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Speech

Oct. 2, 2014

The State of Energy: Strong and Transformative

Rex W Tillerson

Rex W. Tillerson Chairman and Chief Executive Officer

Greater Houston Partnership Address on the State of Energy
Houston, Texas

It is always a pleasure to come to Houston and experience the vitality and drive that are so unique to this city. Houston is rightly called the Energy Capital of the World – and it is an invigorating experience to be in a place where our industry’s contributions are so well appreciated.

Every time I am here, I also come away with a true sense of the positive impact that the Greater Houston Partnership is making on the city and its growth.

For the past 25 years, the Partnership has played a vital role in making Houston an ideal choice for living, working, and doing business.

The strength of the business community here – and the willingness of corporate leaders to give of their time and talents – is critical to Houston’s success.

Thanks to the efforts of the board of directors and staff, along with the many knowledgeable and dedicated people working on committees, the Partnership has become a well-respected voice for not only building a stronger city, but a stronger nation.

As you may know, ExxonMobil has made a big commitment to the greater Houston area in the form of our new campus, which is located a few miles north of here. We are consolidating a number of our office locations that have been scattered around the greater Houston area for a number of years, bringing all of our employees from our Upstream, Downstream, and Chemicals businesses, along with a variety of associated service groups to one location.

The new campus, which is located about 20 miles north of downtown, will be about the size of Rice University when completed. From the earliest planning, it has been designed to accommodate the needs of not just today’s workforce, but really has been designed and constructed with the view of accommodating the workforce of the future, which we know is ever changing. It was built to encourage collaboration – and to exceed the highest standards of environmental compliance.

Our continuing investment in the greater Houston area is evidence that we believe strongly in this community and confirms our belief in the future of energy.

The State of Energy is Strong

There is no question that energy has been one of the foundations of U.S. economic strength for most of our nation’s history. In recent years the growth in domestic oil and gas production has been an important economic driver that extends far beyond our sector – delivering benefits to a wide range of Americans, businesses, and every level of government.

In fact, the U.S. is in the midst of what can only be called a transformative moment in the history of energy. And Houston is at the center of this revolution.

Over the past few years, our nation and the world have seen firsthand the extraordinary impact of our industry’s investments and innovations – many of which were developed right here.

It is a story that rivals the dramatic exploits and achievements of our industry’s earliest pioneers. And if managed appropriately, it promises to have the same transformative impact on our economy and global competitiveness.

This afternoon, I will discuss how North America is creating a new Era of Energy Abundance. And I will share my thoughts on how this energy abundance is transforming our nation – and why we face an urgent need to learn the appropriate policy lessons to fully leverage this historic moment.

The New Era of Abundance

In my travels around the world, I have seen a remarkable consistency in questions about the State of Energy. No matter where you are in the world, it has become impossible to discuss the topic without taking into account the revolutionary changes occurring in North America.

The oil and gas industry has pioneered a host of new technologies and techniques that have enabled us to unlock new conventional and unconventional sources of energy across North America.

In Canada, industry innovations have made it possible to safely and responsibly develop the nation’s vast oil sands. Technology has enabled access to proven oil reserves of approximately 170 billion barrels.

In the Gulf of Mexico, advanced technologies have opened up unprecedented opportunities in offshore exploration and production. In less than a generation, we have progressed from engineering concepts hand-drawn on drafting tables – that’s how I had to do them – to sophisticated computer-designed rigs. We have offshore facilities operating in ultra-deepwater depths of more than 10,000 feet – rigs capable of drilling wells that extend five miles below the ocean floor.

With each passing year, we see continuous improvement in the offshore technologies and processes we employ. As a result, we project that in the period from 2010 to 2040, deepwater production worldwide will grow 150 percent. The people and companies of Houston will be critical to this effort.

Of course, the most unexpected – and far-reaching – breakthrough in recent years is the advanced integration of hydraulic fracturing and horizontal drilling. These technologies and techniques have made it possible for the industry to economically develop vast quantities of shale gas and tight oil – an idea considered impossible not so long ago.

Thanks to these innovations, the North American energy market has been changed dramatically in just a few years– and with it, the global energy landscape.

Sources of oil and natural gas long dismissed as “uneconomic” and “inaccessible” are being transformed into energy supplies that are accessible, reliable, and competitive.

And just as important, new technologies are enabling the development of these resources safely, securely, and responsibly.

If you work in the energy industry, you are aware of just how remarkable this shift has been. But for those of you who don’t, I would like to share some facts and figures.

