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June 5, 2012

Enabling Economic and Environmental Progress: The Role of Natural Gas

Rex W Tillerson

Rex W. Tillerson Chairman and Chief Executive Officer

World Gas Conference
Kuala Lumpur, Malaysia

It is a pleasure to once again be in Malaysia and here in the city of Kuala Lumpur.

ExxonMobil is grateful for our long and valued relationship with the people and the government of Malaysia. It is appropriate that the 25th World Gas Conference should convene here — where, for more than 40 years, energy has played an essential role in economic growth, opportunity, and trade.

Malaysia has been a reliable supplier of new sources of energy to nations across the Asia-Pacific region and, in the process, this trade in energy has created jobs, raised living standards, and brought progress to millions of people.

The theme of this year’s conference is the role of natural gas in sustaining future economic growth. I look forward to discussing this question because, thanks to technological innovations pioneered by the energy industry, and the visionary leadership of resource-owning nations such as Malaysia, natural gas holds tremendous potential to transform the global economy.

We are living at a historic moment in the evolution of energy markets. How we respond to this moment of opportunity will shape the quality of life for generations to come.

Natural gas is quickly becoming a key enabler of economic growth and environmental progress the world over. But to secure the full potential of natural gas in the decades ahead, our industry must continue to invest, innovate, and create new partnerships to meet rising energy demand. In this effort, both industry and government must learn from past successes and setbacks, and we must each fulfill our respective roles and responsibilities within a legal and policy framework that encourages long-term relationships, long-term investments, and long-term technological progress.

With these principles in place, we can each do our part to develop natural gas in a safe, efficient, and responsible way — for the economic and environmental benefit of every nation.

Historic Energy Moment

To understand the historic changes taking place in global energy markets, it is useful to recognize the significant progress resulting from our industry’s sustained substantial capital investments and innovation.

New technologies are unlocking new sources of energy as never before. Sources of oil and natural gas once dismissed as “uneconomic” or “inaccessible” are rapidly becoming reliable, affordable, and environmentally responsible contributors to the global-energy portfolio.

In the oil sector over just the past few decades, significant investment and ingenuity have created technologies that have enabled our industry to recover oil from thousands of meters below sea level, develop billions of barrels of oil from oil sands, and ways to enhance the productivity of existing fields like the Tapis development off the coast of Malaysia.

In the natural gas sector, this same pattern of investment, innovation, and partnership is enabling us to unlock new supplies and transform the global economy.

It can be seen in the evolutionary changes to the liquefied natural gas trade. In recent decades, LNG has achieved an entirely new scale of prominence as industry innovations and new technologies have expanded and economized every link in the supply chain — from large scale liquefaction, to larger, more efficient transport, to regasification terminals onshore and offshore.

The success of the state of Qatar in developing its natural gas resources and bringing them to market epitomizes this transformation.

ExxonMobil is among those who worked with Qatar’s industry-leading partners to pioneer new technologies that enable the large-scale production and transportation of liquefied natural gas. These high-impact technologies now include advanced LNG trains, world-class LNG carriers, and the first offshore LNG-receiving terminal. Yet these developments would not have been possible without Qatari long-term vision, massive industry investment, and — most importantly — a strong and sustained partnership based on mutual respect and mutual benefit.

Combined with the exports of Malaysia, Indonesia, and Australia, in just over a decade the world has witnessed the rise of LNG as a critical element in the economic growth and energy security of nations from Asia to Europe.

The same vision that has enabled LNG to become a growing mainstay of the global natural gas market is now required to enable unconventional natural gas resources to meet demand in global markets.

Technology plays a pivotal role in commercializing unconventional gas, just as it did with LNG. By integrating and refining the proven technologies of hydraulic fracturing, horizontal drilling, and new completion technologies in safe and innovative ways, our industry is able to unlock supplies of natural gas once deemed too economically challenged to develop.

To date, North America has been the proving ground for unconventional gas development — and the results have been nothing short of stunning, confirming the enormous potential of this resource. In the United States, ExxonMobil’s subsidiary XTO and others in our industry are safely and successfully developing the shale formations to which access has been provided.With greater access to more acreage, our industry will have the capability to recover enough unconventional natural gas to power the U.S. economy — and Canada’s — for close to a century.

And this is just the beginning.

As the men and women in this room know, we have yet to fully apply these breakthrough technologies to nations outside North America. In fact, government and industry are still assessing the size of the global endowment of unconventional natural gas — from basins of shale gas and coal-bed methane to tight gas and methane hydrates. Here in Asia, there are promising formations that await detailed study in nations across the continent. There are also potential areas for development outside Asia — in Latin America, Northern Africa, and Europe.

According to our projections, over the next three decades, while natural gas supplies from conventional sources will remain the majority of production, unconventionals are likely to grow by more than 400 percent.

To put the rise of natural gas in perspective: By the year 2025, we expect natural gas to overtake coal as the second most significant contributor behind oil in meeting global energy needs.

The Growing Need for Natural Gas

The growth of natural gas is a positive development for the global economy and environment. For Asia in particular, it will provide tremendous benefits for the people and the environment of the world’s most dynamically growing region.

As we look to the future, it is clear that our industry faces tremendous challenges. The world will need reliable and affordable supplies of energy on a scale unprecedented in human history. Expanded economic output and nearly 2 billion new consumers by 2040 will mean that global energy demand will likely grow by more than 30 percent. This 30 percent increase by 2040 is more than the current energy demand of Russia, India, and all the nations of Africa, Latin America, the Middle East, and the Caspian region — combined.

