The long-term outlook for chemicals: Building the next wave of middle-class growth

IHS World Petrochemical Conference 
Houston, Texas

stephen d pryor
Stephen D. Pryor

President, ExxonMobil Chemical Company

Speech March 26, 2014

The long-term outlook for chemicals: Building the next wave of middle-class growth

Thank you, Mark. And thanks to IHS for the opportunity to share ExxonMobil's long-term outlook for petrochemicals.

After nearly 30 years, the World Petrochemical Conference is well established as a premier gathering for thought leaders in our industry. It's fitting that we follow on the heels of the CERAWeek energy conference, held right here earlier this month, because, if energy is the foundation of human progress, then chemicals are its building blocks.

Over the coming decades, ExxonMobil sees strong demand for these chemical building blocks, driven by an expanding middle class in the developing world.

Today, I want to talk about an interesting juxtaposition – a connection between chemicals and the developing world’s middle class, and furthermore, how the United States can strengthen its own middle class by capitalizing on shale energy to meet global chemical demand.

The Outlook for Energy 

Much of what I will share with you today is drawn from the most recent edition of ExxonMobil's Outlook for Energy, our forecast of global supply and demand.

Based on data from more than 100 countries and 15 demand sectors, including chemicals, the Outlook provides a frame of reference for ExxonMobil's long-term approach to investment. It's also a really good read. I encourage you to view it on ExxonMobil's website but hopefully not until after I'm finished talking.

The Outlook shows that from now through 2040, rising prosperity will improve the quality of life for billions of people. Many will join the middle class, meaning that they will have the discretionary income to afford amenities such as cars, appliances and air conditioners.

This is similar to what happened in the United States in the middle of the last century. I know because I'm old enough to remember.

I remember my family’s first car, a black 1952 Chevrolet DeLuxe. We were proud to own that car, because it changed our lives. Now we could go out to dinner, visit relatives a hundred miles away, and, best of all, go on that long summer road trip.

I also remember my family's first black-and-white TV, which opened our eyes to the world.

And I remember our first air conditioner, a Fedders wall unit that my dad installed in the living room. On summer days, my sister and I would fight each other for a chance to sit in front of it. And on really hot nights, the entire family would sleep in the living room. It was our version of central air conditioning.

Now, I spent my childhood in a suburban neighborhood of New York City, but that same story was playing out across America at that time.

And today, a similar story is unfolding across the developing world.

For example, over the next 25 years, China will go from having just seven cars for every 100 people to about 30 cars for every 100 people, which, by the way, is about the same rate of vehicle ownership that the United States had when my dad bought his first car.

One big difference between the 1950s and today, however, is that most manufactured goods now are made with plastics and other petrochemicals.

My dad's Chevy was mostly steel, with chrome fenders, glass headlamps, and cotton cloth bench seats. Today's new cars are about 50 percent plastic by volume, because advanced plastics and synthetic fibers cost less, perform better and save fuel.

But it's not just cars and consumer products. All the hallmarks of middle-class life, from better medical care to expanded food choices to increased mobility and productivity, are connected in some way to plastics and other chemical products.

Rising middle class drives chemical demand 

That's why the long-term outlook for chemical demand is so bright.

For example, ExxonMobil sees global demand for ethylene, the largest petrochemical building block, rising by 150 percent from 2010 to 2040, or about three percent per year. That's faster than energy demand, faster than GDP.

Nearly two-thirds of that growth will come from developing countries, and half of that growth will come from China.

A big reason is rising prosperity. China's GDP per capita will continue to increase and by 2040 will be five times higher than it was in 2010.

A related factor is urbanization. As recently as 1980, only 20 percent of China's population lived in cities. By 2040, that number will have risen to 75 percent.

The movement of people from rural to urban settings produces a net increase in households, because city households tend to have fewer people. For example, although China's population will remain virtually flat through 2040, its number of households is expected to rise by 40 percent.

More households will mean more demand for chemicals related to building materials, cars and consumer products, especially among China's urban residents.

