Energy leadership and innovation: Canadian lessons for the world

Global Business Forum 
Banff, Alberta

andrew p swiger
Andrew P. Swiger

Senior Vice President and Principal Financial Officer

Speech Sept. 20, 2012

Energy leadership and innovation: Canadian lessons for the world

Good afternoon, ladies and gentlemen. It is a pleasure to be here for the eleventh meeting of the Global Business Forum.

The theme for this year’s Forum is well chosen and well timed. The entire world faces a common challenge of “finding opportunities for growth and prosperity in what are changing times.”

When it comes to energy, our best hope for finding these opportunities for growth is through honest dialogue that leads to principled action. And it begins in forums such as this one.

It is the duty of leaders from both business and government to identify the policies that have spurred growth in the past — policies that support investment, entrepreneurship, and innovation — and to build on them for the benefit of all.

Canada’s adopted son, Alexander Graham Bell, once said that “Great discoveries and improvements invariably involve the cooperation of many minds.”

I want to take my time this afternoon to discuss why the world needs the “great discoveries and improvements” of the energy industry … how new technologies pioneered by our industry are spurring economic growth, while addressing environmental responsibilities … and how governments and industry can work together to implement policies that will enable advancement throughout the world.

The Need for “Great Discoveries”

Alexander Graham Bell’s quote reminds us that technological progress is built on both great discoveries and continuous improvement.

As we work to re-energize the global economy, we will need visionary breakthroughs as well as incremental gains over the long-term.

Needless to say, the economic challenges the world has faced over the past few years have been significant. The global economy has felt the effects of a financial crisis, recession, and sovereign debt crises.

Yet, even in the midst of these serious challenges, there are good reasons for optimism.

The long-term outlook for the global economy is positive. Population growth, new technologies, and the universal desire for a better life are set to drive impressive economic growth.

For instance, by the year 2040, experts project that the global population will grow close to 25 percent — reaching 8.7 billion people. Not only will the global population grow, but trade will expand and technology will reach new corners of the world, opening up new economic opportunities for hundreds of millions of people.

At ExxonMobil, in light of these global forces, we project steady economic growth in the years ahead.

We project that developed economies will grow by about 2 percent per year, on average. And in developing economies, we anticipate even faster growth — close to 4.5 percent a year, on average. While these growth rates may seem modest at first glance, the reality is that the world’s economy will more than double in size between now and the year 2040.

With this extraordinary economic expansion will come strong growth in the demand for energy. We project that global energy demand will be more than 30 percent higher in the year 2040 than it is today.

To meet this growing demand, and foster durable economic progress, nations around the world will need to focus on pursuing all economically competitive sources of energy. We will need wind, solar, nuclear, coal, and biofuels. Each has a role to play in meeting the world’s energy challenges.

We will also need natural gas and oil. In fact, we can expect natural gas and oil to continue to shoulder close to 60 percent of the energy needs on our planet in the coming future.

Uniting our efforts on all these different energy fronts is the need to research and develop new technologies — technologies that can help us continue our mission to deliver new supplies of energy in a safe, secure, and environmentally responsible way.

In this shared global quest, the nation, the government, and the people of Canada are uniquely positioned to make an extraordinary contribution — not only in the enormous energy resources they can help deliver, but also in the model for energy regulation, policy making, and partnership they can provide. Canada is a leader many countries would do well to follow.

Great Discoveries and Improvements

Canada has proven that with resource access and the right policies in place, our industry can bring new supplies of energy to market — and in the process create new jobs, provide government revenues, increase trade, and spur economic growth for all.

The keys to unlocking new supplies of energy are the “great discoveries and improvements” that are the fruit of long-term investments in research and technology.

In recent years, we have been reminded of how powerful these products of human ingenuity can be.

Technologies pioneered by the energy industry have enabled us to develop new conventional and unconventional sources of energy — while also increasing safety and minimizing our environmental footprint.

And with every new technological advance comes a renewed obligation for industry to address public questions and concerns.

That is why we are reaching out to the public to explain how our innovations, project execution, and risk-management systems are designed to protect communities and the environment.

For example, we recognize that many Canadian and U.S. citizens are asking questions about oil-sands development. And we recognize that many of these questions spring from genuine concern for the environmental impact of resource recovery. That is why we are working to increase the knowledge and understanding of both policymakers and the general public alike.

For oil-sands development, this outreach means that we discuss how we are conserving water throughout development … how we monitor and preserve biodiversity … and how we seek to reduce emissions at every stage of the energy supply chain. In addition, addressing public concerns means providing straightforward explanations on how our management of oil sands goes beyond planning for efficient recovery to how we will work to reclaim the land for nature as operations draw to a close.

Our progress on these fronts and in addressing these concerns shows that technology is the key to meeting global energy needs and protecting safety and the environment.

