2040. With this growth and aspiration, economic output is expected to double, and global energy demand to fuel this growth will also rise by about 35 percent by 2040 compared to 2010, even with significant gains in energy efficiency.
For nations and peoples around the world, there is a humanitarian imperative behind our mission to provide energy to an advancing world.
According to the International Energy Agency (IEA), more than 1.3 billion people currently lack access to electricity for basic needs like clean water, cooking, sanitation, light, and safe storage for food and medicine. As we approach any discussion about the future of energy, we must remember those literally without power and that the need to expand energy supplies does not begin and end in developed nations.
The Energy Imperative
Ensuring reliable and affordable energy supplies for businesses and consumers will require us to develop all sources of energy, wherever they are economically attractive.
For many, their vision of energy over the next 30 years will include expanding renewable energy — wind, solar, and biofuels. And we can expect these energy sources to play increasingly visible roles in the world’s overall fuel mix.
But their contribution, even three decades from now, will likely remain relatively small, making up only three to four percent of total energy supplies in the year 2040.
Because hundreds of millions of people depend on the choices we will make to meet global energy needs, our thinking and approach must be governed by the realities of physics and economics.
We must continue to develop energy sources that are reliable, competitive, and affordable. Unfortunately for so many renewables, their growth is predicated on their connection to taxpayer-funded subsidies or mandates that guarantee markets whether the economics make sense or not. Such policies will create challenges as years go by. They will depend upon the willingness of taxpayers to finance the commercial aspects of these technologies over the long term, often through adverse economic and fiscal climates.
As we look to the future, hydrocarbons will continue to meet the vast majority of the world’s energy needs.
In the decades to come, oil, natural gas and coal will supply approximately 80 percent of the world’s energy needs through 2040. And oil and natural gas will supply about 60 percent of global energy demand in 2040.
And, as many in this room know all too well, the oil and natural gas that the world needs are found in increasingly difficult-to-reach and remote places. So our success will depend on our ability to manage risk and uncertainty effectively.
The Technological Imperative
Historically, the energy sector has faced more risks than nearly any other industrial endeavor — some below the ground, but many above the ground.
We must manage the uncertainty of geopolitical risks, economic risks, financial risks, geologic risks, project risks, policy risks, regulatory changes and the supply-and-demand volatility inherent to commodity markets. In addition, as an industry we are committed to meeting these challenges in a way that reduces emissions and protects the environment.
These wide-ranging challenges of uncertainty and the need for appropriate risk management is why it is critical for the public and policy makers to understand the role that long-term planning, long-term investment, and new technology play in our industry.
There may be no better example of how decades-long timelines in our industry can come to fruition to meet energy needs than in the combination of technologies and techniques that have allowed our industry to economically develop North American unconventional oil and natural gas.
As many of you know, hydraulic fracturing and horizontal drilling are not new technologies to our industry.
What is new is the innovative way in which we have been able to integrate these proven technologies and techniques to safely and economically produce oil and gas trapped in extremely dense shale and tight-rock formations.
But commercializing this opportunity has depended on an even greater confluence of innovation. Success has depended on decades of investment, knowledge, and operational expertise — from well-design integrity to the latest in seismic imaging.
It was a series of incremental improvements and breakthroughs that have put within our grasp enough resources to supply the U.S. natural gas needs for close to 100 years. And it is thanks to these technologies and the transition to natural gas in power generation that we are reducing U.S. energy-related CO2 emissions to levels not seen since the 1990s.
What should be clear from this experience is that the development of unconventional oil and natural gas was built on a broad, system-wide set of human achievement and human ingenuity implemented over decades.
Our paradigm for meeting the energy challenges of the next 30 years must, therefore, be to encourage technological advancements at every link in the energy chain and in every sector of society. The greatest technological changes may take years or even decades to emerge. And we will likely be unable to predict how they will be integrated into the vast infrastructure of energy markets.
It is also important to recognize that we no longer live in the era of Thomas Edison working by himself in the lab.
Rather, we live in an era when we should be encouraging teams of modern-day Edisons to work within our companies, across our industry and across borders to innovate, form partnerships and advance technologies — from incremental improvements to revolutionary breakthroughs — because none of us can do it alone.
Of course, encouraging a broad platform of sustained research and innovation will require a paradigm shift in public policy.
A New Technological Paradigm
First, policymakers in the U.S. and around the world must recognize the value of free markets to solve society’s problems.
Recent North American success in unconventional development has reminded the world of the value of competitive and free markets. The technological breakthroughs that allowed for unconventional-gas recovery flowed from investments by business and industry in private markets. They are not the result of government policies that picked winners and losers.
Second, government can help innovation by maintaining a stable tax and legal framework, opening access to resources for production and promoting free trade and investment. In addition, government must provide a clear and efficient regulatory pathway to meet the public’s expectations for safety, efficiency and environmental protection.
As innovations move from the lab to the field or technology moves from the blueprint to reality, we need regulatory processes that view the promise and potential of innovation from a framework of fact and science.
There is one final element needed as we take on the energy challenges of the decades ahead: Humility.
We must continually remind ourselves that few people foresaw the innovations in unconventional production, or deepwater, or oil sands development — innovations that will help re-define the next 30 years. Similarly, we must recognize that more revolutionary advances are coming as long as we trust in human ingenuity and the free markets.
By understanding the broad and sustained need for technology, we can create policies that support the people and technologies that will shape the energy markets of tomorrow and in the process we can increase opportunity for billions. We can create new jobs and prosperity. And we can protect the environment for the generations to come.
Thank you very much.