The McKinsey Global Institute projects that within the next 10 years, three-quarters of China's urban households will be middle- or upper-middle class, defined as having more than $9,000 a year in disposable income.

China remains the driver, but others also growing 

ExxonMobil expects China's demand for chemicals will continue to rise at or above GDP to meet the needs of these upwardly mobile consumers.

While economic growth in China will not maintain the breakneck pace of the last two decades, China still is expected to lead the world in GDP growth through 2040.

With this in mind, ExxonMobil recently doubled its production capacity in Singapore.

Our Singapore expansion was the largest in the company's history and included a new steam cracker that produces chemicals directly from crude oil – an industry first with a significant cost advantage over the naphtha feedstock used in the region.

Singapore now represents about one-quarter of ExxonMobil's global chemical capacity.

In addition to supplying China, our Singapore expansion will serve customers in other parts of the developing world, including India and Africa, where rising prosperity is also reshaping chemical demand.

For example, India's middle class will grow tenfold by 2025, according to McKinsey. And the African Development Bank estimates that by 2030, most African countries will have a middle-class majority.

In fact, as the Carnegie Endowment notes, there are about 70 developing countries, home to more than half of the people on Earth, in which a large share of the population stands "on the threshold of affluence."

Crossing this threshold will mean better lives for billions of people and robust long-term demand growth for chemicals.

Chemicals supply becomes more global 

Let me now turn to chemical supply.

While chemical demand growth is coming mainly from developing countries, increasingly supply growth is coming from wherever the advantaged feedstock is, and right now that is North America, thanks to shale gas.

For decades, the chemicals business was regional, with demand growth met primarily by local supply. This began changing in the 1980s, when Middle East countries harnessed their abundant ethane supplies and built world-scale petrochemical facilities. This enabled the region to become the epicenter of the global chemical trade.

Since then, chemical markets have become increasingly globalized.

Ten years ago, the volume of chemicals traded between regions equaled about five percent of global production capacity. Today, it has grown to about 10 percent, and by 2020 it will be approaching 20 percent.

This globalization comes at an opportune time for the United States, which is emerging as a significant net exporter of chemicals.

ExxonMobil projects that by 2025, North America could double its exports of polyethylene, polypropylene and paraxylene – the three largest petrochemical products.

The reason, of course, is the abundance of natural gas and feedstock from shale, prompting a wave of chemical capacity announcements that recently topped $100 billion.

These investments include the expansion of ExxonMobil's Baytown refining and chemical complex, just 25 miles from here. ExxonMobil was an early mover in response to the shale opportunity, and our start-up at Baytown is planned for 2017.

While recognizing that not all announced capacity gets built, what we are seeing is a recapitalization of the U.S. chemical industry.

After three decades in which 75 percent of chemical capacity growth came from Asia and the Middle East, the United States is back in the game as a low-cost supplier of petrochemicals.

More broadly, after three decades of an increasingly challenging employment landscape for many middle-class Americans, the United States has the opportunity to create a new generation of high-paying jobs across energy, chemicals and manufacturing.

IHS, our conference sponsor, has estimated that by 2025, shale energy could support nearly four million new U.S. jobs and contribute more than a half-trillion dollars to annual GDP.

Capitalizing on the shale opportunity

Shale energy has the potential to revitalize the entire U.S. economy, literally from the ground up.

But for this to happen, we must overcome two challenges.

One is regulatory. Permits for pipelines, plants and export facilities are being held up by a system that allows limitless challenges by opponents of development. As a result, projects are being stalled or cancelled, and opportunities for growth and job creation are being lost.

The magnitude of these lost opportunities was quantified in a recent letter to Congress signed by the American Chemistry Council and 60 other industry associations. It said that back in 2010, there were 351 stalled energy projects, costing this country 1.9 million new jobs.

And today, the backlog of projects and associated hiring is even greater.

Timely permitting could get these jobs flowing right now. The debate does not have to be protracted. This country has the natural resources, the capital, and the technology required. All we need is the green light to proceed.

