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Speech

Nov. 20, 2013

Innovation and the Evolution of Chemical Feedstocks

Stephen D Pryor

Stephen D. Pryor President, ExxonMobil Chemical Company

GPCA 8th Annual Forum
Dubai

Your Royal Highness, your Highness, your Excellencies, ladies and gentlemen. It is a pleasure to be back in Dubai for the annual forum of the Gulf Petrochemicals and Chemicals Association.

I look forward to talking with you today about innovation and chemical feedstock.

Chemical feedstock might sound like an esoteric topic to some. But as we here know, feedstocks from oil and natural gas are the raw materials for countless products that make modern life possible. They are the lifeblood of our industry.

Recently in the United States, we've gotten an unexpected transfusion – in the form of shale gas.

When this conference began eight years ago, shale was barely on the radar screen. Today, rapid growth in shale gas and gas liquids in North America has upended the global chemical industry.

Because of shale, North America has joined the Middle East as the world's low-cost producer of ethylene, the largest petrochemical building block.

U.S. chemical exports are at a record high. Nearly $100 billion of new chemical investments have been announced in the United States, much of it focused on exports. And shale's impact is flowing across a host of other energy-intensive industries, including refining.

Shale gas clearly is a game-changer. And it will continue to provide a source of advantaged energy and feedstock in the United States, and possibly other parts of the world.

But I think some perspective is in order.

Shale is not the first feedstock to shake up our industry, and it won't be the last. And although shale has rightly dominated our industry's headlines, it's not the only important trend underway right now in chemical feedstock.

My message today is that access to shale will not be enough on its own to sustain longterm success for chemical producers.

Let me explain.

Shale in perspective
Shale energy may rightly be called a revolution, but it actually is just the latest step in the ongoing evolution in the search for advantaged chemical feedstock.

That evolution goes back more than 100 years, from coke-gas processing in Germany at the start of the last century, to naphtha cracking developed by ExxonMobil in the 1940s, to ethane and LPG cracking in North America and the Middle East.

Unlike those chemical process breakthroughs, shale was an upstream innovation in natural gas production. But its impact on our industry has been just as profound. Growth in shale has created an abundance of our industry's principal feedstocks – namely, ethane, naphtha and LPG.

But as I mentioned, there are other feedstock trends impacting the global chemical industry. One is the growing shortfall of propylene and aromatic feeds produced by refineries as gasoline co-products.

While this shortfall reflects slowing gasoline demand, it also is related to shale production. U.S. refiners are using naphtha and other liquids from shale to make gasoline, thereby reducing crude runs and the associated output of chemical feeds.

Another refining trend impacting chemicals is the growing global demand for diesel fuel, which has reduced the pool of heavier refinery streams available for chemicals.

Taken together, these trends have driven chemical producers to seek out other feedstock options, such as stand-alone condensate refineries to produce aromatics, and dehydrogenation units to produce propylene and butylenes.

Other emerging feedstock trends include greater use of refinery liquids in the Middle East, coal-to-olefins technology in China, and the continuing search for economically viable bio-based feedstocks around the world.

The point is this. The feedstock landscape is always shifting, influenced by trends and innovations not only in our industry, but also in the upstream and refining sectors.

Each shift creates benefits for some chemical producers, and challenges for others. Companies like ExxonMobil Chemical, with operations around the globe, often find themselves on both sides of that equation.

The question is: How do chemical manufacturers succeed in this dynamic environment? And how can companies maintain a competitive edge when today's advantaged feedstocks, such as shale, eventually become commonplace or more costly?

ExxonMobil has learned that success requires sustained innovation across the value chain.

This means innovation in feedstock, innovation in manufacturing processes, and innovation in the products that create value for our customers.

I’ll address how ExxonMobil approaches each of these value chain links, starting with innovation in feedstock.

Advantaged feedstock
ExxonMobil is the largest natural gas producer in the United States. Our U.S. chemical operations have unmatched capacity to produce ethylene from light feeds, including ethane from shale.

But building competitive advantage is not only about access to low-cost ethane, which is widely available on the market.

Building competitive advantage is about how you manage feedstock molecules.

As an integrated company, ExxonMobil is constantly moving feedstock across our upstream, downstream and chemical operations to generate the most value from each molecule.

For example, in Europe, our Rotterdam aromatics plant has been designed to receive feedstock from nine ExxonMobil refineries and chemical plants. This pooling of feedstock supply, together with advanced technology, has enabled this plant to become the largest and one of the most profitable in the region.

Rotterdam is just one example of the benefits of ongoing collaboration with our refining and upstream partners. This enables us to coordinate feedstock and energy supplies, as well as share insights on markets and opportunities.

We see this collaboration as critical, because major feedstock decisions must consider the interplay between energy and chemical markets – both near term and over time.

Manufacturing processes
Let me now turn to the next link of the chemicals value chain: our manufacturing processes.