For the Asia-Pacific region, the need for energy will be even greater, because populations will grow and economies will expand at a much faster rate than in many other parts of the world. In our view, Asia’s economy is likely to triple in size by 2040, and energy demand is projected to grow close to 50 percent.

In particular, the Asia-Pacific region has emerged as a strong demand center for both power generation and petrochemicals. Abundant and affordable supplies of natural gas can help meet these needs, providing the electricity, and chemical feedstocks that facilitate the achievement of higher living standards and industrial competitiveness.

The historic shift to natural gas will carry not just economic benefits; it will also provide environmental benefits. Natural gas is cleaner burning than other major, carbon-intensive energy sources, which will help us meet our shared goals for reduced emissions and environmental stewardship.

For cities throughout Asia, the increasing use of natural gas in power generation will mean cleaner air and cleaner water for millions of citizens.

Turning Vision into Reality

Of course, to capture these benefits we must continue to expand natural gas supplies.

Some market analysts, focused on the short-term and on current prices, worry about oversupply. Some even see an expanding LNG trade as a concern. But for those of us focused on the long term, our concern is making certain the global economy has reliable and affordable supplies of energy for the robust growth in demand ahead. Global demand for natural gas for power generation, as well as other applications, is on a significant upward climb. Meeting this demand with new supplies will be a continuing challenge.

To meet this challenge, our industry must invest, innovate, and form partnerships that turn vision into reality. We must work to develop and deploy the technologies and capital projects that create flexible and reliable markets — markets built to harness both conventional and unconventional supply sources as well as the LNG trade.

Developing unconventional sources around the world will require us to think and work with long-term vision. Here in Asia, we must confirm the size of the endowment and build a policy pathway that that ensures resources are developed in a safe, economically competitive, and environmentally responsible way.

Our future success will depend not only on geologic conditions and technological innovations, but on appropriate government policies, effective business partnerships, and disciplined investment.

Fortunately, as government and industry leaders consider the growing importance of natural gas and the need for its development, they can study and learn from the successes and shortcomings of the North American experience.

An important learning from the rapid development in North America is the importance of open communication with government leaders at all levels as well as local communities.

Government and industry have a responsibility to ensure we deliver the environmental benefits of natural gas with an unwavering commitment to the integrity of operations at every wellhead and gathering system. Working with government officials, to study the land and environmental impacts where we drill, we design and build wells with safeguards in place to protect groundwater, and we employ rigorous personnel training and management systems to monitor and maintain wells after drilling is complete.

Ultimately, we recognize that effective standards and our industry’s commitment to operational integrity, excellence, and accountability are the pillars of responsible development.

In this shared effort, governments play an indispensible role in helping set effective standards. But governments must be prudent so as not to stifle development or the investments in innovation that improve safety and performance. Regulations must strike an appropriate balance between proper risk management and economic viability. Governing or setting policy and regulation based upon the precautionary principle will stifle innovation and investment and bring development to a standstill. I recognize this is, in fact, the objective of some. But, if governments put development of these new sources of energy at a standstill, they will find their economies walking backwards.

By maintaining open channels of dialogue between government and industry, we can meet this challenge and establish policy pathways for business to invest and successfully execute long-range projects.

The regulatory pathway in every nation should provide certainty and promote understanding between government officials and business leaders. Regulations should provide a clear, efficient, roadmap for how to get things done, not a complex tangle of rules that are used to stop things from getting done. Development is most effective and efficient when government is a source of clarity and certainty in how business can meet safety and environmental standards while advancing innovative, long-term projects.

Governments can also support responsible long-term development by establishing sound and stable legal and tax policies, which are not changed with the whims of the ups and downs of commodity price cycles. With such policies in place, businesses can better evaluate opportunities, plan and invest, maximizing value for all. Sustained investment has created the technologies that have unlocked new supplies of natural gas. Tomorrow’s advancements will be just as dependent on the research-and-development commitments we make today.

Finally, only governments can open borders and support free trade and international investment. The energy challenges of the future require significant human and financial capital to succeed. And our industry is most successful when we manage risks together, leveraging the strengths of national and international energy companies for mutual benefit. By supporting trade, opening up access, and allowing the free flow of goods and services, governments help industry find more innovative and efficient ways to bring energy to market.

Recent North American experience in unconventional development has reminded the world of the value of competitive and free markets for improving the lives of consumers. The technological breakthroughs that allow for unconventional-gas recovery emanate from investments by business and industry in private markets. They are not the result of government policies that picked winners and losers.Energy policies operate best when they are efficient and market-oriented, steering clear of manipulating outcomes through subsidies, mandates, or distortions in the tax code.


As we look to the future, it is clear that the historic shift taking place can continue. The global move to natural gas is an evolution in markets that can change lives for the better.

A decade ago, few of us could foresee where new natural gas technologies would take us. For this very reason, we must continue to invest and innovate to ensure the safety of operations to further enhance energy efficiency and to improve our environmental stewardship at every level.

Such sustained investment takes vision and a fundamental faith in human ingenuity. We know it can be done. I know it can be done. Our own history proves it. We know that when governments establish long-term, market-oriented policies, our industry will respond with the long-term planning, partnerships, and projects that reshape the future for the better.

With sound policies in place around the world, we can help nations and peoples achieve their economic, environmental, and energy security goals — and as we do so, we can create opportunity and progress for all.

I thank you for your kind attention.