Speech Oct. 12, 2011 The Unconventional Potential — Opportunities for Shale Gas Development in Europe and Beyond Andrew P. Swiger Senior Vice President and Principal Financial Officer Oil & Money Conference London Thank you for the kind introduction. It is a pleasure to join you today, and a privilege to conclude another successful Oil & Money conference. For 32 years, Oil & Money has served as one of the world’s premier forums for addressing the most pressing challenges facing the global energy industry. This year has been no exception. Over the course of the last two days, we have focused on risk and the “new energy map” — two timely issues given recent global economic and political events. This year’s conference has occurred against a backdrop of continued uncertainty about the pace of the economic recovery in Europe and around the world. It is a challenging time for our industry and the global economy. However, in closing this year’s conference, I would like to turn from our focus on energy challenges to instead highlight the tremendous opportunities on the horizon. For more than a century, our industry has pioneered the technologies and energy resources that have unleashed unparalleled economic growth and social progress. In the decades ahead, we will need to continue to deliver these contributions as never before. The long-term growth trends for developed and developing economies are strong, and this growth will mean energy demand will be 25 percent higher by the year 2030. Critical to meeting this growth in energy demand will be one of the most versatile and abundant energy sources available to the world’s consumers. That energy source is natural gas. The Potential of Natural Gas By 2030, natural gas is expected to compete with coal as the world’s leading fuel for producing electricity, and it will likely be second only to oil as the world’s leading energy source overall. Between the years 2010 and 2030, global demand for natural gas is expected to grow close to 50 percent, as compared to 5 percent for coal in this same period. This shift toward natural gas will carry tremendous benefits for consumers and the environment. Natural gas is affordable, reliable, flexible, efficient, and energy dense. It is also the least carbon intensive of the major energy sources, and when used for power generation, it emits up to 60 percent less carbon dioxide than coal. In the OECD countries, for example, the increased use of cleaner burning natural gas for power generation will make a major contribution to the expected decline in energy-related carbon-dioxide emissions, despite the anticipated increased demand for power. The growth of gas also has important implications for the global energy map. For years, pipeline-infrastructure requirements constrained the expansion of the natural gas market. Producing fields near consumer centers provided most of the supply, but more distant and isolated fields were often stranded. The emergence of substantial economic supplies of liquefied natural gas changed this dynamic, significantly expanding the reach of gas suppliers to meet growing demand around the world while also creating new supply options for importing countries. Now, we are seeing a new and exciting chapter in the history of the natural gas industry — one which, together with LNG, promises to transform our understanding of the role of natural gas in the energy mix. The Potential of the Unconventional Over the last decade, technological and operational advances have enabled us to unlock a vast new source of natural gas, one which we have long known existed but which we had previously not been able to develop economically. This natural gas is locked in tight, hard rock and in coal seams in locations around the world — and in quantities that were previously unrecognized by even the most optimistic geoscientists. The current term for gas found in such locations is “unconventional”, although one may argue that the scale of this resource will rapidly turn it into a firmly “conventional” supply option in the coming years. Unconventional natural gas was a subject covered in one of this morning’s panel discussions, but it is one worth returning to — because it has the potential to reshape our industry … reinvigorate economic growth … reinforce local energy security … and reduce the environmental impacts of energy use. At ExxonMobil, we recognize this potential, and we believe it can transform markets. To this end, we have significantly expanded our investments in unconventional natural gas development worldwide — with our merger with XTO, our leadership stake in U.S. shale gas development, and our increased exploration activity in Europe and beyond. At the moment, however, much of this global potential is just that — potential. Exploration and production of this resource have grown tremendously in recent years, especially in North America. But it is early in the development cycle, and only a fraction of the world’s estimated 920 trillion cubic meters of the unconventional gas resource has been produced. Transforming the potential of unconventional gas into reality for the world’s energy consumers will not happen automatically. It will require the best of our industry. We will need to invest with discipline … pursue sustained research and development … and maintain our commitment to operating in a safe and environmentally responsible manner. In addition, industry cannot achieve this potential alone. We will need the cooperation of government and local communities. We will need national and local