Innovation here starts with continuous improvement in the safety, reliability and environmental performance of our facilities.

This commitment to protecting people and the environment has been demonstrated by chemical companies around the world, including here in the Gulf, through the adoption of the Responsible Care management system.

Responsible Care also instills the discipline required to pursue process innovations that create value, such as energy efficiency, better yields and feedstock flexibility.

Flexibility to run the most attractive feedstock at any given time is more important than ever because of the transformative impacts of shale on chemical and energy markets. These impacts will continue to unfold as shale production and exports grow.

A breakthrough in Singapore
For ExxonMobil Chemical, feedstock flexibility remains a central element of our investment strategy.

For example, in the U.S. Gulf Coast, we have expanded our gas cracking capability while retaining our capacity to process refinery liquids.

We've also developed new technologies that raise the bar on feedstock flexibility.

A case in point is the new steam cracker at our Singapore refining and petrochemical complex. This world-scale unit can process an unprecedented range of feedstocks – including crude oil.

Converting crude directly into chemicals provides a cost advantage over naphtha feedstock, the industry standard in Asia. It also saves energy and reduces emissions by eliminating the refining steps required to produce naphtha.

Singapore is now our largest integrated chemical and refining complex in the world, with unique feedstock flexibility and a wide range of commodity and premium products. And proprietary technology has been the enabler of all of it.

Crude cracking is a first for our company, a first for the world, and yet another step in our industry's ongoing search for advantaged chemical feedstock.

Product innovation
Proprietary technology also provides a key competitive advantage in the third link of the chemical value chain: our products.

A good example is our joint venture with SABIC in Saudi Arabia, which is adding new specialty elastomers capacity at the Kemya petrochemical site in Al-Jubail.

This joint venture already has a successful commodity business in the Kingdom. Now it's adding high-value, premium products supported by proprietary technologies, such as ExxonMobil's halobutyl and metallocene EPDM. The facility will serve the automotive and construction sectors in local markets, the Middle East and Asia.

Building a specialty elastomers business will broaden Kemya's product portfolio. It will also supply the rubber-manufacturing sector being created through the Saudi national clusters development program. This program is designed to spur job creation, develop downstream manufacturing industries, and help diversify the national economy.

In Saudi Arabia as in the rest of the world, the chemical industry is critical to expanding opportunities for people and communities.

By sustaining innovation across the value chain ─ in feedstock, processes and products ─ companies can maintain a competitive edge no matter what changes may come to energy and feedstock markets.

While we don't know what changes are coming, we know they are coming.

The need for free trade
But for innovations to flourish and benefit the global economy, we need the free flow of technology, the free flow of investment, and the free flow of energy and chemical products.

What we don't need are tariffs and regulations that act as barriers to trade and investment.

We are, unfortunately, already living in an era of rising protectionism. A recent article in The Economist noted that at least 400 new protectionist measures have been enacted each year since 2009, and the trend is on the rise.

Within our industry, rapid growth of shale gas is stirring protectionist sentiment, even in regions with a long history of support for free trade.

That’s because as lower-cost U.S. petrochemical exports are ramped up, they will put pressure on local producers in Latin America, Asia and Europe – regions that rely on more expensive oil-based feedstocks.

Rising protectionism should concern not just U.S. chemical producers, but also those in the Middle East, whose production accounts for almost half of the region's non-oil exports.

While trade barriers might protect a select few, history has proven time and again that ultimately they raise prices, discourage investment, and restrict economic growth for everyone.

ExxonMobil is delivering this message right now in the United States, where some continue to advocate limiting American exports of liquefied natural gas (LNG) to protect domestic users.

Our industry must advocate for free trade under all circumstances so that energy, chemicals and innovation can flow around the world and continue to enable human progress.

Innovative and flexible
Let me wrap up by summarizing my main points on innovation and chemical feedstock.

Shale technology has given our industry a tremendous new source of energy and feedstock.

But shale is not our industry's first game-changer and it won't be the last.

And the idea that the shale feedstock advantage will always be so large overlooks the dynamic nature of energy and chemical markets.

For chemical companies to maintain a competitive advantage in this ever-changing environment, we must continuously innovate across the value chain ─ from our raw materials to our finished consumer products.

This concept would be familiar to Emirates Team New Zealand, who competed so admirably earlier this year in the America's Cup.

The catamarans in this year's race incorporated innovation literally from stem to stern.

They used carbon fiber and advanced resins that are far superior to traditional raw materials, as well as advances in design and construction. As a result, they achieved speeds three times greater than those of just a few years ago, while still being nimble enough to maneuver around San Francisco Bay.

By being flexible enough to navigate our industry's own shifting currents, by sustaining innovation and by supporting free trade, our industry can continue to create new products to benefit society, as well as jobs and economic opportunity for all.

Thank you for your kind attention.

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