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Speech

Dec. 6, 2011

Improving Economic Performance: Roles, Responsibilities, and Opportunities

Rex W Tillerson

Rex Tillerson Chairman and Chief Executive Officer

20th World Petroleum Congress
Doha, Qatar

Thank you, Dr. Al Sada.

Your Excellencies, distinguished guests, honored friends and valued colleagues.

It has been three years since we last met. The 19th WPC took place at the beginning of what rapidly became clear were momentous and difficult events in the global economy.

In 2008, the world ended a period of strong growth as it began to face the initial impacts of the global financial crisis. At the same time, energy markets reflected significant volatility as global demand weakened. World leaders sought to mitigate the effects of significant stress in the financial sector and minimize the worldwide slowdown in economic activity.

Yet, hopes for a quick and robust recovery in many nations have not been realized. In 2011, we continue to see significant economic challenges in many parts of the world, as governments and international institutions seek to address high unemployment, low growth, and public debt.

In the face of these challenges, however, I would like to discuss why I believe there are reasons to be cautiously optimistic that strong global economic recovery and growth will return — if industry, governments, and society at large focus on fulfilling our respective roles and meeting our respective responsibilities.

It is against this backdrop, and in this context, that I will touch on Qatar’s role in the energy landscape of the future.

By understanding our strengths and proper roles in economic expansion, we can clarify our policy choices, fulfill our core responsibilities, and open up economic opportunities for the decades to come.

Example of Qatar

It is fitting that we meet in Doha as we take up these fundamental questions about the proper roles of industry and government.

Here we are reminded of what the energy industry can achieve when visionary leaders of government establish sound energy policies and enable international partners to work, invest, and innovate together.

In just over a decade, Qatar has risen to become the world’s leading supplier of liquefied natural gas. In the process, the nation has unleashed its own economic growth, supported innovation, spurred job creation, and strengthened the energy diversity that allows free markets to maximize the value of national resources for producers and consumers.

In striking contrast to the expectation of some in the world of the energy wealth curse, Qatar has become a beacon of energy prosperity.

The Energy Outlook: Reasons for Optimism

As we consider the global economic challenges at hand, there are reasons for optimism — reasons rooted in a clear view of the long-term outlook for economic development and progress. From ExxonMobil’s perspective, we see an encouraging story of long-term economic growth coming in the decades ahead.

Despite today’s challenges, significant population growth, new technologies, and transformative economic opportunities — particularly in the developing world — will combine to drive economic expansion and rising standards of living.

It was only a few weeks ago that the world noted a significant global milestone when the global population surpassed 7 billion people. By the year 2040, experts project that the global population will grow close to 25 percent — reaching nearly 8.7 billion people. Not only will populations grow, but expanding trade and technology will unleash new possibilities for global markets.

We project that economies in OECD countries will grow by about 2 percent per year on average as nations seek to address the economic needs of their growing populations. And developing economies will grow much faster — at close to 4.5 percent a year. And while these growth rates may seem modest on an annual basis, the reality is that the global economy will more than double in size between now and the year 2040.

Taken together, these two expectations — the significant expansion of economic output and billions of men, women, and children who need access to energy — will mean that global energy demand will be more than 30 percent higher in the year 2040 than today. This need for energy is not a reason for despair, but a sign of what will help enable progress for all.

This clear recognition of the transformative growth ahead provides us with insights into the nature of the energy challenges confronting leaders in both politics and business in the years ahead.

The first and most fundamental insight is the need to recognize the moral imperative behind humanity’s need for energy.

In developed economies, we project that energy use will remain essentially flat, even as these countries achieve economic growth and even higher standards of living. In contrast, energy demand from developing economies will grow by close to 60 percent.

For developing economies, therefore, the delivery of new supplies of energy will be the bridge to a better future — providing hospitals, schools, better sanitation, cleaner water, technological advancement, and improved infrastructure for transportation and trade.

Keeping this in mind leads us to another fundamental insight: The world will need to invest in and develop all economically competitive sources of energy if we are to meet projected demand.

