Mark Nolan, Chairman, ExxonMobil Australia
Speech to American Chamber of Commerce in Australia (AMCHAM)
6 April 2006

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Slide 1 
Thank you for the introduction, and for your invitation to appear here today.

Slide 2
I am particularly delighted to be here today to address the American Chamber of Commerce in Australia. ExxonMobil is an American company that has had a presence in Australia since before Federation.

In fact, we have been a part of the Australian community since 1895, when one of our heritage companies commenced selling lubricating oil from a store front in Collins Street, Melbourne.

ExxonMobil has approximately 2,000 employees in Australia and our major assets include a 50 percent interest in the Bass Strait Joint Venture, as well as a 25% interest in the proposed Gorgon LNG project on the Northwest Shelf. As well we have about a 40 percent interest in the PNG Gas Project and we are also the operator.

ExxonMobil’s downstream and chemicals business in Australia operates under the Mobil brand where we are the owner and operator of the Altona Refinery and 7 distribution terminals.

In addition we have a network of around 900 branded service stations across the country and market lubricants and chemicals throughout our distribution networks in Australia.

This makes us the largest integrated petroleum company in Australia and as many of you would be aware we are also the world's largest private oil and gas company.

Our most significant activities in Australia and Victoria have certainly centred around our operation in Bass Strait.

As many of you would be aware in the '60s we discovered the world-class Bass Strait oil and gas fields in Australia – ExxonMobil’s flagship operation in this country.

As a result of this discovery we went from a nation with oil products making up more than 12 percent of our imports to a nation that produced the lion's share of its own oil needs.

In fact since the late 1960’s Bass Strait has produced two thirds of Australia's cumulative oil requirements and almost 30 percent of total gas.

We have invested $16 billion in our Gippsland infrastructure and these facilities will continue to make a significant contribution to the nation. As our oil production declines this contribution will increasingly focus on the significant gas reserves we have.

So from my comments so far you can see we have a lot to do with the energy business in this country, and around the world.

And let's make no mistake about it, when it comes to sustaining our modern way of life, there is nothing more important than access to affordable, reliable energy – energy to fuel vehicles, electrify homes, prepare food, power factories and lift living standards in developed and developing countries alike. 

It is perhaps easy to underestimate the size of the challenge we face in providing that energy.

Every day millions of people, including you and I, expect to get instant access to energy with the flick of a switch, the turn of a key or the push of a button.

Ensuring we won't be disappointed requires the delivery of about 2.5 million barrels of oil equivalent (2.5MBOE) energy today, and every day, in Australia alone. This is what it takes just to allow us to go about our daily business as normal.

So as I talk today about where ExxonMobil sees energy use heading - and our thoughts on the major challenges and opportunities that we face - it is useful to bear the in mind the scope of the task at hand in trying to meet our future energy needs.

Slide 3 - Global Outlook
Each year, ExxonMobil prepares a detailed, long-term energy outlook of world wide economic growth and energy demand to help us plan our business.

Our outlook is fundamentally consistent with those of most knowledgeable experts - including the International Energy Agency (IEA) and the US Department of Energy (DOE).

As would be expected - based on the population and economic outlooks, worldwide - energy growth is most predominant in the non-OECD countries, particularly in the developing Asia Pacific.

As a result of this phenomena we expect worldwide energy demand to grow on average 1.6% per year, moving from 205 to nearly 335 MBDOE, as shown in the lower left of the chart.

In other words, we’ll need ~50% more energy in 2030 than today.

On a regional basis, looking first at the OECD energy demand in red, you can see growth is relatively small at less than 1% annually in each region, despite strong economic growth. 

We expect technology and efficiency gains to moderate OECD energy demand.

Non-OECD demand, in blue, will move well past that of the OECD. Perhaps most significant, we expect demand in developing Asia-Pacific to grow at 3.2% annually, increasing to 113 MBDOE, or a third of the world total.

Slide 4 - Global Outlook by Fuel
This chart shows our forecast of the global energy outlook. You can see that oil and gas will continue to be the primary sources of energy through 2030 - accounting for about 60 percent of the energy mix with total fossil fuels, including coal, accounting for about 80 percent.

These energy sources are highly efficient, able to be produced on a large scale, and are affordable, reliable and flexible.

They are prominent in the energy mix because consumers demand reliable energy at competitive prices.

The "other" category, which includes nuclear, hydro, biomass, wind and solar, grows at 1.6 percent per year. 

This growth rate assumes a 10 to 12 percent per year growth in wind and solar, and even at this rate, by 2030, their share will only begin to approach 1 percent of total energy.

What's clear from this outlook is that even after assuming tremendous growth in alternative energy sources, fossil fuels will continue to carry the bulk of the world's energy load for many years to come.

Slide 5 - Energy Uses
Now let’s look at the purposes for which energy is used, and the types of primary energy that we’ll need in the future. Again, we’ll look at global energy demand in MBDOE, again from 1980 to 2030.

