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Speech

Dec. 14, 2011

Moving Down the Value Chain: Remaining Competitive While Improving Sustainability

Stephen D Pryor

Stephen Pryor President, ExxonMobil Chemical Company

Gulf Petrochemicals and Chemicals Association Forum
Dubai

Your Royal Highness, your Highness, your Excellencies, ladies and gentlemen. It is a pleasure to meet again with fellow members of the GPCA.  When I come to Dubai and see Burj Khalifa, the world's tallest building, soaring over the city, I am reminded how, over the years, people have climbed to new heights of achievement — what the poet John Greenleaf Whittier called "the steady gain of man."

And when we think about human progress, consider this:  Since we met last year, the world's population reached 7 billion. By 2040, it will have grown to nearly 9 billion. Over that same period, global GDP will double, and millions of people around the world will enjoy better living standards and better opportunities for themselves and their families.

How will we achieve this economic growth -- while safeguarding health, the environment and natural resources? The global chemical and petrochemical industry will continue to play a key role.

The United Nations recognized this when it designated 2011 as the International Year of Chemistry. To quote Irina Bokova, the director-general of UNESCO, "Chemistry is part of the answer to core challenges we face today -- questions of how we feed people, how to improve health, how to protect the environment and how to develop sustainably." 

Chemicals will help answer another important question:  How to meet the growing demand for energy while reducing the impact of energy use on the environment.  ExxonMobil's Outlook for Energy, published last week, sees the world's energy supply becoming less carbon-intensive. Chemicals are critical to that, providing everything from drilling fluids for cleaner-burning natural gas to lubricants for wind turbines and components for solar cells.

Using energy more efficiently will make an even larger contribution to sustainability, and chemicals are critical to that as well.  For example, the Outlook projects that by 2040, the fuel economy of new cars will be 75 percent better than today. Contributing to this improvement will be fuel-saving chemical products, including strong-but-lightweight plastics and composites; synthetic rubbers and lubricants; and battery components for hybrids and other advanced vehicles.

Sustainability may sound like a buzzword, but it remains a driving force in our industry. Our customers are demanding products that reduce environmental impact while improving performance and value.  And, increasingly, they expect sustainability benefits to extend across a product's life cycle, from raw material sourcing and manufacturing to final consumption and disposal.

To understand how prominent sustainability has become, consider that Apple's web site gives detailed information about the environmental impact of each of its products. For example, customers can learn that the latest iPhone will generate 70 kilograms of carbon dioxide equivalent over its life cycle.  It also uses 13 grams of plastic packaging, one-third less than the 2009 model.

Similarly, Walmart, the world’s largest retailer, asks its suppliers to complete a sustainability questionnaire covering their performance in 15 areas including emissions, waste reduction and water use. Walmart says its ultimate goal is to help develop a simple, easy-to-use rating for customers to assess the sustainability of its products.

What these two global leaders are saying is that they are committed to sustainability, and they want products that help reduce environmental impact over their life cycle.  For our industry, this means it's no longer just about what we make, but how we make it.

So, how can Middle East producers respond to this challenge and maintain their competitiveness?

The answer lies in improving the sustainability of both our products and the value chains we support. For individual companies, this means developing products that promote sustainability across their life cycles; manufacturing them in an environmentally responsible and cost effective manner; and marketing them to maximize their value to customers. And, as an industry, it means engaging with the public and policymakers to promote sound policies that support innovation, investment and growth.

So let's look at each of these dimensions of sustainability in more detail, starting with product development.

Developing sustainable products

Our industry has a long history of innovation. In fact, modern chemistry can trace its roots to an 8th century scientist in the Middle East. Jābir ibn Hayyān, considered by many to be the father of modern chemistry, discovered many important substances and processes.  He also was the first to apply the rigorous, quantitative methods that would become the foundation of chemical research. 

Over the past century, this spirit of innovation has delivered thousands of chemical products that touch nearly every aspect of modern life, while saving energy and resources.

But today, the demand for more sustainable products is accelerating. Meeting this demand will require an unwavering focus on innovation and sustained investment in technology through the ups and downs of the business cycle.  And, to maximize long-term returns on that investment, technology goals must be driven by business objectives that reflect the evolving needs of the industries we serve.

At ExxonMobil, this long-term approach to product development has improved the sustainability of our entire product portfolio – both commodities and specialties. I want to emphasize that promoting sustainability is not just about searching for breakthroughs. While breakthrough products are important, the biggest gains in sustainability will come from improving the products in widespread use today.

Take, for example, polyethylene, a high-volume commodity petrochemical. ExxonMobil's polyethylene innovations have enabled customers to make heavy-duty shipping bags thinner by two percent per year for the last 20 years while also improving product strength and ease of processing.  This decrease in material use benefits the entire value chain -- by reducing packaging weight, shipping costs, energy consumption, emissions and waste. And today, our newest premium grade, Enable™, allows film customers to use 20 to 30 percent less packaging material than with conventional grades, while also reducing processing costs. As a result, Enable™ is achieving rapid market penetration despite the recent sluggishness in overall polyethylene demand.  

This example illustrates how disciplined product development delivers big gains in sustainability over time. It also shows why a commitment to sustainability is good business.

Delivering sustainable products sustainably

Let me now turn to the second dimension of the sustainability challenge, which is manufacturing. To promote sustainability, products must be manufactured in an environmentally responsible manner -- minimizing the use of energy and other resources while reducing the impact on the environment and surrounding communities.

