Mark Nolan, Chairman, ExxonMobil Australia
Speech to Committee for Economic Development in Australia (CEDA), Perth
12 October 2006

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Slide 1 
Thank you for the opportunity to talk about one of the most important topics we face as a society – the future of energy.

This is an exciting time in the energy industry. But it is also a challenging time – with governments and consumers questioning the cost of energy - and the availability of future supplies.

There is a lot of talk about rising global demand and the technological challenges of finding and producing energy. 

For us in the energy industry, that’s business as usual – these are challenges we have faced and overcome for over 100 years.  And as we look out many decades into the future, the world’s resource base gives us as a society reason to be optimistic about future energy security. 

How the world will meet the future energy challenge promotes vigorous debate. However, behind the debates there is common ground - agreement on the basic need to provide energy to fuel growth in an economical and environmentally balanced way. 

Slide 2 - Maximising Value
In Australia, we are very fortunate to be a resource-rich country in the world's fastest growing region, where demand for our resources is strong and rapidly rising. But we can’t lose sight of the fact that the energy sector is becoming a much more dynamic, global marketplace where the stakes are high and the competition is intense. 

In the next few years, Australian Governments and the energy industry in this country, face critical decisions about our energy future, decisions which will determine Australia’s success or otherwise on the global stage for many years to come. 

Today I’m going to talk about some of the challenges we face, and what we can do here in Australia, to get the best value from our energy resources as both a consumer and supplier in this competitive market environment.

But first let me provide some context by touching on the outlook for world energy demand, the composition of the future energy mix, and the investment requirement that lies before us.

Slide 3 - Global Energy Outlook
Access to affordable energy makes economic growth possible, as it powers the businesses and industries which create jobs and drive trade. In other words, energy is the prerequisite of progress.

As energy fuels development, development fuels demand. Growing populations and increasing prosperity particularly in developing nations will drive energy usage to ever greater heights. Total energy demand is expected to be about 50 percent higher by the year 2030 than it is today.

Due to their scale and flexibility, conventional energy sources such as oil, natural gas and coal will continue to provide the vast majority of the world’s energy needs over the next 25 years and beyond.

Having said that, we also predict that renewables, such as wind and solar, will experience double-digit growth on a global basis over this timeframe, due in large part to government subsidies and mandates in many countries.

While new energy sources hold promise, they require substantial technological advances to enable them to compete for a significant share of global energy supply. By around 2030, we expect that wind and solar will contribute about one per cent of total world energy needs.

Within this equation we must also consider the risks posed by climate change.

Given the important role that fossil fuels play in providing energy for the global economy, the issues of global economic development, future energy supply and climate change are closely linked. 

Slide 4 - CO2 Growth - Primarily Non-OECD
Energy experts – including ABARE – agree that global greenhouse gas emissions will rise substantially, particularly as developing economies grow. In fact close to 85% of CO2 emissions growth from 2000 to 2030, is likely to come from the developing economies.

Fundamental research is necessary to identify and develop viable technologies which allow energy demand to be met while dramatically reducing greenhouse gas emissions. This is an area that we as a company are heavily involved, on many levels. More about that in a moment.

However, in the meantime more widespread use of existing efficient technologies in industrialised and developing countries offers significant potential to reduce greenhouse gas emissions growth. 

So yes, there is a challenge ahead of us. But it’s a different challenge than some predict.

The challenge isn’t the adequacy of the resources available. The resources are there. However - the development of new resource supplies requires substantial investments of both financial and human capital.

Slide 5 - World Energy Investment 2004-2030
The International Energy Agency estimates that the international oil and gas industry needs to invest more than 200 billion US dollars annually between now and 2030 to meet the world's future oil and gas needs. That equates to over 500 million dollars every day – for 25 years.

In the overall discussion of our future energy security, it is vital that we communicate this important point to those who question the cost of energy today.

Slide 6 - Australia - Maximising Value
In the context of the world’s energy outlook, it is clear that there will be substantial demand for Australia's natural resources. 

