Speech Nov. 21, 2011 Taking on Great Questions: Expanding the Frontiers of Saudi Leadership Rex W. Tillerson Chairman and Chief Executive Officer KAPSARC Lunch Keynote Riyadh, Saudi Arabia Excellencies, distinguished guests and valued friends. It is an honor to join you for this inaugural dialogue of the new King Abdullah Petroleum Studies and Research Center. As I look around this room and see the leaders and thinkers gathered here, it affirms my belief that the vision and founding principles of KAPSARC will ensure this inaugural dialogue contributes to the long history of consequential energy policy discussions that have taken place here in Saudi Arabia. Let me begin by offering my congratulations to His Majesty the Custodian of the Two Holy Mosques, King Abdullah for his vision and leadership in the establishment of this Research Center. KAPSARC is the latest in a series of farsighted initiatives directed by His Majesty. KAPSARC joins the “house of wisdom” that is the King Abdullah University of Science and Technology [KAUST], and it will stand close to another outstanding site of educational progress, the Princess Noura bint Abdul Rahman University. In this constellation of educational institutions, KAPSARC will be a beacon of energy policy research, open communication, and policy formation — helping to bring a focus on hard truths and realistic solutions. This morning, my colleague and counterpart at Saudi Aramco, Khalid Al-Falih, has presented the landscape around which KAPSARC begins its work. I want to discuss why I believe this research center will expand the frontiers of Saudi leadership and why this leadership will be important to the Kingdom — and the world. An Expanded Frontier of Leadership From the perspective of an international energy company with extensive operations and experience around the world, it is clear that few policy institutes or research centers have been launched with a more defined sense of mission, with a better focus on encouraging intellectual achievement, or with a stronger dedication to a realistic examination of the energy issues that will shape the future. Simply put, with the founding of KAPSARC, Saudi Arabia will have a research center working in the realm of ideas that will extend and deepen the Kingdom’s decades-long leadership in global energy markets. The world needs voices who understand the forces that shape markets — and are willing to explain them to the policymakers and the public. For more than half a century the energy policies of the Kingdom of Saudi Arabia have been instrumental to global progress. Over that time, the world has undergone extraordinary and unparalleled economic growth and transformation — and our industry has adapted to keep pace with these developments. The Kingdom, too, has innovated and adapted to meet these new and changing global demands — in the course of which, it has risen from a position of global importance in energy production to leadership in chemical, fertilizer, and now aluminum manufacturing, as well as in international energy ventures. Along with this experience, the leaders in government and industry in the Kingdom have demonstrated an in-depth understanding of the world’s fundamental need for energy — and the vision, long-term planning, disciplined investment, technological innovation, and project management that are required to deliver that energy in a safe, secure, and environmentally responsible way. The vision and principles guiding KAPSARC will help take this practical experience in energy markets and put them into action. This will help customers and policymakers around the world better understand the imperative of finding new supplies of energy and developing them with innovative technologies. Through collaborative research and exchange of ideas, KAPSARC will provide a special place to formulate and shape innovative policy in the Kingdom. And because sound national energy policies benefit not just nations, but the entire global energy market, KAPSARC’s work will contribute to progress and opportunity around the world. Importance of Energy Policies There has never been a more important moment for KAPSARC’s mission to honestly assess energy policy. Energy consumers and government policymakers require a better understanding of our multiple energy challenges — and the enormous growth in demand that is re-shaping global markets. Our experience at ExxonMobil shows that energy policymaking is most effective in meeting national goals when it is driven by rigorous analysis and practical realities. And, at times, this means we must communicate the hard truths to policymakers about the costs of ill-informed or ill-advised government interventions — in terms of weakened growth, lost jobs, un-mitigated risks, and foregone revenues. To this end, each year we publish and distribute ExxonMobil’s Outlook for Energy. In our Outlook, we examine how energy is consumed, how supply-and-demand trends are shaping markets and what the future might hold for all nations aspiring to growth and progress. We use this Outlook to guide our own planning and investments. And we communicate this primary information on market dynamics to the public to inform and contribute to the global energy dialogue. Our experience is that the more policymakers and the public openly discuss and understand the fundamental human need for energy and the tremendous demand growth in the decades ahead, the better the chances are for the establishment of farsighted and effective energy policies. KAPSARC with its commitment to openness and transparency will be a strong contributor to this discussion and to the formulation of sound policies. We can see it in the important questions being addressed and the willingness to pursue solutions wherever the evidence leads. In framing this institution’s mission, His Majesty, King Abdullah made clear that its researchers will be driven by a central question: How can Saudi Arabia optimize the value of its energy resource base in an environmentally responsible manner? As part of this mission, KAPSARC’s research programs will explore issues and concerns that ought to be part of every energy discussion in every nation. The researchers will examine domestic energy and economic development, energy efficiency and productivity, technology and environmental stewardship. These topics provide the starting point