But meeting these future energy needs will fall most heavily on those represented here at the World Petroleum Congress. We project that oil and natural gas will continue to provide nearly 60 percent of the energy used in the global economy.

In fact, in looking out to the year 2040, we see the next major evolution in energy use. Oil will remain the most widely used fuel, but we expect natural gas will grow fast enough to overtake coal for the number two position. Demand for natural gas will rise by more than 60 percent over the next 30 years.

The single biggest driver of demand over the next three decades will be the need for energy to generate power — a sign in itself of increased global prosperity as more consumers and businesses have access to a secure and reliable electricity supply.

By 2040, the fuels used to generate electricity will account for more than 40 percent of global energy consumption. Natural gas has already proven itself to be a safe, reliable, affordable, and efficient means of power generation, and it will continue to grow in importance in this sector.

Qatar has responded to the world’s appetite for natural gas, attracting foreign investment, along with that of Qatar Petroleum, totaling more than $120 billion to develop in excess of five million barrels of oil equivalent per day of new energy supplies to markets the world over.

Expert projections suggest that as our industry brings energy to global markets in the years ahead, we will also see growing efficiency and reduced environmental impacts.

Although we project energy demand will be about 30 percent higher, growth in energy use would need to be four times that amount to enable the same economic progress were it not for the anticipated gains in energy efficiency. More efficient energy use will result from ongoing improvements in technology, better energy management, and stimulated by market fundamentals.

In addition, our projections indicate that as economies develop and advance, energy demand moderates because of energy efficiency gains.  This is a reason for optimism — and a reminder of the importance of investment and innovation needed to continue to drive energy efficiency gains. 

Roles and Responsibilities: Industry

This optimistic outlook, however, is not guaranteed. And in the current economic climate, the need to make the right policy choices is critical. We must begin by understanding the roles and responsibilities of industry and of government.

For industry, we have a responsibility to unlock and deliver the new supplies of energy in a safe, secure, and environmentally responsible way.

As part of this responsibility, we must engage in effective risk management. We must engage in long-term planning, undeterred by the episodic up and downs of regional and global economic performance. We must invest with discipline and ingenuity. And we must focus relentlessly on our operational integrity and best practices — to protect our employees and the communities where we operate.

Fortunately, our track record as an industry shows that not only can we fulfill these responsibilities, but we can do so in a manner that generates new economic opportunities for host nations and maximizes value for consumers and shareholders.

One of the most effective ways we do this is by building international partnerships that leverage our strengths.

For instance, over the years, National Oil Companies have demonstrated a wide range of capabilities as strong partners in energy development, including secure access to resources, detailed experience operating in specific environments, and a firsthand understanding of the local and national governments’ regulations and requirements. These strengths are augmented by the educational and cultural leadership that NOCs bring to their people as they pass on new skills and create new employment opportunities.

Our industry is further strengthened by the contributions of the International Oil Companies.

IOCs have an unparalleled breadth and depth of experience taking on energy challenges around the world, across a wide range of conditions developing new approaches and best practices that can be brought to new partnerships and new countries.

We invest in large-scale capital projects, develop new technologies, and use our global perspective to maximize value along the entire energy value chain.

IOCs have pioneered exploration and production in some of the world’s most remote, most difficult environments. And we’ve done so in response to strong competitive forces that require us to operate with integrity at all times. Improving our operational expertise and developing and implementing best practices is a must in our business. Without continuous improvement, we can lose our competitive edge — and our ability to create higher value — and face the prospect of falling behind.

As we look at the energy needs in the decades ahead, it will take our entire industry combining these strengths to meet growing energy demand. We will need access and knowledge, technology and expertise, project excellence and operational integrity, to deliver reliable and affordable energy to the billions of people who need it.

Nowhere is the success of NOC/IOC partnerships more evident than here in Qatar where Qatar Petroleum has partnered not only with ExxonMobil and Shell, but with more than a dozen other IOCs and petrochemical manufacturers. All of these joint venture collaborations have delivered important benefits to the people of Qatar, the foreign investors and their shareholders, and to people the world over with new, reliable energy supplies.

