Your Excellencies, distinguished guests, and fellow panel members - it is a pleasure to be here at ADIPEC. The theme of this year’s conference is “Innovation & Sustainability in a New Energy World.” This title is very appropriate.
This morning, I want to discuss how technology has created this “new energy world” – and how it will be the key to the future.
I will talk about the core, long-term market fundamentals that we must remember as we grapple with today’s realities.
And I will emphasize the need for unrelenting focus on business fundamentals, technological advancement, and the ongoing need for strong partnerships.
Technology and the New Energy World
There is no doubt we have entered an era of resource abundance. This is the “new energy world,” which is transforming markets.
The most visible change has come from North America – where advances in technology have unlocked vast new supplies of oil and natural gas from shale. This shale revolution follows other industry successes over the past 30 years – including oil sands development, deepwater and ultra-deepwater, and liquefied natural gas.
Because of these industry innovations, total world supply of crude oil and natural gas liquids has increased by more than 5 million barrels per day over the past five years. U.S. production has provided 4 million barrels per day of that.
At the same time, this global increase in crude supply has converged with forces slowing growth in demand.
The IMF projects global economic growth for 2015 to slow to 2.5 percent – down from 2.7 percent in 2014.
Meanwhile, new technologies are bringing efficiencies to every sector of the economy – from automobiles to industrial processes. This too has helped moderate energy demand growth.
Clearly, we face a profoundly transformed business environment. In response, our industry is already cutting back.
For instance, the global drilling rig count has dropped about 40 percent from a year ago. In addition, based on recent announcements, industry-wide capital expenditures will likely be down sharply in 2016 – falling by 25 to 30 percent from 2014’s spending levels.
And, another potential challenge for the industry is coming from the policy realm. Government leaders will soon meet in Paris to discuss how to reduce greenhouse gas emissions globally. This shared concern for how to address the risks of climate change is influencing policymaking around the world.
All of these factors – economic, environmental, technological, and regulatory – present challenges and uncertainty for the entire sector.
Recognizing Energy Realities
But, many aspects of the long-term fundamentals for the energy sector remain unchanged.
At ExxonMobil, we project that global energy demand will continue to grow significantly – about 35 percent over the period 2010 to 2040. This is consistent with Dan Yergin’s projections yesterday.
This growth in energy demand will be driven by growth in the global population of 30 percent, economic growth of 140 percent, and an unprecedented expansion of the middle class, which will add about 3 billion people in developing countries.
While we project energy demand will rise, we also see energy supplies shifting and efficiency improving.
In fact, without efficiency gains, global energy demand would grow by 140 percent rather than 35 percent.
ExxonMobil’s Outlook for Energy, along with all other credible forecasts, sees a growing interest in alternative energy. But we also share the view that oil, natural gas, and coal will continue to meet about three-quarters of the world’s energy needs in the decades ahead. Again, this is consistent with what you heard yesterday from Dan Yergin.
To meet the industry and societal challenges of this “new energy world,” there are no silver bullets – no single answer. Therefore, we must focus on business fundamentals, we must advance technological innovation, and we must further strengthen NOC-IOC partnerships. I’ll discuss these further in that order.
Focus on the Fundamentals
First, we should re-double our focus on the fundamentals of success in our industry: project execution, operations reliability, and cost management.
In today’s environment, the margin for error is low.
Project management will be key to maximizing capital efficiency. Our recent liquefied natural gas project in Papua New Guinea showcases the benefits of disciplined project execution.
Working together with our partners, we developed a world-class resource in some of the most rugged terrain on earth. Despite sparse infrastructure, we tapped reserves spread over more than 190 kilometers, built a 960 million-cubic-foot-per-day gas-conditioning plant in the mountainous highlands, and installed a 300-kilometer onshore pipeline and a 400-kilometer offshore pipeline to a new two-train liquefaction plant on the coast northwest of Port Moresby.
Disciplined project management led to a tremendous success: an early startup at very competitive cost.
Of course, once a project is up and running, the imperative is to keep it up and running. A focus on operations reliability ensures effective utilization of the developed infrastructure over its producing life.
For example, at ExxonMobil we have increased reliability from 94 to 96 percent over the past four years by enhancing maintenance programs and applying technology that reduces costly downtime. At first glance, this may not sound that significant. But this improvement alone resulted in an additional 90,000 barrels per day of production, which is comparable to net production from a multi-billion dollar new investment for a tiny fraction of the cost.
In today’s low-price environment, disciplined cost management across all business areas is also critical.
At ExxonMobil’s XTO Energy subsidiary, we focused on reducing costs and maximizing resource recovery in U.S. shale plays. I had the privilege of serving as president of XTO during the first three years it was a part of ExxonMobil, and I learned a great deal about a strong focus on fundamentals.
Over the past four years, drilling time has been reduced by more than 40 percent, which has yielded cost saving as well as production uplift. As an example, in the Bakken shale development in North Dakota, the current average well drilling cost is 36 percent lower than in 2011 and due to enhanced completion techniques, generates 43 percent higher initial oil production. You can do the math on those numbers, but I can confirm that they certainly help deal with a 50 percent drop in oil prices.
The Primacy of Technology
In the current business environment, we must also continue to invest in technology to further unlock new sources, enhance recoveries, and reduce emissions.
At ExxonMobil, we recognize that sustained investment in research and technology is vitally important.
Investing in technology has been an important part of our comprehensive efforts to reduce emissions – from reducing flaring, building cogeneration capacity to meet internal energy needs, and expanding natural gas supplies for affordable, low-emissions power generation.
Our ongoing commitment to research and development will also be important to the cause of helping mitigate the risks of climate change through next-generation technologies – such as carbon capture and storage and advanced biofuels from algae.
The Need for Partnerships in the New Energy World
Meeting today’s energy and environmental challenges will require one more component from our industry, and that is partnerships – especially those between international and national energy companies. At ExxonMobil, we have enjoyed many successful, mutually beneficial partnerships.
One of our most important partnerships is right here in Abu Dhabi through the ZADGO Joint Venture.
We are working with our partners, ADNOC and JODCO, through ZADCO to completely redevelop Upper Zakum, one of the world’s largest offshore oil fields.
ZADCO has built four state-of-the-art artificial islands from which we can essentially reach the entire field using extended-reach drilling with long horizontal completions. This enables cost savings, increased oil recovery, and improved environmental performance.
The new island-based development plan for Upper Zakum will boost production to 750,000 barrels per day with potential for further growth to 1 million barrels per day. Much progress has already been made, with two of the four islands on production contributing 60,000 barrels per through early production facilities.
The history of our industry proves that by leveraging the respective strengths of national and international oil companies, we can maximize the efficiency and value of large-scale projects and help meet growing energy demands.
In light of all of the challenges we face in this “new energy world,” we must recognize that one thing has not changed: the need to maintain a view on the long term.
It is difficult to predict exactly how long the current market realities will last, but we certainly cannot rule out that low prices may be with us for a while.
But by maintaining a view on the long term, by focusing on industry fundamentals, by investing in new technology, and by building strong partnerships, we can meet the challenges of today’s market realities.
And in doing so, we will provide the world with the energy it needs – in a safe, secure, and environmentally responsible way.
Thank you very much for your time and attention.