Speech April 21, 2015 Building Energy Policies Equal to the Technological Moment Rex W. Tillerson Chairman and Chief Executive Officer CERA Week Houston, Texas It is a pleasure to be back at CERAWeek. It’s been three years, I think, since I was last here. I appreciate the influence and impact CERAWeek has in our industry and for informing the public as well as policymakers on the important issues that bring us together to thoughtfully consider the energy and environmental challenges of our time. This year’s theme is particularly well chosen. We are at a “turning point.” And there is, indeed, a “new world” being made by the energy sector. We meet, of course, against the backdrop of far-reaching changes in the global supply and demand for energy. Vast new supplies of energy have led to a significant decline in prices, which reflect the dramatic transformation of the energy landscape. Yet, the full parameters of this “new world” remain to be determined. In many ways, securing the promise of this future will demand that we work together as we have never worked before. This morning, I will briefly discuss the technological roots of this “turning point” and how they have led to a New Era of Energy Abundance. I will explore how our innovations have also provided an historic opportunity for us to reach out to the public and to policymakers. And I will discuss the policies needed for our industry to invest in the technologies which will help society meet our shared aspiration to expand and use energy supplies in a safe, secure, and environmentally responsible way. Technology Creating a Turning Point As this audience knows, this New Era of Abundance is the result of innovation and collaboration across this great industry of ours. It flows from work on many frontiers, over many decades, by scientists, engineers, and entrepreneurs all around the world. In just over a generation, the oil and gas industry has pioneered a host of technologies and techniques enabling us to erase the old lines between conventional and unconventional sources of energy – giving us access to energy from oil sands, ultra-deepwater, shale and tight rock, the arctic and the sub-arctic. Our innovations have brought vast new supplies to the market – creating energy diversity, greater reliability, and increased flexibility in the global energy portfolio. Yet, it is in North America where this “new world” is most visibly taking shape. In a transformation few could have imagined a decade ago, the United States has become the No. 1 producer of total energy coming from oil and natural gas. Even more striking, the U.S. is currently well positioned to be a net energy exporter by the end of the next decade. Of course, for nearly all of us in the energy sector, these abundant new supplies and the resulting decline in prices have created new pressures which will demand increased discipline and focus. But for consumers and the economy, there have already been significant benefits. New supplies of energy have created and supported millions of jobs, led to a renewal of manufacturing, and increased government revenues – all during a severe recession and through a period of anemic economic growth. An Unparalleled Window for Public Engagement Our technologies have not only changed the energy and economic landscape, they are helping to positively influence public discussions about energy issues. The public and policymakers are coming to recognize the high-tech and innovative nature of our industry. They are becoming increasingly aware that technological advances in the energy sector offer the greatest hope to meet our shared aspirations. Nowhere is this more apparent than in the impact of new supplies of natural gas and the environmental benefits they have brought. Because natural gas emits up to 60 percent less carbon dioxide than other major fuel sources when used for power generation, natural gas from shale has become instrumental in reducing U.S. carbon dioxide emissions to levels not seen since the 1990s, as utilities have switched from coal to gas. Even more remarkably, these environmental gains have come despite the fact the U.S. economy today is 60 percent larger and we have 50 million more energy consumers than we had in the 1990s. Taken together, the economic and environmental contributions from our technologies have opened up the potential to reach out to the public and policymakers with greater confidence and credibility. Simply put, we have shown just a fraction of what scientific and engineering advances can mean for the safety and progress of society. Recently, we have even seen some influential voices from the current administration confirm that our technologies and techniques are responsible and reliable. For instance, both the U.S. Secretary of Energy and the U.S. Secretary of the Interior have verified that hydraulic fracturing can be safely carried out while protecting human health and the environment. Just last month, the administration issued new rules, sanctioning the use of hydraulic fracturing on federal and Indian lands. In another important signal, top officials at the U.S. Department of Energy – including Deputy Secretary Liz Sherwood-Randall – took part in the Arctic Research Study produced by the National Petroleum Council at the request of Secretary Moniz. I had the opportunity to chair that collaborative effort, which found