Our challenge ... is to combine investment, technology and public policy in a way that enables us to successfully explore for and produce our oil and gas resources and deliver them to market as efficiently as possible.

This is an effort that requires the collaborative efforts of industry, government and consumers. 

Let’s start by looking at technology.

Slide 7 - Technology Essential to Meet Supply Challenges
Although not everyone recognizes this, the oil and gas industry is a high-end technology business. 

While our end product is a commodity, the business of producing it is as heavily dependent on technology – if not more so – than many so-called technology firms.

This is certainly true at ExxonMobil. We see every day the benefits that technology has given us.…..the ability to discover, develop and supply energy from sources once considered impossible to access.

It is worth noting that two decades ago the technology used by ExxonMobil to discover the giant Jansz gas field in deep water off WA was not available and it's only within the current decade that development of this field could be contemplated.

Doing this will require the longest and deepest subsea production tie-back in the world.

The diagram on the bottom right shows the application of ExxonMobil technology in the drilling of extended-reach wells from Sakhalin Island north of Japan.

Here the world's most powerful land-based drilling rig steered wells beneath the Arctic pack ice to reach fields 10km offshore.

This has been described as like threading the needle in a haystack from across the farm – in a blizzard.

The first shipment of oil from our Sakhalin project was loaded last month.

Technology is also increasing the global reach of clean-burning natural gas. Our engineers continue to work on making the transportation of LNG more efficient, so that larger volumes are being brought to markets further away, at lower cost. 

Slide 8 - Technology Critical to Efficiency Improvements
So, technology is without a doubt critical to the flow of new energy supplies.  But it also has a key role to play on the demand side.

Pursuing more efficient ways to use energy will help to reduce the rate of growth in energy demand.

In the transportation sector, innovations such as hybrid vehicles and advanced engines and fuels will mitigate future demand growth and reduce global greenhouse gas emissions.

ExxonMobil is working with companies such as Toyota and Caterpillar to develop high-efficiency, low-emission fuel and engine systems which can help contribute to improved efficiencies in transportation.

The point is, evolutionary development of technologies can have revolutionary impacts on consumption, in the same way they have been proven to have on finding and producing oil and gas.

If new vehicle fuel economy could be improved by 3 percent per year, over ten years this would save almost 4 billion barrels of oil on a global basis. That’s equivalent to all of the crude oil the United States imported last year.

New technology also helps us with the pursuit of energy efficiency in our own operations. An example is our investment in cogeneration - the simultaneous production of electricity and heat or steam. Our cogeneration facilities, in 30 locations worldwide, produce electricity equivalent to that used by 7 million households. 

Continued scientific research is also an important component of efforts to achieve efficiency breakthroughs. For example, in 2002 ExxonMobil worked with a number of other major corporations to establish the Global Climate and Energy Project – the largest-ever independent climate and energy research effort.

Based at Stanford University in the US, this $225 million project engages some of the world’s best scientific and engineering minds in finding ways to make carbon geo-sequestration viable, to make internal combustion engines dramatically more efficient, and to make hydrogen, solar, biofuels and other alternatives more effective, competitive and safe.

So far it has supported 30 research programs with funding of approximately US$45 million -- and this includes $US 2.4 million to the University of NSW researchers investigating innovative and efficient approaches to the design and fabrication of solar cells.

The combination of technological advancements to increase supply, coupled with new developments to help make global energy use more efficient, can be powerful in coming years.

Slide 9 - The Public Policy Challenge
I’d like to turn now to the role that policymakers can play in helping to get maximum value for Australia's resources while delivering future energy security.

Crucial to future energy security is the role that governments play in maintaining stable fiscal and regulatory environments and in allowing access to energy resources. These are vital ingredients in an industry which is highly capital-intensive and which operates over such long time horizons.

While, as I said earlier, Australia is rich in energy resources – primarily gas and coal -- we are not big on the global stage. And while we are situated in the fastest growing region on earth, this geographical advantage – certainly as far as gas is concerned – is diminishing as technological advances reduce the costs of shipping LNG.