leaders to open up access. We will need government officials at all levels to uphold stable policy frameworks and administer reasonable regulations. With such policies in place, our industry can invest in unconventional natural gas development with confidence — and communities and consumers can be confident that they will be able to capture the significant benefits flowing from this valuable energy resource. The development of unconventional natural gas promises to further diversify the global energy market, supporting the stability and reliability that increases energy security. Unconventional Gas in Europe The role unconventional gas development can play in enhancing security through diversity may prove evident here in Europe. Europe’s natural gas portfolio currently includes mostly conventional local production, pipeline imports, and LNG imports. All three represent significant shares. The mix will evolve as production at Europe’s conventional gas fields gradually declines, new import pipeline is constructed, and LNG imports rise slightly. Given these developments, by 2030 Europeans are expected to be significantly more reliant on imports of natural gas than they are today. Europe’s unconventional natural gas resources provide an opportunity to offset this changing mix with domestic supplies. Our Shared Challenge Producing this gas presents a number of challenges. In comparison to North America, Europe’s basins are relatively smaller and some of its shales are richer in clay. The required supply-and-service sector is also still developing. Nevertheless, this resource may prove to be significant, thanks to several technological innovations pioneered by the energy industry. In the United States, some have labeled these technological advances a “revolution.” But in truth, the industry’s ability to tap unconventional natural gas in North America and beyond has not been a revolutionary process, but an evolutionary one. It is the culmination of decades of experience, innovation, and — most recently — integration of proven technologies. Two of these innovations are horizontal directional drilling and hydraulic fracturing. Neither is new — our industry has utilized hydraulic fracturing techniques for over 50 years, and we have drilled horizontal wells for decades. It is by integrating these two technologies that we are now able to produce natural gas trapped in vast, dense, and tightly packed shale rock formations on a large scale and in an economically viable way. In the United States, the impact of these innovations has been dramatic — and, for the American public, largely unexpected. Within the past few years, it has become apparent that, with the addition of newly recoverable shale gas, we could potentially unlock enough natural gas to meet U.S. demand at current levels for more than 100 years. The potential development of the United States’ shale gas resources not only provides a new source of domestic supply, it also provides a source of jobs, economic growth and government revenues. A recent economic impact study found that the U.S. natural gas industry as a whole accounts for 2.8 million jobs and contributed more than $380 billion to the U.S. economy in a single year. Recent shale gas development is a growing driver behind these numbers. While this breakthrough has generated progress, it has also generated questions from the public and policymakers unfamiliar with the technologies involved. Questions are asked about the safety of hydraulic fracturing, the protection of water supplies and air quality, and impacts on local communities. These are important questions, and similar questions are being asked in Europe and other parts of the world that stand ready to benefit from the development of unconventional natural gas resources. These are questions that demand factual — and clear — answers. The reason is simple: Public perceptions help shape the policies that govern energy production. If our industry fails to adequately address public concerns, we can expect unfavorable and restrictive policies to result. With rising energy demand, we must pursue wise policies so that developed — and developing nations — have the energy they need to create jobs, increase economic growth, and raise standards of living for all peoples. Fortunately, in the effort to develop unconventional gas our industry is following proven principles. The technologies and best practices used for drilling shale gas wells are the same that are used in conventional oil and gas wells, geothermal wells, and even water wells. They are well established, highly regulated, and proven safe. For instance, our industry can point to multiple layers of steel casing and cement that line our wells. These create an impermeable barrier that protects water supplies and the surrounding environment. Of course, designing a safe well and then drilling one are two different tasks. That is why we focus on building in safety and efficiency, while maintaining the integrity of the wellbore throughout the entire process. By using innovative technologies such as directional drilling, we can reduce our environmental footprint. In addition, unlocking the potential of unconventional natural gas requires us to explain the proven technology of hydraulic fracturing. Through a controlled process, extremely small fissures are created in the shale, each about half the size of a human hair. These fissures create the channels connecting the reservoir to the well that allow the gas to flow. To do this, hydraulic fracturing fluids are used in the