renewing the commitment to energy internationalism

Remarks by Rex W. Tillerson
Chairman and CEO, Exxon Mobil Corporation
World Energy Congress, Rome, Italy
November 12, 2007 

It is an honor to address the 20th Congress of the World Energy Council. Since its founding in 1923, this organization has helped engage and unite a growing, diversifying global energy community.

To capitalize on this important gathering of world energy leaders, the Council has used its triennial meetings to build awareness and consensus around the critical energy challenges ahead.

In keeping with this tradition, we do so again this year. The theme of this Congress is “The Energy Future in an Interdependent World,” and it points to one of the enduring realities of our industry.

If we are to build a more secure future for our generation and those that follow, we must renew our commitment to global energy interdependence.

It is a theme consistent with the mission of the World Energy Council — to, “promote the sustainable supply and use of energy for the greatest benefit of all people.”

Achieving this goal requires that the global energy community recommit ourselves to developing and sharing the world’s energy endowment in an effective, equitable and responsible way.

This commitment is, however, being tested in many nations today. Current conditions and emerging challenges have led some to question the value of energy internationalism, and to pursue isolationist or protectionist policies which could have severe consequences for the global economy and for global energy security over the longer term.

This approach is antithetical to the mission of the World Energy Council and to the principle of a well-functioning global energy market. It is more important than ever today that we work together to defend the principle of open and free exchange that will promote for all people the great benefits energy provides.

The Energy Industry’s Record of Accomplishment
To do so, it is worth recalling the international energy industry’s long record of accomplishment as an enabler of human progress around the globe.

Throughout the industry’s history, we have faced episodes of economic disruption, political instability and natural disaster.

At the same time, the on-going search for new energy supplies has taken us to more extreme environments, testing the limits of our industry’s scientific, engineering and management capacities.

For oil and gas, the new energy frontiers of today include the arctic colds of Eastern Russia … the vast, isolated regions of Kazakhstan … the tar sands of central Canada… and the deep waters of West Africa. To develop resources in these locations requires enormous projects costing billions and spanning decades.

The international energy industry has consistently overcome these challenges to continue fueling economic prosperity worldwide.

We have weathered events such as the hurricanes in the Gulf of Mexico two years ago. These storms disabled some one quarter of the refining capacity of the world’s largest economy. But we quickly recovered, and consumers suffered few if any shortages as a result of the efficient global supply chain which quickly responded, supplying needed fuel products to demand centers in North America. Our industry has proven remarkably resilient.

We have surmounted obstacles. Oil and natural gas trapped below arctic ice, hidden deep under water, or stranded in rock formations — once believed to be beyond our reach — now flow into our vehicles and into our homes.

We have also disproved skeptics. In 1972, the Club of Rome warned of the limits of growth and predicted an era of oil scarcity by the mid-1990s. Just the opposite occurred. New discoveries and enhanced recovery increased oil reserves faster than they were produced during this time period.

The outcome of such success has been remarkable. Between 1930 and 2000, world industrial output grew by 1400 percent. Living standards have risen to new heights. In just the last 30 years, the number of people who have achieved what the United Nations calls “medium development” has more than doubled, from 1.6 billion to 3.5 billion — or more than half the world’s population.

Energy — essential to nearly all economic activity — has contributed to this success. Consumers worldwide use more than 150 thousand liters of oil every second. Every day, they use the equivalent of about 38 billion liters of oil from all energy sources. It is the energy industry that develops and delivers practically every liter.

As we are producing energy, we are reducing environmental impacts. A new vehicle today, using the latest low-sulfur fuel and equipped with the most advanced emissions technology, has 97 percent less emissions than a new vehicle had in 1970. The environmental footprint of modern oil and gas operations is a fraction of that of their predecessors.

Energy sources other than hydrocarbons have also seen success in recent years. Nuclear, hydroelectric, geothermal, wind and solar energy have made in-roads where and when they have shown to be economically competitive with fossil fuels. As global energy demand grows, all types of energy will be important, subject to their ability to meet the thresholds of scale, reliability and affordability. It is in part a tribute to the many energy entrepreneurs here today that these alternative sources continue to expand their contribution to the world’s energy supply base.

The overall record of industry achievements goes largely unnoticed in developed countries, where access to energy is assumed. But precious energy supplies are not taken for granted by those who lack them, and do not enjoy the economic, health and social benefits they enable.

The 1.6 billion people around the world who still lack electricity do not take energy for granted.