So if we are going to attract the level of investment required to realise our full potential in the rapidly expanding and highly competitive LNG trade, we must play to our strengths.

Australia has built up a solid reputation as a stable democracy with a respect for the rule of law and a strong economy.  This makes us attractive to potential investors as well as customers banking on security of supply.

But reputations are hard won and easily lost.

Our industry has proven time and again that it will accept risk – even for projects that require massive investment – if the host business and investment environment is supportive - for example, measures are in place that allow us to operate effectively and to resolve issues fairly and amicably. 

The vast energy infrastructure that successfully moves oil and gas around the world is living proof that the industry is not afraid of making large investments when there is demonstrated value and long-term stability.

And as we look to the future, the contribution that international oil companies can make to the development of national energy resources will be critical.

Our task is to bring new developments online safely and in an environmentally responsible manner - on time and on budget. I am proud to say this is a task that ExxonMobil has proven time and again that it can deliver on.

In order for an open global market to best facilitate the new investments needed to help meet the world’s energy needs, both producing countries and consuming countries must be open to participation, to ensure the efficient function of the energy supply chain.

There are many who really believe that energy independence is a practical and realistic goal – that we can somehow insulate ourselves from the international energy market.  While they may be well-intentioned, their analysis of what constitutes energy security is misguided.

Take oil for example. There are some in this country who believe we can somehow insulate our economy from the price fluctuations of the global oil market by becoming self-sufficient. But Australia is just a small part of a large global energy market. 

The fact is our refineries buy a variety of different crudes depending on the products they produce and the processing facilities they have.

Right now, for example, our Altona refinery gets about half its feedstock from Bass Strait via pipeline. This provides reduced transport costs, but because of its particular composition, the Gippsland crude is not Altona’s ideal feedstock. So Altona also imports complementary feedstocks from Asia and the Middle East. Gippsland crude is also sold on the open market.

Many years of experience around the world has demonstrated to us that the path to real energy security lies in open international trade, diversity of supply and the strengthening of partnerships between producing and consuming nations.

While I did not come here to speak specifically about any one domestic policy issue, given I am in WA and I have talked about energy security, I would like to make a few comments on the issue of a domestic gas reservation on LNG projects.

Firstly let me say that the Premier and the WA Government should be applauded for considering the long term energy (gas) needs of the state. As I said earlier it is critical that policy-makers do more of this.

While we do not support a domestic gas reservation, as we think it is counterproductive to delivering security of supply for WA or promoting investment in LNG projects, we appreciate that the Premier has been willing to consult extensively with industry and seek our views as he frames his Government’s approach to long term policy planning.

In particular I would like to acknowledge the Premier's commitment to work with energy companies on a project-by-project basis and to seek flexibility in the application of public policy. 

Slide 10 - Conclusion
So, to conclude: Australia faces some significant challenges as we work to best position ourselves to meet our own future energy needs, optimise value from our resources base on the world stage, and address the risks posed by climate change.

However, we must avoid reacting to unnecessarily gloomy projections based on current events and headlines.

If history has taught us anything about the energy industry, it is that each generation has faced challenges that seemed insurmountable at the time, yet in retrospect were nothing more than routine obstacles overcome by technology, ingenuity and hard work. 

By building a stable business environment, governments can help stimulate the competition for ideas that leads to technological innovation and ultimately the best results for society as a whole.

The prize we seek is progress: progress towards providing an adequate and affordable supply of energy; progress towards helping developing and developed economies alike grow and prosper by meeting their energy needs.

Achieving such progress in a challenging new era of energy will require a great deal. 

It will require continuing dialogue between industry and governments. 

It will require building a richer information environment, grounded in reality-based, technically sound cost-benefit analyses. 

It will require continued technological innovation through the competition of ideas.

With the right combination of technology, investment and public policy support of free trade and open markets, the energy challenges of the future are within our collective power to resolve. It is up to all of us to work toward making that happen.

Thank you for your time and attention today.