the endless frontier: market-based technological solutions to tomorrow’s energy challenges

Remarks by Rex W. Tillerson
Chairman and CEO, Exxon Mobil Corporation
Center for Strategic and International Studies; Washington, DC
May 1, 2006

 

I had the opportunity to tour Saudi Aramco’s state-of-the-art Technology Center and OSPAS control room earlier this year. These impressive facilities clearly demonstrate your commitment to leverage the latest technologies to supply the world’s energy needs. As a company that likewise takes pride in our technology, ExxonMobil is pleased to have a long and successful partnership with Aramco and the Kingdom of Saudi Arabia in a number of significant investments.

I would also like to thank the Center for Strategic and International Studies for hosting this important event. We are proud to support CSIS in its pioneering intellectual work on the frontiers of public policy research.

This afternoon, I will take a few moments to provide a broad perspective on the role of technology in meeting tomorrow’s energy challenges. In the next panel, Steve Cassiani from ExxonMobil's Upstream Research Company will talk in more detail about how the upstream oil and gas industry, and ExxonMobil in particular, have consistently developed and deployed new technologies to meet global energy challenges.

 

The Energy Technology Challenge
The global energy system, in which Saudi Aramco, ExxonMobil and all energy producers and consumers play a part, does face tremendous challenges today. 

Growing energy demand, evolving environmental expectations, and renewed concerns about security of supply are among them. Our industry must meet these challenges so that consumers can continue to access reliable, clean energy supplies at competitive prices far into the future.

All options must be investigated to ensure that the necessary energy is available – both to sustain the developed economies and to support the requirements of the rapidly growing economies of the developing world. Any failure to achieve this represents serious consequences for people living at both ends of the economic spectrum.

Technology has a vitally important role to play in meeting this challenge.

It is true that the age of “easy oil” is over. What many fail to realize is that it has been over for decades. Our industry constantly operates at the edge of technical possibility, constantly developing and applying new technologies to make those possibilities a reality. It is only “easy” after you’ve done it.

And to do it, we cannot simply extend existing technologies, but we must develop and deploy new technologies as well – new technologies that increase recovery, unlock new resources, lower costs, promote energy efficiency, improve environmental performance, and diversify our supply options. 

 

A High-Tech Industry
As important as technology is to our energy future, it is ironic that our industry is not seen as being particularly high-tech.

At ExxonMobil, we are keenly aware of the technology-rich nature of our business. Technology is the very lifeblood of our success today and it is the platform for our success tomorrow.

Our workforce reflects this view. We employ more than 14,000 scientists and engineers, 2,000 of whom hold Ph.D.s.

Their scientific areas of expertise include not just geology, chemistry and physics, but also oceanography, paleontology, climatology, microbiology, computer science, environmental science and medical science.

We are awarded an average of nearly 3 patents a day on new technologies developed in our laboratories, research centers and operational facilities. 

And in all, we spend almost $2 million every day on researching and developing new technology, and nearly $50 million every day in new capital expenditures that embed many of them in our projects around the world. 

The public’s perception of our industry – and I would add, many policymakers’ perceptions – differ broadly from this reality.

Despite the fact that ExxonMobil topped the Fortune 500 list of U.S. companies and invested nearly $700 million in research and development last year, the magazine does not categorize us as a technology company as it does many computer, medical device and aircraft manufacturers. 

Perhaps this is because the fuels we produce appear simple compared to high-tech manufactured goods. Gasoline may not seem as cutting-edge as a cell phone or flat-screen TV. Even the term “fossil fuels” sounds primitive and low-tech.

But hidden from public view is the exceedingly complex and high-tech process for finding, developing, processing and delivering these seemingly simple products.

If we are to create an environment that is supportive of the technological developments necessary to meet the world’s energy challenges, it is essential that we broaden understanding of the high-tech nature of this business. 

 

A History of Innovation
To do so, it is worth recalling our history. The oil and gas industry has a proud record of technological progress spanning more than a century.

One could say it began 120 years ago when a chemist from ExxonMobil’s predecessor company experimented with metallic oxides to remove sulfur from sour-smelling crude oil, making it suitable for commercial use as lamp oil. 

In the decades following, our company and others in the energy industry achieved such technological breakthroughs as the invention of butyl rubber, a critical commodity in the Allied war effort…

The development of the fluid catalytic cracking process for upgrading heavy crude components into large volumes of transportation fuels…

The invention of 3-D seismic by my company to more accurately locate energy resources underground…

The liquefaction and transport of natural gas at subzero temperatures, linking gas markets worldwide…

And the drilling for oil in waters more than seven times deeper than the Washington Monument is tall, allowing us to reach new undersea resources.