For instance, new technologies are allowing our industry to develop one of the world’s largest known reserves of energy — approximately 170 billion recoverable barrels of oil from Canadian oil sands. About 900 kilometers north of where we are today, our Kearl Oil Sands Project is introducing a host of important innovations in this effort. These technologies — taken together — would enable us to produce the oil sands with about the same lifecycle greenhouse gas emissions levels as many other crude oils refined in the United States.

By using an innovative and proprietary process, we can generate pipeline-quality bitumen that will be blended with diluent for shipment. This requires less solvent at lower cost, making the tremendous oil resources at Kearl more economical to develop. This process also eliminates the need for an onsite upgrader, which avoids a multi-billion dollar capital investment and its associated operating expense. And by processing the oil only once in a refinery, instead of in an upgrader and at a refinery, we reduce energy requirements.

In addition, we will deploy cogeneration technology at Kearl, which will further reduce energy needs.

Cogeneration generates both electrical power and steam efficiently, and will reduce greenhouse gas emissions by an estimated half-million tonnes per year versus buying needed power from the grid.

The Kearl Oil Sands Project is more than just a site for a technology that offers the promise of being a “great discovery.” It is also a site which shows the benefits of continuous improvements. By using an innovative water-storage system, we will further reduce our environmental footprint. We will have the capacity to store 30-days worth of water to sustain production when withdrawals are restricted during low-flow periods of winter. And with advanced tailings-separation technology we will also be able to return tailings back to mined-out areas much more quickly than existing oil-sands mining sites.

Kearl is not the only place where innovation and ingenuity are put into action.

At the Cold Lake operations of our affiliate, Imperial Oil, we have seen how long-term investments and research can lead to state-of-the-art water recycling techniques. As a result of these improvements, which commenced nearly three decades ago, we have been able to reduce our freshwater-use intensity by almost 90 percent. In addition, we have further conservation initiatives under way, that, if successful, will reduce freshwater use by another 30 percent over current levels.

These are just a few examples of the progress that is possible when the energy industry can plan over the long term … invest with confidence … and deploy new technologies. With our proven commitment to research and development, we look forward to building on these achievements.

Not only is technology enabling us to access Canada’s enormous oil sands resources, it is also enabling us to develop North America’s vast shale gas and tight oil resources. It is not one innovation that is making this possible, but a set of technologies that are the result of decades of innovative thinking, substantial investment, and a relentless focus on operational integrity.

Through a combination of hydraulic fracturing, horizontal drilling, and other completion technologies, we are now able to recover natural gas and oil from sources once believed to be not just unconventional, but uneconomic, and, at times, unreachable.

Yet, with these new technologies working together, we now have the ability to recover enough natural gas in North America to power the U.S. and Canadian economies at current demand levels for more than a century.

While these technologies have offered the potential of economic transformation, like the development of Canada’s oil sands, they have also generated questions from the public and policymakers.

These questions range across several topics — from the safety of hydraulic fracturing and the protection of water supplies to micro-seismic activity and impacts on local traffic.

These are important questions — and how we address them using sound science and engineering gives the public and policymakers an insight into how we approach responsible recovery of shale gas and tight oil.

In developing these resources, we follow proven principles for operational integrity. We use best practices and engineering standards honed over decades of conventional oil- and gas-well construction.

These practices are well established, well regulated, and well proven.

In addition, we recognize that government authorities are a part of our commitment to continuous improvement — and a vital participant in industry-wide accountability. That is why we routinely work with regulators and officials to identify the risk-management techniques which are the most appropriate for each specific project and then to continue to monitor and maintain wells, even after a project is completed.

The “great discovery” of shale gas and tight oil promises an economic and energy security boon for generations to come. It offers both our nations an opportunity to fundamentally re-define the role of Canada and the United States in the global energy landscape.

We project that these technologies will help increase Canadian and U.S. natural gas production from about 78 billion cubic feet per day in 2011 to more than 115 billion cubic feet per day in 2040. To put this in perspective, this is enough energy to meet more than 20 percent of the world’s gas demand in 2040.

This result is all the more impressive when we consider that in the year 2040, the world’s demand for natural gas will be 60 percent greater than it is today. At that time, the world will look to natural gas to satisfy more than 25 percent of global energy demand — importantly gaining significant share in the area of power generation. And because natural gas is cleaner burning, the shift to this power source will mean more efficiency, cleaner air, and reduced greenhouse gas emissions.

We won’t have to wait until 2040, however, to see the environmental benefits. The International Energy Agency recently reported that U.S. emissions have fallen by 430 million tons or almost 8 percent since 2006. The IEA stated that this is “the largest reduction of all countries or regions.” This drop in emissions, according to the IEA, is due in large part to the shift from coal to natural gas in the power-generation sector.

Contributions to Growth and Progress

As this forum seeks “opportunities for growth,” we need look no further than the energy industry.

Ours has been one of the few sustained drivers of growth in the midst of recent economic challenges. Nowhere has that been more clear than in Canada. Our broad array of successes in developing and deploying new technologies has spurred economic growth … created new jobs … and strengthened energy security.