Since early 2008, U.S. natural gas production is up 25 percent. Natural gas reserves are up more than 25 percent just in the period from 2008 to 2012, and they continue to increase.

What this means is that we have abundant supplies for growing the domestic use of natural gas to meet our energy needs, and even for the export of natural gas to other markets. In fact, industry technologies have now put within reach enough natural gas to help power the U.S. economy at current demand for about a century.

The revolution in domestic oil production has been just as striking. Since early 2011 alone – a mere three years ago – U.S. oil production has jumped 50 percent – from 5.4 million barrels per day to the current daily production rate of 8.5 million barrels. That’s an increase of about 3 million barrels produced in the United States – every single day. And the U.S. EIA predicts that U.S. production will continue to expand to approximately 9.5 million barrels per day by the end of next year.

Two states in particular are leading this effort.

In 2006, North Dakota’s oil production from the Bakken shale was 6,000 barrels per day. In 2012 – six years later – it hit 600,000 barrels per day for the very first time.

By 2013 North Dakota’s oil production surpassed 800,000 barrels per day. And just this April, according to North Dakota’s Department of Mineral Resources, the state’s oilfields were pumping more than a million barrels a day – so, from 6,000 barrels a day in 2006 to more than a million today. Today, North Dakota is the No. 2 producer of oil in the United States.

Of course, everything is bigger in Texas – including oil production.

Thanks to the growth in production in places like the Eagle Ford Shale and the Permian Basin, Texas is producing in excess of 3 million barrels a day, which represents an astounding 35 percent of daily U.S. production.

By itself, Texas ranks as the No. 8 oil producer among the world’s Top Ten producers of crude oil. Of course, the rest of them are countries.

I just returned yesterday evening from Mexico, a trip down to Mexico City where, you’re probably aware, they’re undergoing an enormous reform of their own energy laws and regulations. I was with the energy minister and he took note that Texas now has surpassed Mexico in oil production. He said they’re going to fix that.

Together, Texas and North Dakota today are producing roughly half of the nation’s oil – much of it from fields that were considered unworthy of investment just a few years ago – producing today now thanks to industry innovation.

With such extraordinary production increases, it should be no surprise to learn that our nation is now, according to the Energy Information Administration, the No. 1 producer of total energy coming from oil and natural gas.

And in total, the nations of North America – Mexico, Canada, and the United States – now produce more barrels of oil than any other nation or region in the world – 50 percent more than the Russian Federation, which is next.

Transformational Energy

As I mentioned earlier, the record-setting dynamism of the State of Energy is having an impact far beyond the energy sector. As any citizen of Houston knows, energy carries a tremendous multiplier effect that fuels opportunity and progress.

Across America, new supplies of affordable energy are spurring economic growth, creating jobs, and strengthening our international competitiveness.

While our economy in general has struggled to regain its footing following the recession that began in 2008, the energy industry has been a true bright spot.

According to the Perryman Group, the total economic benefits of oil and gas exploration and development activity (including multiplier effects) are estimated to include almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs in the United States.

The Perryman Group also found that the economic benefits of oil and natural gas production have more than doubled over the past 10 years – even after accounting for the effects of inflation.

Although the oil and gas industry, including its spinoff activity, is about 6.7 percent of the U.S. economy, it has accounted for more than 30 percent of the growth since the trough of the recession.

Domestic energy production is bringing extraordinary economic benefits in producing states like Texas, Pennsylvania, North Dakota, and Oklahoma. But, as IHS Consulting has found, the positive economic effects are being felt in every one of the lower 48 states, including those that do not produce any oil or natural gas.

The benefits of our industry’s investments and innovations have made possible what many are calling America’s “manufacturing renaissance.” The American Chemistry Council has found that in petrochemical manufacturing alone, there are now more than $100 billion in new domestic investments proposed in the years to come.

Each year, the Progressive Policy Institute publishes its list of “investment heroes” – non-financial companies that are investing the most in the U.S. economy. Of the 25 companies that make up the Institute’s “investment heroes” list this year, 10 are involved to some degree in the exploration and production of oil and natural gas or involved in energy distribution and power.

Increased energy production is also benefiting government budgets and programs. IHS Consulting studies show that the development of shale gas and tight oil contributed more than $63 billion in federal, state, and local tax receipts in 2012 alone. By 2020, total government revenues from these sources are likely to double.

On a cumulative basis, between 2012 and 2035, unconventional oil and natural gas activity is forecast to generate more than $2.5 trillion in tax revenues. And that’s just the contributions of unconventional development.