We also have a long history of developing technology to dramatically improve efficiency in the recovery of discovered oil and natural gas. 

Nearly fifty years ago, Exxon engineers applied a new mathematical technique for solving multiphase flow equations using the latest computer technology which revolutionized the industry’s approach to reservoir management. Working with our partners, the Saudis, and other venture partners, we first applied this numerical simulations approach to enhance reservoir management of the Abqaiq field in Saudi Arabia. 

Since then, this innovation has not only helped increase value through better management of the giant fields of Saudi Arabia, but it has also helped  increase the value of many fields around the world. And it is a technology application we are constantly working to perfect, dedicating more than 900 work years to its improvement during the last 30 years.

 

The Benefits of Technological Progress
Such progress has created enormous benefits for the world’s energy consumers.

For a start, it has enabled us to consistently grow the world’s commercially-viable resource base in defiance of so-called “peak oil” predictions. 

In 1950, it was estimated that the world’s conventional, recoverable resource base was about 1 trillion barrels. By 2000, that estimate had tripled to 3 trillion barrels.

Improved seismic mapping methods, deeper on- and off-shore drilling and production techniques, reservoir simulators and other technological advances have enabled us to essentially grow the Earth’s accessible endowment.

Technology has also enabled us to diversify supply sources by developing more energy from more locations around the world. Ice-resistant and ice-breaking innovations allow us to develop the rich reserves in arctic Russia. New state-of-the-art platforms and subsea drilling technologies allow us to unlock resources offshore from Norway to Nigeria, from Angola to Australia. 

Moving along the supply chain, technology has contributed to our ability to efficiently increase our refining capacity. Here in the United States, for example, we have been able to consistently and adequately grow capacity at our existing sites in part through application of advanced chemical catalysts. In fact, over the last ten years we have increased U.S. refinery capacity at a pace which exceeds the growth in U.S. demand for oil products, and ExxonMobil has increased refining capacity at a rate equivalent to building a new refinery every three years.

Technology gains have also enabled us to reduce the environmental impact of using our fuels. Since the 1970’s, emissions such as carbon monoxide, sulfur and particulates have been reduced so dramatically that more than 30 of today’s U.S. cars would be needed to generate the same emissions as one car from the 1970’s.

Finally, it is a testament to our industry's progress and ingenuity that it takes 50 percent less energy to create a dollar of Gross Domestic Product today in the United States than it did 30 years ago. And energy costs have not risen as fast as the cost of many other commodities over that period.

 

Technological Solutions to Tomorrow’s Energy Challenges
Continuing our industry’s record of innovation is critical to meeting the energy challenges we now face. These challenges include supplying energy to meet growing demand, meeting changing environmental expectations, and strengthening energy security.

By the year 2030, world energy demand is expected to increase by nearly 50 percent.  That is a tremendous volume over what we produce today. 

Technology will be important in producing these volumes in a safe and environmentally-sound way. Overcoming the technical obstacles we face requires that we continue to innovate. 

Extended reach drilling is one such innovation that enables us to access new supplies in an economically and environmentally sound way. In our Sakhalin-1 project in Russia’s Far East, this technology has enabled us to drill a horizontal well from an onshore rig to an undersea reservoir the distance from here to National Airport, reducing our environmental footprint at the same time. 

In this way and others, technology plays an important role in meeting a second challenge we face – reducing the environmental impacts of energy production and energy consumption. 

Advanced engineering and materials research, for example, enabled us to elevate a pipeline in Alaska to protect the fragile permafrost and local biodiversity. Advanced technologies also helped us to ensure no major offshore spills occurred when 100-year record hurricanes struck the Gulf of Mexico last year. 

And to reduce the environmental impacts from consumer use of our products, we are partnering with Toyota and Caterpillar on separate programs to design high-efficiency, low-emission fuel and engine systems. This has already produced groundbreaking research in combustion science, which we are now applying in the fields of homogeneous charge compression ignition, or HCCI, and other advanced powertrain systems.  These efforts have the potential to achieve a fuel economy improvement of about 30 percent. 

Looking further into the future, new energy technologies will continue to play an important environmental role. That is why we initiated the Global Climate and Energy Project at Stanford University, which is carrying out fundamental research into ways to meet growing energy demand while dramatically reducing greenhouse gas emissions. 

This project aims to identify and accelerate development of the most commercially-promising energy options, investigating such high-tech possibilities as carbon sequestration in underground aquifers… the use of genetically-engineered bacteria to capture solar energy and produce hydrogen… flexible sheets of solar cells organized at the molecular level… and new materials capable of storing hydrogen in carbon nanotubes. 