According to the Canadian Energy Research Institute, oil sands development is expected to contribute $1.7 trillion to the Canadian economy over the next 25 years. That is roughly $68 billion per year.

CERI also estimates annual government revenues from oil sands development of $19.6 billion — from income taxes, royalties, corporate taxes, provincial sales taxes, property taxes, and the Goods and Services Tax.

And in the next 25 years, it is estimated that Canada’s petroleum industry will expand to employ more than 1 million people — more than half of whom will be in oil sands investment and development.

Natural gas is also bringing strong economic benefits to Canada.

The natural gas industry is already a major employer, and the industry is expected to provide 317,000 jobs (direct, indirect and induced) by 2035 — nearly double the number of jobs in 2010. Communities across North America will benefit from responsible natural gas development — from increased use of local businesses and accommodations to trucking and supply services to consumers and chemical manufacturing.

Natural gas development is also making significant contributions through royalties. From 2010 to 2011 alone, natural gas royalties provided $1.5 billion to provincial governments in Alberta, British Columbia, and Saskatchewan. And over the next 25 years, we can expect this contribution to rise further. Natural gas development is forecast to bring in $98 billion in new revenue to these three provinces alone.

The benefits of natural gas clearly go beyond their contribution to powering hospitals, schools, universities, laboratories, homes, and manufacturing. Natural gas development is also an important source of the government revenues for funding public services.

Natural gas makes an additional economic contribution — to Canadian trade. Canada is the world’s third-largest exporter of natural gas. In 2010, natural gas provided $15 billion in export revenue to producers. About 90 percent of U.S. natural gas imports are from Canada.

Of course, with the advent of technologies enabling the recovery of unconventional natural gas, our two nations have the opportunity to provide some of this energy to the world. And as Canada and the United States have proven for nearly 200 years, a peaceful relationship based on free trade can lead to mutual benefit, progress, and friendship among nations.

At ExxonMobil, we see a bright future for natural gas with a global market developing that will help all nations advance together.

To this end, we are part of a cooperative venture that has applied to the U.S. Department of Energy to explore the potential of exporting liquefied natural gas (LNG) from the Golden Pass LNG receiving terminal at Sabine Pass in Texas.

If developed, this project would represent approximately $10 billion of investment, generating billions of dollars of economic growth at local, state and national levels and millions of dollars in taxes to local, state, and federal governments.

The people and government of Canada understand the benefits of investment and international trade — especially as developing economies advance and grow. With the shale gas resources in western Canada, there may be more “opportunities for growth.” ExxonMobil and Imperial Oil are currently in the early stages of assessing potential LNG export options from British Columbia for our Horn River and other acreage positions.

The economic and environmental advantages of natural gas are clear — and markets around the world will increasingly seek this cleaner burning source of energy to fuel progress and prosperity. With North America’s abundant supplies, natural gas will be a valued contributor to jobs and energy security in Canada, the United States, and around the world.

Lessons for the World

Of course, it takes more than industry investment to expand markets, deploy new technologies, and spur growth.

Governments around the world play a crucial role in promoting free trade and establishing a level playing field for lawful competition among market participants. Because investment, innovation, and cooperation are so critical in our industry, we need governments to establish and maintain sound policies.

One of the most important areas for government action is to build a clear regulatory pathway. Businesses operate most efficiently when entrepreneurs and investors can invest and operate with certainty. Regulations should provide an efficient roadmap for how to get things done. In this way, Canada is a global leader — a position it should continue to hold as officials consider ways to streamline the regulatory process.

Environmental rules in Canada are rigorous and demanding, but government officials work with industry to provide guidance and clarity at each step.

Businesses can proceed with the assurance that by meeting — and exceeding — safety and environmental rules we know that a project will advance to completion without arbitrary delays.

The alternative undermines the ability of industry to plan over the long term. We saw this in the U.S. decision to delay the Keystone XL pipeline — a decision that represented a missed opportunity to strengthen our nations’ trade partnership and spur economic growth.

Keystone XL would draw our two nations closer, create mutual benefit, and help in the responsible development of Canada’s oil sands. That is why it is imperative for us to continue to work to advance this visionary project and to ensure the national interests of Canada and the United States are protected.

As we look to the future, energy can be an opportunity for growth and bridge between nations. Canada, in partnership with the United States and other trade partners, has proven it. It has shown how, in the Alexander Graham Bell’s words, “the cooperation of many minds” can lead to great discoveries and improvements in the energy field.

ExxonMobil and Imperial Oil have been privileged to participate in this international meeting of minds, in the free exchange of goods and services, and in the shared goal of stewarding Canada’s energy resources. Our relationship with the people and government of Canada continues to be a source of great opportunity, job creation, and economic growth.

If the world learns the policy lessons Canada has to offer, we can make our energy markets more diverse, our economies more secure, and growth more assured for all peoples.

Thank you.

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