Of course, the contributions from our industry are not limited to economic revitalization. We are also proving that our investment, innovation, and commitment to operational integrity make it possible to safely expand energy supplies and reduce environmental impacts.

In fact, abundant and reliable natural gas has been instrumental in reducing our nation’s carbon dioxide emissions to levels not seen since the early 1990s. And these gains come despite the fact that our economy is 50 percent larger and there are 50 million more consumers of energy in our nation today than there were in the early 1990s.

North American energy is also providing diversity, flexibility, and reliability to the global energy landscape. As a headline from the National Journal recently announced, “You’re Welcome, World: U.S. Fracking Surge Picks Up Slack for Global Disruptions.”

It’s interesting I was looking at a chart just the other day – I mentioned this 3 million barrels a day that has increased in the last three years – so if you plot that U.S. production increase of 3 million barrels a day, there’s a mirror image of 3 million barrels a day of production that has been offline from places like Libya, Iran because of sanctions, disruptions in Iraq and Nigeria and other parts of the world. That’s why we have enjoyed this period of tremendous price stability. So this production on the top only continues to grow.

Our industry’s efforts have also put the United States in a position to become an energy exporter, reversing four decades of fear and anxiety about energy scarcity.

As we look to the challenges of the future, it is clear that – with bold leadership and sound policymaking – North America’s newfound abundance and energy security could position Canada, Mexico, and the United States to help reduce global price volatility, moderate international tensions, and provide energy flexibility to friends, allies, and trading partners.

These benefits can potentially be magnified as our industry’s revolutionary technologies are applied beyond the borders of North America to shale gas and tight oil resources all over the world.

With such development, we could see the same economic and environmental benefits that have taken place in the United States repeated around the globe.

Even today, there are billions of people around the world who need these advances in safe and responsible energy production to ensure they have access to all the benefits of modern living, such as sanitation, health care, proper nutrition, and education. And as our world grows, the need for affordable energy is going to increase.

At ExxonMobil, we project that increases in population, along with growing trade and economic development, will increase global energy demand by about 30 percent between now and the year 2040.

For those outside of the energy industry, putting numbers like that into context can be challenging. So let me try to give you some contextual comparisons of what 30 percent growth means. A level of growth in demand like that will be adding more than the current energy demand of Russia, India, Africa, Latin America, and the Middle East – combined. So it is an enormous challenge that lies in front of this industry.

Meeting the global demand for affordable, reliable supplies of energy will require us to develop all sources of energy, wherever they are economically competitive. The world will need wind, solar, nuclear, and geothermal as well as oil, coal, and natural gas.

Thus, the successful State of Energy in North America is not just benefiting us here in the U.S.

Every barrel of oil we produce, and every cubic foot of natural gas, also increases the world’s overall supply, and supports economic growth and much-needed prosperity for nations around the world.

Policy Lessons for America – and the World

Despite this positive impact and the potential to do even more, there are reasons to be concerned about the State of Energy in the years to come.

For decades now, the United States has pursued energy policies based on the fear of scarcity. The thinking in Washington, D.C. – and even at some energy companies – was that reviving domestic energy production was a dream.

That’s the old way of thinking. Now, we need energy policies that are designed for this new era of abundance.

This is a critical distinction because the wrong policy choices today can carry heavy consequences – not just for the industry and our ability to expand supplies, but for America’s energy and economic security over the decades to come.

It is clear that both government and industry have a role to play in the safe, innovative, and responsible production of energy.

First and foremost, we in the industry have a responsibility to uphold the highest standards of performance – from planning and investing to construction and project execution.

I believe our work in some of the most challenging regions of the world – and in some of the most delicate ecosystems – has shown ExxonMobil shares the American commitment to safety and responsible environmental stewardship.

Second, and just as important, government has a responsibility to promote the rule of law. The rule of law provides the confidence for sustained investment and entrepreneurial risk taking.

North America’s energy leadership is not just a function of the continent’s resource endowment. As so many other parts of the world have shown, success in the energy sector depends on the stability and rationality of the tax, legal, and regulatory frameworks put in place by government.

Sound energy policy must deliver the clarity and the climate for long-term investment and innovation.

Sound policy enables our industry to marshal the expertise, technology, operational experience, as well as the financial capital needed to safely and effectively develop diverse sources of energy.

In contrast, short-sighted policies aimed at achieving U.S. energy independence can jeopardize U.S. economic and energy security. By restricting trade or picking winners and losers, government hinders investment and innovation.