I would like to share how ExxonMobil meets this critical responsibility. We have a corporate-wide framework aimed at delivering environmental excellence and eliminating high-impact incidents. As part of this framework — which we call "Protect Tomorrow, Today" -- each of our manufacturing sites incorporates multi-year environmental objectives into its overall business plan.  Site managers track progress in key indicators, such as energy efficiency, emissions and permit compliance -- and are held accountable for results.  And I can tell you that this approach really works.  

For example, over the past several years, energy efficiency at ExxonMobil's chemical and refining operations has improved two to three times faster than the industry average.  This in turn has driven a five-percent reduction in carbon dioxide emissions per unit of production over the past five years. And it has reduced energy costs.

This leads me to the other requirement for sustainable manufacturing; it must be cost-competitive. From ExxonMobil’s perspective, cost-competitiveness is best achieved when commodity and specialty products are jointly produced at world-scale facilities integrated with refining or gas processing. Integration enables us to optimize feedstocks, products, costs, capital and people across the entire complex. 

Marketing Sustainable Products

Yet success goes beyond what we do in our research labs and manufacturing sites.

To promote sustainability, companies must do more than develop and manufacture better products. They must create a market for them. This means demonstrating to customers how these products save energy, reduce raw material use and mitigate environmental impact. To do this requires a strong sales and technical support organization with deep industry expertise.

This is what ExxonMobil is doing in Shanghai, where we recently opened a state-of-the-art technology center to support premium product growth in Asia. Working closely with our customers also generates insights that guide future product development.

So, in summary, promoting sustainability along the value chain involves three business functions: product development, manufacturing and marketing.  All three must be aligned and effective to deliver competitive returns to shareholders.

These principles are being applied at KEMYA, the joint venture of SABIC and ExxonMobil in Saudi Arabia. KEMYA has been a pioneer of the Middle East petrochemical industry and a highly efficient producer of polyethylene for more than 25 years.

KEMYA is progressing an expansion in support of the Kingdom’s industrialization strategy. The project would add 400,000 tons per year of world-scale capacity to produce butyl rubber, ethylene elastomers and other specialty polymers for the auto industry. In addition, training and product support centers are being established to facilitate creation of a modern rubber-conversion industry in the Kingdom.

This project will take KEMYA further down the value chain by converting commodity petrochemicals to sustainable specialty products. It will enhance KEMYA's position as a world-class competitor. And it demonstrates how international partnerships can create value and support the region’s industrialization objectives.

The need for engagement

What I have described so far is how chemical companies can develop, manufacture and market sustainable products that support economic growth with reduced environmental impact. It is a critical mission. But to carry it out successfully, we must build public confidence and foster a constructive regulatory environment. Failure to do so invites excessive regulation and unwarranted calls for bans on our products.

For example, consider REACH (Registration, Evaluation, Authorization and Restriction of Chemicals), Europe's chemical regulatory framework that requires manufacturers to provide extensive information about the environmental and health impacts of their products. Our industry is in the process of implementing this 10-year, $10 billion dollar program.  Yet this has not stopped calls for immediate substitution of chemical products, even before the scientific evaluations required by REACH are complete.

So how can we strengthen public confidence in our industry? The foundation must be a commitment to safe products and operations.    

We demonstrate our commitment to operational excellence through Responsible Care®. This flagship program of the global chemical industry drives ongoing improvements in health, safety and environmental performance within chemical facilities and along their supply chains. By deciding to implement Responsible Care® in the Gulf region, GPCA members have taken an important step in their commitment to sustainability.

Transparency is another important element in building public confidence. American Chemistry Council members promote transparency by implementing the Global Product Strategy.  This is a voluntary program with the United Nations which provides public information on the safe use of chemicals. ACC members have posted online more than 1,500 product safety summaries and have committed to complete this process for all high-priority chemicals by the end of 2012.

ExxonMobil brings our commitment to Responsible Care® and transparency together in the Corporate Citizenship Report.  Each year, this report details our performance in safety, health and the environment. It also covers corporate governance, economic development, community engagement, human rights and managing climate change risks.  We seek third-party input on each report to help refine the next one.

The bottom line is our industry needs to be engaged.  We need to raise awareness of the central role modern chemistry plays in raising living standards and promoting sustainable development.  We must also advocate policies and regulations based on sound science and real-world exposures to chemical products. This means that at times, we must communicate the hard truths to policy makers about the cost of ill-informed government interventions – in terms of weakened growth, lost jobs, unmitigated risks and foregone revenues.

The Kingdom of Saudi Arabia recognized the importance of public policy when it established the King Abdullah Petroleum Studies and Research Center. One of the objectives of this center is to develop world-class policy solutions to advance the Kingdom’s role as a premier and environmentally responsible supplier of energy. 

Similarly, the chemical industry must continue to work together to address our major policy issues, such as sustainability, product safety and — an issue we highlighted at last year's conference -- free trade.

Down and Up the Value Chain

Let me conclude my remarks by reiterating our industry's vital role in sustainable development – providing products that enhance the quality of life and reduce environmental impact. In the past, we have not described our contribution as promoting sustainability, but that is, in fact, what we have done.

Middle East producers have played an important role in this achievement by building a modern and competitive petrochemical industry.  To maintain the region’s leading position in the years ahead, a multi-dimensional approach is required — one that considers not just the products we make, but how we make them and how we engage with customers, policymakers and the public.

Because in effect, as we move down the value chain to produce more sustainable products, our customers -- and the public — are increasingly looking up the value chain at how we do it. It’s a two-way street. And that’s what sustainability is all about.  It’s about making the entire value chain more efficient, more effective, more transparent — and with less environmental impact.

By rising to this challenge, modern chemistry will be recognized not just as part of a “value chain,” but a vital link in the search for sustainable solutions -- enabling billions of people to improve the quality of their lives and achieve new levels of prosperity.

Thank you.