that U.S. Arctic oil and natural gas resources can make significant contributions to enhancing national and global energy security. Just as important, the Arctic Research Study found that most of the U.S. Arctic offshore conventional oil and natural gas potential can be developed using existing field-proven technologies. In the months and years ahead, we must continue to emphasize how the energy sector leads many of the most promising efforts to pioneer new technologies and techniques. And we must remind the public and policymakers that it is our sustained investments that develop the innovations that enable safer, more secure, and increasingly efficient production and use of energy and environmental resources. Building Policies Worthy of our Technologies Unfortunately, as much as our investments and technologies are shaping – and will shape – the 21st century, our industry continues to struggle under the weight of policies that are products of 1970s thinking. This must change. If society is to fully benefit the historic opportunity before us, we need sound energy policies – policies worthy of the science and engineering and entrepreneurial daring that has redefined the modern energy landscape. We need policies that recognize the “turning point” moment. We need optimistic policies that reflect our shared aspirations for energy and environmental protection, that appreciate the power of free markets to create revolutionary innovations, and that proceed with the conviction that a “new world” is best constructed on free trade and global cooperation. I see four areas where policy change would ensure that North American technologies and supplies contribute to a “new world” marked by increased energy security, diversity, and flexibility. First, we need governments to recognize that our advanced technologies and techniques have been thoroughly proven in some of the most delicate ecosystems and harshest conditions on the earth. We have shown it possible to confidently open access to new energy resources and for the public and policymakers to know our industry will work to ensure our footprint is minimized and the environment is safeguarded. This was one of the implications of the Arctic Research Study. The political challenge will be to act on the collaborative and science-based findings of the study and open the U.S. Arctic to field-proven technologies and cutting-edge techniques. Second, the U.S. government needs to promote free trade in natural gas and crude oil – as we do for virtually every other good manufactured in the United States. Whether we are talking about the export of liquefied natural gas or ending the ban on crude oil, economists and leaders from across the political spectrum agree that free trade in energy will lead to increased investment, increased job creation, and increased energy production. Moreover, allowing the export of LNG would also put the United States in the position of contributing to further reductions in greenhouse gases and pollution by making it possible for more nations – especially those in the dynamic economies of Asia – to turn to cleaner burning natural gas. Third, we need to approve critical infrastructure projects, such as the Keystone XL pipeline. The United States and Canada both need this – and other – vital infrastructure projects. Keystone XL would do more than deliver oil from Alberta and North Dakota’s Bakken Shale to refiners on the Gulf Coast. It would improve U.S. competitiveness, increase North American energy security, and strengthen the relationship with one of our most important allies and trading partners. Fourth, we need to work to bring transparency and certainty to our regulatory process. The delays and political machinations that have delayed the Keystone XL pipeline are the poster child for a much deeper problem hindering progress and advancement in this country. When I last spoke to CERAWeek, in 2012, I voiced concern that the U.S. regulatory process was stifling investment and innovation. And I also mentioned that there was much to learn from others, such as the Canadian system, which is more clear, cooperative, and certain. Unfortunately, the situation in U.S. has not improved over the past three years. In fact, regulatory complexity increasingly burdens companies and investors with expensive delays, onerous re-works, unnecessary duplication, and extended and costly legal wrangling. It is a fundamental tenet of good government, that leaders and policymakers provide a clear and certain pathway to regulatory compliance. We need that today as much as ever. Conclusion In the months and years ahead, energy policy will be at the center of public discussions and debate. It will be up to the leaders in our industry to tell the extraordinary story of how human ingenuity and innovation can transform the energy sector – and the world – for the better. We have achieved so much in the past decades. But with sound policies we can enable more investment, which will enable new technologies. With the ability to invest confidently and efficiently, we will find new ways to deliver energy in a way that is safe, secure, and reflects our highest ideals for individual opportunity, economic growth, and the wise stewardship of the environment – and, in doing so, we can sustain our quality of life and lift millions out of poverty. Thank you for your kind attention.