In pursuing sound energy policies, government also has a responsibility to maintain a clear pathway to regulatory compliance. Once government officials reach a decision based on our nation’s rigorous processes, it is important for officials at every level to honor these decisions. In a case such as the Keystone XL pipeline, political gamesmanship has delayed a project for more than six years – preventing job creation, undercutting economic growth, and undermining U.S. and Canadian competitiveness. But importantly it also undermines our confidence in the regulatory process.

Government is especially well positioned to play a positive role by opening up markets, strengthening international ties, and promoting free trade. At this historic moment, our nation needs far-sighted policies equal to the trade and export opportunities that lie before us.

For example, in the current debates about liquefied natural gas, or LNG, and crude oil exports, economists and leaders from across the political spectrum on all sides agree that free trade would lead to increased investment, more jobs, and, importantly, increased production.

Allowing the marketplace to determine the viability of energy exports or other infrastructure projects – as opposed to making decisions based on political calculus – is the proper course of action. It is one that can provide significant short- and long-term benefits to the U.S. economy while strengthening our energy security.

Only by understanding the respective roles and responsibilities of industry and government can we fully leverage the achievements of the past few years. And in some cases, the window is quickly closing for us to develop policies that can properly position North America for the market realities of the future.

The primary lesson from the energy revolution we are experiencing today – and from our industry’s experiences around the globe – is that sound policy leads to wise and disciplined investment, new and revolutionary innovations, and increased trade and economic growth.

In turn, these market developments create jobs and expand supplies. They will improve the flexibility and diversity of our energy portfolio. And, together, it can lead to energy security and, over time, prosperity for people the world over.

Houston at the Center

One city stands at the center of this new era representing the bold and dynamic State of Energy itself.

That city, of course, is Houston, rightly called the “Energy Capital of the World.”

Houston is home to more than 5,000 energy-related firms. The city is a leading domestic and international center for virtually every segment of the oil and gas industry – exploration, production, transmission, marketing, service, supply, offshore drilling, and technology.

As I said earlier, at ExxonMobil, we are proud of our ties to Houston.

We have deep roots and a long history here. And we are committed to continuing the legacy of philanthropy, good citizenship, and community involvement that has long been a hallmark of our relationship with this city and its residents.

At the beginning of my talk, I mentioned our new campus that is nearing completion. By mid-year of 2015, we will bring another 2,000 ExxonMobil employees and their families to the area from Fairfax, Virginia, as well as other locations. That will deepen our presence in the greater Houston area bringing the total number of ExxonMobil employees to approximately 13,000 – all living and working here with their families.

In addition, we are one of the companies investing in the new Era of Energy Abundance, as you heard earlier, and that’s not just our direct investments in shale gas and the development of tight oil. But as was mentioned earlier, we recently broke ground on a multi-billion-dollar expansion of our Baytown chemical manufacturing and refining complex. This expansion will generate 10,000 construction jobs, as we build a new world-class ethylene cracker and units for processing polyethylene.

Economists predict that this facility expansion will ultimately lead to approximately 4,000 new, permanent jobs created throughout the community.

ExxonMobil is also working to prepare workers for the 21st century.

It is why we have given $1 million to underwrite a technology job-training program at nine community colleges in the greater Houston area. This program, which is now part of the Greater Houston Partnership’s UpSkill Houston initiative, will develop the workers to staff our rapidly expanding petrochemical industry.

These investments are important, but they represent just one part of the overall contribution we are proud to make to the greater Houston area. We are proud to provide funding and assistance to a wide range of causes and organizations. Each year our employees volunteer more than 160,000 hours to local non-profit organizations carrying out their chosen missions.

To further demonstrate our continuing commitment to Houston, I was pleased to participate in a press conference just prior to this luncheon with senior leaders from three world-class Houston health facilities –University of Texas MD Anderson Cancer Center, Texas Heart Institute, and Texas Children’s Hospital.

We announced $18 million in new grants from ExxonMobil to support cancer prevention, cardiovascular research, behavior pediatrics for children with autism, and to enhance pediatric liver-disease research and clinical services.

The programs will benefit the citizens of greater Houston by strengthening their world-class hospitals and health care, and will importantly benefit the citizens of the world.

These grants will also become part of ExxonMobil’s broader giving and engagement – which ranges from support for the United Way to direct support for schools, universities, museums, and a large number of local non-profit organizations.

In the years to come, we will continue to work with the greater Houston area and hope to be part of a stronger community filled with greater opportunity for all. And thanks to the leadership – and example – of this city and region, I believe the energy industry will help create a brighter future for the entire world.

Thank you for your kind attention.

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