for deeper questions — questions worthy of sustained thought and discussion: For instance, how will the world meet the humanitarian imperative to unlock new supplies of energy so the needs of developed and emerging economies can be sustained? According to our projections, by the year 2040, the world’s population will reach nearly 8.7 billion people, economic output will double and global energy demand will be more than 30 percent higher than in 2010. We believe this transformative growth will require us to develop all sources of energy, wherever they are economically competitive. Another critical question that will be asked by KAPSARC researchers is: How can we increase energy efficiency and productivity to provide an additional “source” of energy? Increasing energy efficiency is not a luxury. It is a necessity. Without the gains in energy efficiency that are projected for the next three decades, the increase in energy consumption, and therefore supply, will need to be four times higher to enable the same level of economic progress. One final and primary question that flows from KAPSARC’s core mission is: How can we fully assess the costs and benefits of different sources of energy and pursue promising technological advances, so that we maximize value, while minimizing environmental impacts? To reach our shared aspirations for the economy and the environment, it means we must recognize the integral role of technology in helping us increase safety, mitigate risks and reduce emissions. But it is a hard truth that technological advancement and certainly the rate of technological advancement is not guaranteed. Innovation depends on sustained investment and human ingenuity. This means we must recognize the special roles and responsibilities of both industry and government in creating a business climate supportive of both. The questions KAPSARC will ask are the great questions of our time — for all peoples. It is no exaggeration to say that how society answers these difficult questions will determine the health, opportunities, prosperity, and quality of life of billions of people around the world. Therefore, I commend all those who dare to ask these fundamental questions because they demand wisdom, intelligence, and common sense. Addressing them requires of those engaged, the personal integrity to seek facts, acknowledge the limits of our knowledge and, therefore, the uncertainties that are a part of the courage to embrace hard truths. In the public arena, it requires an additional virtue: boldness. It is not enough to understand where the evidence leads — we must boldly and confidently seek to engage others and present the hard truths that lead to the most promising energy solutions. KAPSARC, because of the vision and the support behind it, is uniquely positioned to exemplify these virtues. ExxonMobil Learnings Experience has shown that successful engagement on these great energy questions in the public policy realm depends on several factors. Successful engagement requires a patient, long-term focus. It takes time to build relationships with government leaders, businesses, and opinion makers in order to listen, promote ideas, address concerns, and work for final implementation of the best policies. Effective engagement also demands consistency. The quality of research and analysis must be thorough, reliable, and measurable. Leaders in both government and the private sector, along with those who shape public opinion need to hear clear, honest, and truthful messages from our industry, backed by data and metrics. Most important, engagement efforts should affirm the guiding principles that lead to the most competitive and effective energy policies. I respectfully share with you ExxonMobil’s own view of these key principles. Guiding Principles First, economic growth and technological competitiveness are strongest when energy policies are efficient and market-based. The energy challenges the world faces require a business climate that encourages and enables investment, innovation, and cooperation. This means governments play a crucial role in the energy industry’s ability to expand supplies of energy and increase efficiency in a safe and environmentally responsible way. Governments that promote the rule of law and the sanctity of contracts attract capital flows that help direct national and international resources to their highest and most efficient use. Sound energy policies that provide a stable and fair legal, tax, and regulatory framework encourage the long-range thinking, investment decisions, and mutually beneficial partnerships that allow the industry to excel. As long-term investors in Saudi Arabia, we can confirm that the Kingdom has proven to be a reliable partner in this regard. Another key principle: Energy policies that open the doors to international trade and cooperation aid technological innovation and national competitiveness. Finally, we have found that energy policies that maintain a level playing field for all participants allow people, ideas, and industry to come together in innovative, productive and competitive ways for long-term and visionary projects. Such core principles for policy formulation will aid KAPSARC in its mission to explore new ways to optimize the Kingdom’s energy resources to meet domestic and export needs — and in doing so, foster economic development, while protecting the environment for future generations. Conclusion Few nations in the world better understand the universal need for energy than the Kingdom of Saudi Arabia. With the launch of KAPSARC, the world gains a research center that can analyze and honestly assess energy policies. This will allow the Kingdom of Saudi Arabia to adapt to the needs of the future as well as play a valuable role in shaping a global energy policy debate focused on realistic, market-driven solutions. The intellectual environment being promoted by KAPSARC will allow its researchers to make an extraordinary contribution to our understanding of the challenges, the hard truths, and the true opportunities in the energy sector. I am confident that the government of Saudi Arabia under the wise leadership of His Majesty King Abdullah will use those insights to establish policies that will help maintain the Kingdom’s economic competitiveness and energy leadership for decades to come. Thank you for your kind attention.