The 2.5 billion people who still rely on basic fuels such as wood and waste do not take energy for granted.

The 2.7 billion people with incomes of less than $2 per day do not take energy for granted.

Those struggling without sufficient energy remind us of energy’s vital importance. They also remind us of the urgency of continuing to pursue new sources of supply, just as we pursue technologies that can reduce the environmental impacts of making energy supplies available to the consumer. Meeting the energy needs of the world’s least advantaged is a prime reason our industry’s record of accomplishment must continue.

Investment and Innovation via Competition and Cooperation
Many factors account for our industry’s historic success. Chief among these have been the development of a global energy trading system and the formation of strong international energy partnerships.

Crude oil — the world’s foremost energy source — is today a true global commodity, traded freely in markets worldwide. Other energy sources, such as natural gas, are also developing higher levels of global market integration.

These markets have expanded as trade in energy has intensified. In the United States alone, total exports and imports of all energy types have increased by over 1000 percent since 1950.

Cooperative partnerships have facilitated this competitive commerce. Exporting and importing countries are in many places separated by vast distances and distinct differences. Relationships based on shared understandings of the importance of markets and the rule of law have helped bridge these gaps.

A prime example is the relationship between the world’s leading exporter of oil and its leading importer. Saudi Arabia and the United States occupy different hemispheres and are home to different cultures. Yet the energy partnership between these two countries remains strong, and has been a lynchpin of the global trading system.

Free markets and strong partnerships have unleashed the capital and creativity of the energy industry, enabling it to make massive investments in new production and tremendous strides in innovation. Private competition spurs the search for new energy solutions, and public cooperation permits these solutions to spread. And it is within the free market environment that the most promising technologies rise to prominence.

The level of international energy investment is enormous. Last year, ExxonMobil alone invested more in finding, developing, refining and delivering energy than the Gross Domestic Product of over one third of the world’s economies. And our company accounts for only two percent of the world’s total energy needs.

And enormous investments will be required in the future. The International Energy Agency estimated just last week that over $20 trillion in new investment will be required through 2030.

Technology has also advanced at a rapid pace. The first offshore wells of a half century ago were drilled in approximately one hundred meters of water. Today, drilling occurs in water as deep as five times the height of the Eiffel Tower.

Wells now extend up to 11 kilometers — the distance from here to the Coliseum — and are drilled both horizontally and vertically to minimize their environmental footprint.

Such investment and innovation would not have been possible had a functioning global market place and firm international partnerships not been in place. And because continued investment and innovation are needed to build a secure energy future, these institutions are as important as ever.

Facing Future Energy Challenges
The future holds challenges for the international energy industry. Global energy demand growth is one. Last week saw the launch of the most recent Energy Outlooks from both the International Energy Agency and ExxonMobil. The consistent message in both is that between now and the year 2030, the world’s demand for energy will increase dramatically.

Sufficient hydrocarbon resources exist to play their role in meeting this growing global demand, if industry is allowed to access them.

The U.S. Geological Survey, to cite just one authority, estimates that twice the total conventional oil resources consumed in human history to date still remain to be tapped. Unconventional resources are likely to significantly add to this total.

As mentioned earlier, other energy sources also make a positive and growing contribution to the world energy mix. The reality is, given the scale of the world’s growing needs, all economic energy sources are needed. We cannot discard any options to deliver the energy the world will need.

Fossil fuels will continue to be the world’s predominant energy resources for the foreseeable future, by virtue of their availability, versatility, and affordability. But they will not meet the energy demand challenge alone.

Another challenge ahead is managing the shift in energy markets from developed countries to developing ones. Most of the future increase in global energy demand will take place in developing countries, where close to 95 percent of the world’s population growth will occur and where the rate of economic growth will be twice that of the world’s developed countries between now and 2030.

Significant increases in global energy supply will also originate in developing countries. The International Energy Agency predicts that more than 90 percent of new oil supplies will come from developing countries in the next 20 years.

These shifts will put a premium on maintaining strong trading relationships between developed and developing countries.

A third challenge we face is addressing the risks of climate change. Many more questions on this complex subject remain, and require continued research. But it has become increasingly clear that climate change poses risks to society and ecosystems that are serious enough to warrant action — by individuals, by businesses, and by governments.

ExxonMobil is taking action to reduce greenhouse gas emissions by increasing our own energy efficiency in the short-term… advancing current proven emission-reducing technologies in the medium-term… and developing breakthrough, game-changing technologies for the long term.

