Americas: Strategies for a sustainable future

I’m pleased to be here to discuss strategies for a sustainable future.

As leaders of this industry, we face a variety of challenges, from weak global economies to rising public concerns about the safety of our products. But in every country I visit, the conversation quickly turns to shale gas and its impact on the chemical business.

Without question, the reversal of fortunes of the American chemical industry is one of the most remarkable stories flowing from the growth in unconventional oil and gas.

Today, I’ll share my perspective on this new energy landscape and the renaissance in American chemistry that it has ignited.

And looking beyond today’s shale gas advantage, I’ll also address how chemical companies around the world can sustain leading performance over the peaks and valleys of the business cycle.

The Big Picture

Let me start with the big picture.

The world is on the cusp of a new age of unconventional energy. It is transforming America’s energy future, unleashing economic growth, and improving the environment.

That energy future will be built on oil and natural gas. U.S. proven reserves of natural gas have grown close to 50 percent since 2005. We now have close to a century’s worth of supply.

Equally impressive is the growing production of unconventional oil, which by next year will have nearly halved U.S. oil and liquid fuel imports. ExxonMobil sees real prospects for North America transitioning to a net energy exporter by 2025.

Liquefied natural gas exports will be part of that picture. For example, an ExxonMobil joint venture here in Texas has proposed a world-class LNG export project. This $10 billion investment would generate an estimated $31 billion in economic gains over the life of the project. This includes 45,000 direct and indirect jobs during the five-year construction period, and thousands more permanent jobs as well.

ExxonMobil’s LNG project is a striking example of how energy investments create jobs and drive economic expansion. In fact, by the end of the decade, unconventional oil and gas is projected to support three million U.S. jobs and increase real GDP by 2 to 3 percent. Given the American economy grew at an almost imperceptible one-tenth of one percent in the fourth quarter, these are numbers that should make everyone sit up and take notice.

We are also seeing environmental benefits from the rising use of natural gas in electricity generation. U.S. energy-related CO2 emissions have fallen to their lowest levels in nearly two decades. And, producing electricity from shale gas uses less than half the water required by coal, a tremendous sustainability benefit.

So how important is the new age of unconventional energy? It’s unlike anything we’ve seen in this country since the dawning of the age of oil, some 150 years ago in Pennsylvania’s Marcellus Shale region.

And what ushered in these two greatest breakthroughs in U.S. energy history? The private sector.

It was innovative technology developed by entrepreneurs risking private capital in a free market. It was not the result of government policies that picked winners or losers. That critical insight about the true source of innovation and growth must be the foundation of our ongoing advocacy for free markets and free trade.

The American Chemical Renaissance

Let me now turn to the renaissance unfolding in American chemistry, fueled by feedstock and energy from unconventional resources.

Just five years ago, U.S. chemical production was in steady decline due largely to the rising price of natural gas. America was on the verge of becoming a net importer of chemicals. Growing supplies of shale gas and gas liquids have changed all that.

North American chemical manufacturers now have a major cost advantage over competitors around the world that rely on more expensive, oil-based feedstocks.

This has boosted profitability and enabled the industry to regain its position as America’s largest exporter. It has also stimulated new investment. For the first time in more than a decade, major capacity additions have been announced that convert ethane to ethylene, the largest petrochemical building block.

According to a recent study by the Federal Reserve, these represent a capacity increase of 33 percent by 2017, which is the equivalent of six to eight new world-scale steam crackers. On top of that are smaller projects already completed, equivalent to at least one steam cracker.

ExxonMobil Chemical is part of this picture. We are progressing plans for a multi-billion dollar world-scale steam cracker and premium polyethylene expansion at our Baytown, Texas, site, already the country’s largest integrated refining-chemical complex.

While all announced projects may not materialize, the U.S. industry is clearly poised to expand its position as a leading petrochemical producer. And with 85 percent of demand growth projected to occur in emerging markets, this is great news for U.S. chemical exports.

Keys to a Sustainable Future

The brightened outlook for American chemistry is not an excuse for complacency. The industry will continue to be a highly competitive and cyclical global business.

The industry remains subject to both economic and political cycles, as well as cycles of new capacity that create boom and bust industry conditions. Moreover, as we have seen repeatedly in the past, feedstock advantages change over time. And new technologies like shale gas extraction migrate quickly around the world.

This brings me to the subject of my talk: strategies for a sustainable future. What strategy can help companies remain successful over these peaks and valleys in the chemical industry landscape? In a word — sustainability. Sustainability may sound like a buzzword, but it is a driving force in the chemical industry.

Sustainability starts with reducing the environmental impact of our own operations. It also entails supplying value-added products that benefit customers and help them reduce their environmental impact. Both must be done in a manner that delivers attractive returns to shareholders while benefiting society.