process, which are, on average, about 99.5 percent water and sand. The other additives — less than one percent of the total — consist mostly of common chemicals in differing combinations used to prevent bacteria growth, reduce friction, and perform other essential functions, such as keeping the sand suspended in the solution. Many of these same chemicals are found in household cleaning products, cosmetics, and even food. ExxonMobil supports the disclosure of the ingredients used in hydraulic fracturing fluids, including on a site-specific basis. We continue to work with others in the industry to develop a comprehensive and workable disclosure policy that will help allay public concerns and increase public confidence in the safety of this process. In the United States, we are disclosing fluid contents on the industry’s FracFocus website. And in Europe, we are making similar disclosures on our website in Germany. In addition to water protection, some have raised concerns about water usage in the shale gas well drilling process. Some perspective of scale is helpful in this regard. A typical gas well requires approximately 10,000 to 20,000 cubic meters of water, equivalent to three to six Olympic-sized swimming pools. Although this may sound significant, in reality, shale gas is one of the most water-efficient sources of energy. Coal mining typically utilizes two to four times more water per unit of energy, and corn-based ethanol production often uses more than one thousand times more per unit of energy. Air emissions from conventional and unconventional natural gas are also a subject of public concern — and a concern that we must confront with facts. As mentioned earlier, natural gas emits up to 60 percent fewer greenhouse gases than coal when burned. The environmental advantages of natural gas — conventional and unconventional — are clear. Another legitimate public question with compelling answers is the impact unconventional natural gas drilling will have on local communities where wells are drilled. Our industry has made tremendous strides in recent decades to reduce the surface footprint of operations and facilities, including in the area required for natural gas production. Directional drilling techniques enable us to drill multiple wells in different directions from a single location — reducing the surface area required. Although the drilling and completion phases of the operation involve sizable structures and heavy equipment, this represents only a small period in the lifespan of an unconventional natural gas well. For the production phase, only the static surface equipment remains — which is a much smaller footprint than a strip mine or wind farm. Our Commitment to Safe Operations The facts, therefore, show that unconventional natural gas can be developed through appropriate design, construction, and risk management. Risk management is, in many respects, the essence of our business, as the theme of this year’s Oil & Money conference suggests. It is what we do — and what we do well — risk management. It is with a steadfast commitment to sound risk management, operational integrity, and environmental responsibility that we are approaching the new frontier of unconventional gas development. And in keeping with this commitment, we are offering our cooperation to authorities to identify the risk management techniques which are the most appropriate for each specific project. And it is in this spirit of cooperation that industry, government, and local communities must embrace this opportunity together if we are to take full advantage of this safe, secure, and cleaner burning source of energy. Stable regulatory frameworks that provide access and facilitate long-term investment can enable development of unconventional natural gas to its full potential. Coupled with sound operational practices based upon long-standing industry experience, well-founded regulatory systems can also help assure the public that unconventional gas resources can be developed in a safe and environmentally responsible manner. In developing such regulations, experience shows that the most effective approach utilizes the knowledge and expertise of regulators who are familiar with their home geological and environmental conditions. In the United States, this has meant that the individual states have traditionally regulated oil and gas operations, and in Europe we have had productive conversations with the individual countries where we operate. In both cases, we also strive to engage local authorities and citizen groups to understand local concerns, discuss the safety of our operations, and the benefits of responsible development. As I mentioned earlier, the safety, health and environmental risks of unconventional gas development are not only manageable, but in fact can provide real environmental benefits versus alternatives. The greater risk is that this resource will not be developed to its full potential — that authorities, acting upon exaggerated fears or without a sound understanding of the facts, will deny the industry access to acreage, and deny consumers access to this resource as a result. The opportunity costs for the global economy, energy security, and the environment would be high. However, these opportunity costs are not ones our society needs to bear. We can instead redefine the energy map by seizing the opportunity and achieve the potential of unconventional natural gas with the ingenuity and integrity of our industry, in cooperation with government. We can — and I am confident we will. Thank you.