A third challenge we face is strengthening our energy security. Here, too, technology plays a role, by enabling us to develop a more diverse array of energy sources, at home and abroad. 

Turning to the United States specifically, it seems that developing the full array of domestic oil and natural gas resources in an environmentally-sound way would be a prudent element of any broad-based energy policy for the world’s largest consuming nation. And so-called “tight gas” and deepwater technologies enable us to do so.

Strengthening U.S. energy security also requires that we diversify our international source of supply. The world energy map is complex, with great distances separating energy exporting and energy importing nations.  Technology enables us to bridge these distances. Our next generation of Liquefied Natural Gas tankers, for example, carries up to 80 percent more natural gas than conventional LNG ships, making it possible for Americans to gain access to distant energy supply at competitive prices. 

By harnessing such technology and diversifying supply sources, we strengthen national and global energy security. 

 

Market Forces – The Mother of Innovation
But realizing the full potential of these and other technologies requires that we adopt public policies that encourage continued innovation.

There are many contributing factors to our history of technological progress – and they all remain important today. 

Government support is an important element. By investing in fundamental, pre-commercial research and development, governments have enabled breakthroughs such as nuclear energy and the basic platform of the internet. 

Promoting science and math education is a rightful role for government, and prudent policymaking, focused on advancing basic science, can support technological progress. And this should continue.

Ultimately, however, free market forces are the primary drivers of sustained technological progress. The need for energy companies to sustain a competitive future by meeting consumer demands and securing access to new resource opportunities in a dynamic marketplace motivates us to create and innovate.

And it is the prospect of market rewards that enables us to undertake the research and development risks - and ultimately the huge investment risk - that is a fundamental element of developing and supplying the huge amounts of energy the world requires.

At a time when energy prices are high and energy company earnings are setting records, this market dynamic is often lost. Earnings today enable us to make the needed investments to develop tomorrow’s technologies, and to develop tomorrow’s energy supplies from an ever-changing array of resource opportunities. 

It is important to understand, however, that while technological development and new supply development are tied to market demand, neither are necessarily tied to the business cycle. 

New innovations take years to develop. For example, our breakthrough Multi-Zone Stimulation Technology for unlocking so-called “tight gas,” took more than a decade of research and experimentation – a decade in which the price for the natural gas we hoped to develop ranged from $1.60 to over $15 per one million BTU.

Successfully bringing such technologies onstream requires a consistent commitment to R&D investment, regardless of the ebbs and flows of energy prices and earnings. Technological development is a long-term, evolutionary process.

However, because of the enormous scale and global reach of our industry, such technologies, once developed and deployed, can have a revolutionary impact.  By enabling access, reducing risk and reducing costs, technology creates value and transforms the uneconomic to the economic.

To have this revolutionary impact, however, new technologies must be commercially viable. To meet the world’s increased demand over the long term, we will need energy from many sources. We must take advantage of all available options. 

Because of their abundance and economic advantages, fossil fuels will remain the dominant sources of energy for many decades to come. It is therefore important to continue improving their economic and environmental performance.

Alternatives will also play an important role. But to penetrate the global market in a meaningful way – let alone replace oil, natural gas, and coal – alternative technologies like wind, solar, and biofuels must be commercially competitive on a large scale. 

Government subsidies, mandates, tax incentives and other interventions only distort the market in a way that discourage the development of more competitive technologies. 

A better approach to policymaking is one that promotes a market-driven business environment in which developers of energy alternatives compete to innovate. The marketplace is a great motivator for creativity and innovation.

Markets are also the means to greater energy security. Technology helps diversify our energy supplies, by enabling us to produce more and span greater distances. Free and open global markets, based on strong trading relationships between exporting and importing nations, enable us to bring these technologies to bear to the benefit of all. Energy interdependence – not energy independence – is the surest means of securing our energy future.

And, in this regard, continued partnership between the United States and the Kingdom of Saudi Arabia is vitally important. Given the scale of its resources and its continued commitment to technology, Saudi Arabia is destined to play an important role in our energy future and that of the world.

 

An Endless Frontier
The eminent American physicist Vannevar Bush once said, “Science and technology is an endless frontier.”

In the oil and gas industry, history has shown this to be true. For more than a century, we have blazed new trails of scientific discovery that have pushed the energy frontier forward, to the benefit of consumers in innumerable ways. 

And looking forward, I am confident our industry will continue to innovate and overcome the future energy challenges we face.

Thank you.