Roles and Responsibilities: Government

The good news is that our industry has proven time and time again that we have the ability to innovate and cooperate when taking on the risks and uncertainty associated with unlocking new supplies of energy. But to do this most effectively, we need governments to do their part as well.

The energy and economic challenges the world will face in the decades to come require a business and policy climate that enables investment, innovation, and international cooperation. Here is where sound policies and government leadership are so critical.

When governments perform their roles effectively, the results are extraordinary — bringing enormous benefits in terms of investment, social and economic growth, and job creation. Benefits that go beyond empty promises of a better future for their citizens, but put the essential elements in place to deliver that better future — education and adequate healthcare.

One need look no further than the State of Qatar as a leading example. The enormous investments made through the vision of His Highness the Emir in Education City, the Qatar Science & Technology Park, and the new medical and healthcare facilities that we see rising from the ground.

Our industry especially respects the role that only government can play in determining the rules and framework to enable and stimulate competition. Because we are a global industry, we can see that principles do work, those that work and which of them should underpin energy policymaking.

Simply put, history proves that energy policies that are efficient and market-based are the best path to economic growth and technological progress.

By promoting the rule of law and the sanctity of contracts, government helps attract, increase, and sustain capital flows so that they are directed to their highest and most efficient use.

Governments and their leaders must make clear and set high standards of ethical conduct for all participants — industry, government employees and their citizens. The leaders of Qatar have held all of us who participate in developments in Qatar to such high standards.

Government also has a responsibility to provide a stable and fair legal, tax, and regulatory framework. Uncertainty undermines the long-range thinking, investment decisions, and mutually beneficial partnerships that allow our industry to excel. Our industry thinks in terms of decades, not years. To do so successfully, we need the confidence that the rules of the game will not be changed or altered haphazardly.

Government has a role that industry cannot replicate or replace. Only governments can open — and keep open — the doors to international trade and cooperation between nations.

The more energy policies promote free trade and the free flow of goods, services, and expertise, the more they can help maximize the value of energy resources for all.

Finally, energy developments are most effective when there is a level playing field for all participants. By allowing people, ideas, and industry to come together in innovative, competitive ways for long-term projects, citizens and consumers benefit from the fairness and transparency of free markets.

Role and Responsibilities: Society

There is one final area in which we must work to meet the economic and energy challenges of the future: society at large.

Citizens and consumers need to understand the importance of energy, the vital role it plays in economic and social development, and the pillars of sound policy that support responsible energy development and use.
The debates and discussions in society at large need to be informed by the facts and fundamental realities of the challenges before us.

We must work to build energy literacy among citizens and consumers – and we must reach out to promote energy efficiency and a deeper understanding of the policies that hold the greatest potential to help us meet our shared aspirations.

People around the world understand the need for the wise consumption of energy and the need for environmental stewardship. We must do our part to work with them to assure energy development and use is safe, efficient, and responsible, wherever we operate.

Conclusion

Our current economic challenges will not last forever. There is reason for optimism.

But it is more important than ever that we swiftly take on those challenges with a sound and principled response.

So I return to the theme of this keynote session — Qatar’s role in the energy landscape of the future. That role, in my view, is to continue to set an example for other resource owners, foster development of your energy supplies to meet the world’s growing needs and foster those developments in strong partnerships with a clear vision of the standards of ethical conduct that will ensure the ultimate beneficiaries will be the citizens whose lives and futures will be made much brighter.

If we meet our roles and responsibilities together, government and the energy industry — along with citizens and consumers at large – can lay the foundation for sustained economic growth — by providing reliable, affordable energy in a safe, secure, and environmentally responsible way.

For millions of people, this will mean new jobs and new opportunities in the years ahead. For governments, sound, long-term policies will mean increased revenues and greater prosperity. And for the billions yet to be born, an energy industry able to operate in a climate of investment and mutual cooperation will mean a brighter future and a better life for all.

I thank you for your kind attention.