On the left, we show primary energy by end uses. The bottom wedge in red represents the fuels used to generate electricity. Above that is the energy used for transportation in green and chemicals in blue. 

The yellow wedge labeled Heat/Other includes primary energy consumed in the Residential, Commercial, and Industrial (includes agriculture) sectors and is mostly used for heat. Growth rates are shown for the period 2000-2030.

The chart’s top line growth goes to 334 MBDOE in 2030 as highlighted earlier, with an overall annual average growth rate of 1.6%.

Among the end uses, fuels for electricity generation combine to represent the fastest growing need at 2%.

Slide 6 - Australian Energy Outlook to 2030
Looking at the Australian Outlook you can see that the trends are similar to the global picture.

Out to 2030 – we project energy growth of around 18% above current levels – much lower than the 50 percent increase expected globally.

While renewable energy has an important place in the overall energy mix again they are limited in scope and size in terms of the contribution they can make in the Australian context.

The right hand section of the chart looks specifically at wind and solar and their contribution to Australia's overall energy mix. 

Even though we expect there will be strong growth in wind and solar, their share of total energy demand will still be less than 1% of the total energy supply by 2030.

Looking back at the left hand side of the chart, you can see that gas, shown in red, represents the significant growth area in Australia. Currently it supplies around 20 percent of our energy needs. In 2030 we expect the gas use will double and make up about 40 percent of our energy needs.

Slide 7 - Australian Gas Demand
This chart shows this gas growth by industry segment.

We see gas as the fastest growing major energy source in Australia because it is both economically and environmentally attractive.

The good news is that Australia has abundant gas resources, currently estimated to exceed 140 trillion cubic feet. To put that into perspective, this is about 25 times what has come out of Bass Strait in the last 40 years.

And a real prize in reducing greenhouse gas emissions would be attained if gas were to provide base load power.

Gas power generation produces up to 70 percent less GHG emissions than coal.

Using more gas in power generation would significantly enhance our ability as a nation to meet the global challenge which confronts all of us – meeting our increasing energy needs while minimizing greenhouse gas emissions.

In this context I note that last month the Federal Resources Minister, Ian McFarlane, made reference to a government and industry strategy study (led by APPEA) aimed at ensuring a greater role for gas fuelling the Australian economy.

I applaud the Minister for setting us a challenge to capture up to 70 percent of the costings of new energy generation with gas.

Slide 8 - Tax Comparisons

In examining what impedes gas from taking an increasing share of the domestic power generation market we must first start with an examination of our tax arrangements – in particular how we tax offshore gas in comparison with other energy sources in this country.

This chart shows the patch work framework of fiscal arrangements that applies to the energy resources sector.

These figures were published by APPEA in a document called NatGas, the industry's first national strategy document for the development of Australia's natural gas industry.

We have updated the brown coal figure following 2005 tax changes in the Victorian State budget.

As you can see, the various energy sources are operating under vastly different tax regimes.

In fact what this chart says to me is that offshore gas could compete much more effectively into domestic power generation on price today if it was treated equally from a resource taxation standpoint.

The most effective policies are those that help create a business environment that invites investment and stimulates competition.

Clearly the current system of fiscal arrangements between the state and federal governments is restricting competitive market forces and effectively pricing offshore gas out of fair competition for base-load power generation.

And, when one considers that gas can provide up to 70 per cent less greenhouse gas emissions than coal, there are some substantial greenhouse gas reduction benefits to be gained.

In fact I would go so far as to say that the biggest near term opportunity for greenhouse gas reductions in Australia can be achieved without high cost carbon taxes and emissions trading schemes but by simply leveling the playing field on tax and encouraging more gas in base load power generation.

One way to do this would be to offer a rebate to gas fired power generators.

The rebate could be the proportion of the PRRT revenue collected from producers that is greater than the state based royalty. This would create harmonization of the fiscal regimes and as a result, gas would be very competitive with coal as a fuel for base load power generation. 

If this strategy were pursued, not only would more economic energy be available to the domestic grid, but there would also be gains in fuel type diversity as well as the reduced greenhouse gas emissions.

By offering the tax rebate to the generator, additional tax revenue would still be raised from the petroleum liquids produced with the gas. This may in the long run make such a policy change revenue neutral from a federal budget perspective.

Slide 9 - Conclusion
To sum up, the main points I would like to leave you with today are as follows.

As we project out into the future, energy demand will double globally by 2030 and will increase in Australia by almost 20 per cent.

Conventional energy - primarily oil, gas and coal - will still be delivering over 90 per cent of Australia's requirements in 25 years' time.

Australia is blessed with abundant gas resources. Power generation is the major growth opportunity with significant environmental benefits.

Therefore we urge policymakers to address the relative tax burden applied to gas as compared to coal.

This is not a plea for special treatment but a request for equal treatment - removing a source of competitive disincentive in the domestic power generation sector so different energy sources can compete fairly.

Slide 10 - Closing Slide
I appreciate your attention today and I'll now be pleased to answer any questions you have.