A shortfall of skilled workers 

The second challenge is a longer-term one. There is a growing shortage of skilled labor in this country, which will only grow worse as new shale-enabled projects move forward.

One manifestation of this shortage is record escalation in U.S. construction costs. For example, the cost to build a chemical plant in the U.S. Gulf Coast has nearly doubled over the past 10 years.

This shortage of skilled labor is not limited to energy and chemicals. The National Association of Manufacturers reports that two-thirds of all U.S. manufacturers are experiencing moderate to severe worker shortages, with up to 600,000 jobs going unfilled.

How is this possible when there are more than 18 million Americans out of work or underemployed?

The answer points to an even larger issue. U.S. students continue to show declining interest and proficiency in science, technology, engineering, and math, otherwise known as the STEM disciplines.

Last year, only 35 percent of U.S. eighth graders were proficient in math. And in 2008, only four percent of U.S. bachelor's degrees were in engineering; in China, it was 31 percent.

The STEM disciplines are the foundation for innovation and economic competitiveness. And increasingly, good manufacturing jobs require proficiency in one or more of the STEM fields, especially in high-value-added industries like energy and chemicals.

This is a national challenge. So what can we, as a nation, do about it?

Building the workforce 

America's energy and chemical industries are built on math and science. We can and must be leaders in strengthening STEM education and in expanding the pool of skilled labor.

This means more than writing a check. It means working in partnerships with educators and focusing on quantifiable results.

That's why ExxonMobil helped launch the National Math and Science Initiative back in 2007.

This initiative takes innovative, proven programs and scales them up to a national level. One of the key goals is to increase the number of highly qualified U.S. math and science teachers at the high school level.

So far, more than 60,000 existing teachers have completed training, and by 2020, 10,000 new math and science teachers will be certified.

What’s remarkable is that after just three years, participating high schools have tripled the number of students qualifying for Advanced Placement math and science courses. Advanced Placement results are a strong indicator of college success.

But the need for better proficiency in math and science is not limited to college-bound students.

Skilled jobs like instrument technicians and machinists don't require a four-year degree in most cases, but they do require math and science skills.

That's why ExxonMobil recently partnered with nine Houston-area community colleges in a new program to expand vocational training.

We labeled the program, "Houston + Natural Gas = Jobs."

The goal is to prepare thousands of high school graduates and returning military veterans for skilled jobs in the Texas chemical industry, where the average salary has risen to nearly $100,000 a year.

This Houston training initiative has received both state and national recognition. ExxonMobil was named Employer of the Year by the Texas Workforce Commission and next week will receive a leadership award from the National Association of Workforce Boards.

There is growing recognition of the critical importance of workforce training. In his State of the Union address, President Obama called on business, labor and community colleges to work together to support vocational training programs. The White House has called these programs a "robust path to middle income jobs."

Thanks to shale energy, that path has the potential to become a superhighway, leading to an era of economic renewal for America.


 Our industry has a tremendous opportunity to meet the growing demand for chemicals driven by a rising middle class in the developing world.

And, thanks to shale, the United States has the opportunity to play a leading role, and, in the process, grow a new generation of high-paying American middle-class jobs.

With common sense, and a focus on the common good, the United States can move swiftly to clear regulatory roadblocks.

Strengthening U.S. math and science education, and expanding our skilled workforce, is a longer-term challenge, but the payoff will be tremendous.

The United States has overcome these types of challenges in the past.

When I was a kid in the 1950s, America had just emerged from World War II and needed to retool the economy and retrain the workforce. Back then, this country supported education on a national level through programs like the G.I. Bill, and encouraged growth in domestic manufacturing and exports, all of it fueled by rapidly rising production of U.S. oil and gas.

An entire generation of Americans was lifted into the middle class, setting the stage for the most vibrant economy of the 20th century. We can do it again.

By embracing shale energy, the United States can meet the needs of a growing middle class overseas and, in the process, revitalize our own.

Thank you.

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