These three dimensions of sustainability underpin ExxonMobil’s disciplined long-term approach, which our new project in Baytown illustrates.

Reducing environmental impact has been an ongoing strategy at Baytown. Over the past decade, the site has invested over $1.3 billion in environmental improvements, reducing NOx and VOC emissions by more than 50 percent and achieving double-digit improvements in energy efficiency. The new cracker project will be contained within the site’s existing footprint. State-of-the-art environmental technology will maintain total site emissions within existing permitted levels.

The project will produce value-added products for our customers, including stronger, lighter, lower-cost packaging solutions with reduced environmental impact. These advanced polymers are the product of ongoing company research that has reduced film thickness by two percent per year for the last 20 years.

Benefiting shareholders and society is the third dimension of sustainability. Our unique Baytown project will be a win-win for ExxonMobil and the Greater Houston area. Returns will be sustained over the ups and downs of the business cycle through both leading-edge technologies and integration with our refining and natural gas businesses, providing unmatched scale and a 100 percent premium product slate.

The Greater Houston area will benefit from an estimated 10,000 jobs at the peak of construction. The multiplier effect of new economic activity created by the facilities would add 3,800 other jobs in the area and increase regional economic activity by $870 million per year.

The bottom-line is that sustainability is good business, benefitting the environment, customers, shareholders and society. It’s the strategy for a sustainable future in the global chemical business.

Free Markets, Free Trade

I would now like to return to my earlier point about free markets and free trade, which are vital to innovation and sustainable growth.

Free trade is the life blood of the chemical industry. New industry investments in the Middle East, Asia and now North America will increase trade flows, benefiting producers and consumers worldwide.

But with this opportunity comes obstacles.

The prospects of growing exports often prompt calls for protectionism from competitors seeking to protect their domestic advantage. Protectionist pleas are often wrapped in pious appeals to nationalism, but the real agenda is to unlevel the playing field and stifle the competition.

As an industry, we must vigorously oppose protectionist measures that limit access to global markets. We must also promote free trade initiatives such as the U.S. - EU Free Trade Agreement and the TransPacific Economic Partnership. The American Chemistry Council actively supports both.

Likewise, we must oppose protectionism in our home countries, such as calls to restrict U.S. natural gas exports. These proposals to block LNG investments, justified by artificial price caps, represent a selective and harmful departure from free-market and free-trade principles.

Blocking LNG exports would be an affront to America’s trading partners and undermine the efforts under way to strengthen our trading ties.

For example, why should the EU drop tariffs on U.S. chemicals, made from advantaged natural gas, if the U.S. blocks exports of that gas in liquefied form?

Likewise, how can the U.S. secure sanctions against China for restricting exports of rare-earth minerals, without inviting sanctions on the U.S. for restricting natural gas exports?

And, how can the U.S. ask Japan, a close ally suffering from energy shortages, to stop importing oil from Iran, if we prevent it from importing gas from the U.S.?

The answers are obvious, yet the damage would go beyond the chilling effect on trade. Restricting LNG exports would also be harmful domestic policy.

It would return the U.S. to the era of price controls, which in the 1970s and ‘80s caused falling natural gas production, supply shortages equaling one-quarter of demand, price spikes and diminished economic opportunity.

Eventual deregulation of natural gas in the mid 1980s created the free-market conditions that spawned the age of unconventional oil and gas. The voices that opposed deregulation back then were wrong, just as they are wrong today in calling for new controls on natural gas.

Every credible independent study — including by IHS, our conference host — projects no significant increase in the price of natural gas from LNG exports. That’s because LNG exports would stimulate increased production from this country’s vast resource base.

The point is this: Protectionism and price controls defy economic logic, defy historical evidence, and undermine prosperity and progress here and abroad. Free markets and free trade are extraordinary engines that are proven to stimulate investment, create jobs, and build closer ties among nations.

Conclusion

Let me conclude these remarks with a challenge for our industry.

Modern chemistry provides the basic building blocks of civilization. Our innovation and products help people — all over the world — live lives that are safer, healthier and more prosperous than at any point in human history.

As we look to the future, we must do more than embrace the business opportunities that the new age of unconventional oil and natural gas presents. We need to communicate to consumers and government leaders about the potential and promise ahead.

We must communicate the indispensable role of the chemical industry and how sustainability underpins everything we do.

Beyond that, we must remind the public that free markets and sustainability are, in fact, inextricably tied together. For we know firsthand that free markets unleash human ingenuity, and that the result is greater efficiency, a stronger economy, and better environmental protection.

Simply put, it falls to us to tell the extraordinary story of modern chemistry, our contributions to a sustainable future, and how free markets and free trade bring people and nations together to build a better world.

Thank you for your kind attention.