Consistent with this approach, ExxonMobil is playing a leading role in the development of two recent innovations which could have an important impact on reducing emissions.

Soon we will be unveiling new separator films for lithium-ion batteries, with the potential to improve the energy efficiency and affordability of next generation hybrid and electric vehicles.

Developed by ExxonMobil’s Chemical Company, these new film technologies are expected to significantly enhance the power, safety and reliability of lithium-ion batteries, thereby helping speed the adoption of these smaller and lighter batteries into the next wave of lower-emission vehicles.

Another emissions-reducing technology we are developing is an on-board hydrogen-powered fuel cell system. By converting conventional hydrocarbon fuels into hydrogen for a fuel cell on-board the vehicle, this system could be up to 80 percent more fuel-efficient and emit 45 percent less carbon dioxide than today’s internal combustion engine.

Meeting economic needs, managing market shifts, and addressing environmental risks begins with recognizing the importance of global energy markets and strong international relationships. Each of these challenges is global in scope — and each must be addressed around the globe.

The Dangers of Resource Nationalism
These realities are not fully recognized in several nations today, however. In the current high price environment, some exporting and importing countries are losing sight of their interdependence.

Instead, they are responding to the energy challenge by pursuing policies of resource nationalism, ranging from calls for “energy independence” for consuming countries, to “energy superpower” status for producing ones.

Over the long-term, such isolationism and resource nationalism is counterproductive, hurts those who have the greatest need for energy to support economic progress, and undermines our shared goals of economic development, supply security and environmental protection.

In the case of “energy independence,” few major economies can realistically achieve it. Here in Europe, reliable, diverse energy supply sources are important for energy security. In the United States, the gap between domestic energy consumption and production stands at about 15 million barrels of oil equivalent per day, or 30 percent of Americans’ daily demand for energy from all sources.

This gap is filled primarily with imports of oil from over 35 countries last year. No single region, except for North America, accounted for more than 15 percent of U.S. crude oil imports in 2006.

This gap could be reduced by continuing to use energy more efficiently. It could also be reduced by opening access to the wealth of domestic energy supplies currently ruled “off-limits.” But regardless, no conceivable combination of demand moderation or domestic supply development can realistically close the gap and eliminate Americans’ need for imports.

Not only is “energy independence” in most places unrealistic, its pursuit can have a chilling effect on existing trading relations. As a recent report by the U.S. National Petroleum Council concluded, “Policies espousing ‘energy independence’ may create considerable uncertainty among international trading partners and hinder investment in international energy supply development.” I have no doubt that this strikes a chord with many in this room today.

In short, energy security, not energy independence, should be the goal.

In some energy exporting countries, resource nationalism has taken the form of a drive to become a so-called “energy superpower.” This drive has even manifested itself in unilateral changes to existing contracts with international oil companies, or moves to further nationalize their energy industry.

Such actions have detrimental impacts. The risks associated with major energy projects are very large. International oil companies need to be confident that contract terms will be honored — that the risks and rewards from a given project will be shared as agreed upon — or they will inevitably be less likely to make the needed technological upgrades or the future investments.

Our shareholders, after all, have entrusted us to make wise investment decisions. Considering the long-term, high-tech, capital-intensive nature of today’s enormous energy projects, respecting the sanctity of contracts and preserving continuity and stability in national energy policy is as important as ever.

Resource nationalism threatens to stymie innovation and slow energy development critical to continuing economic progress worldwide. The long-term costs of such counterproductive policies are borne to a large degree by the people of resource-rich countries.

They pay the most in terms of lost revenues and missed opportunities as international investment declines, and with it, energy infrastructure and new opportunities for development and advancement.

At a time when we should open doors to trade, resource nationalism closes them. At a time when we should be building bridges of international partnership, resource nationalism builds walls.

Energy to Unite
In 1924, a leading news magazine described the impetus behind the first World Energy Congress. It was founded on, “the idea of uniting the engineers of all nations to help put the world together again.”

Fortunately, the challenge facing the 20th World Energy Congress is not the same as the first. We do not need to put the world together again.

But we do need to ensure that the global energy markets and international energy partnerships do not fall apart. They are essential to, in the words of the Council’s mission, “promote the sustainable supply and use of energy for the greatest benefits of all people.”

To fulfill this mission, not only must engineers of all nations help, but policymakers and civic leaders, as well.

Energy can and should unite us, not divide us. That is the spirit behind the World Energy Council — and that is a key to solving the world’s energy challenges.

Thank you for your kind attention.