petrochemical multinationals' global plan of action to fulfill the needs of China

Remarks by Jim Harris
ExxonMobil Chemical Senior Vice President
China Petrochemical Focus 2007, Shanghai, China
May 25, 2007

Good morning. I am honored to be one of your program speakers. Thank you for being here to take part in this conference. 

This gathering couldn't have happened at a better time, or in a more appropriate city and country in the world. Every time I come to China, I am impressed by the energy and vitality so notable in this part of the world.  I've spent the past three days at the ChinaPlas exhibition in Guangzhou and witnessed first-hand the enthusiasm that our customers, partners, employees and competitors bring to this industry.

However, with the phenomenal growth that is occurring, you may be concerned about availability of supply of efficient and affordable energy and innovation capability as you enter new markets, develop new products, and compete globally. I'm certain you consider the impact these forces have on your competitive position and on your plans for growth and profitable opportunity. 

Indeed -- “Participation, Communication and Cooperation” -- the theme of this conference -- are highly relevant at this time in the rise of China as one of the most important markets for the products of chemistry.

My goal today is to provide insight, through the perspective of a multi-national, on effectively and efficiently meeting China's growing appetite for petrochemicals. More than anything today, I hope to leave you with a sense of ExxonMobil Chemical's commitment to building mutually beneficial relationships with many of the leading organizations represented here today. 

Let me first introduce my company, and then cover a few macro trends.

ExxonMobil has operated as a corporation for over a century, and we have been doing business in China for as long as we have been doing business anywhere.  We are proud of the longstanding, cooperative relationships we have established in this country.

They have helped contribute to ExxonMobil’s success, and we believe they have helped benefit the people of China and the economic development here.

ExxonMobil's began more than 100 years ago to meet China’s energy needs. Our principal product was kerosene, which quickly replaced vegetable oils to light homes.

We sold millions of kerosene lamps called Mei Foo, or “beautiful and trustworthy.” These kerosene sales were so successful that China became the company's largest market in Asia.

Since the late 1970s, when China reopened its markets to foreign investment, ExxonMobil has participated in China's economy through the energy and petrochemical industries. Our affiliates have actively grown our current investment in this country to nearly $3 billion.

I suspect some of you may not realize that, while ExxonMobil is known primarily as an oil company, we operate one of the world’s largest petrochemical companies, based on revenues and volumes of products sold. And, recent results show that we are one of the most profitable companies in our industry.

This would not be possible without a significant presence in Asia and specifically in China. We operate a plasticizer plant in Guangdong Province, and we have an adhesive resins joint venture with Shanghai Petrochemical. We have sales and marketing offices in Beijing, Shanghai, Guangzhou, and Hong Kong. Our customer service center in Shanghai serves Asia, including the China market, and we host a Chinese language web site. 

We market a variety of petrochemicals throughout China, including plastics, synthetic rubber and aromatics for polyester production. We are one of the largest importers of these products into this country. And our sales here are important as they generate about 10 percent of ExxonMobil Chemical’s earnings.

 

Energy for growth
The markets of Asia and China are driving much of the expansion that makes the chemical industry a growth business. Worldwide demand for petrochemicals is growing at a rate about twice that of world GDP. 

With all of this growth in the petrochemical industry, you may be concerned about reliable, affordable energy supplies, as essentially 99 percent of chemical feedstocks come from oil and natural gas. 

Let me share some numbers relevant to the discussion. The chemical industry uses about 7 percent of global energy supplies in the form of energy and feedstocks. Its share of energy use has grown significantly from about 4 percent in 1980.

And, from 2006 through 2030, the chemical industry's demand for energy is likely to grow at a rate of 1.5 percent each year. This pace is consistent with the overall growth in global energy demand.

Asia and China's growing population and economic output are the key drivers for its energy demand, as well as its use of petrochemicals.

China’s oil demand is expected to increase over 4 percent per year from 2000 to 2030, driven by growth in the number of cars. Liquids consumption in 2030 will be about 70 percent of the U.S. level. China’s increase in oil demand will need to be covered primarily by imports from the global oil market.

China’s natural gas demand is expected to increase over 7 percent per year, primarily for residential and industrial uses near urban areas. Growth will be limited by the economics of gas imports versus indigenous coal. China will compete with many others for liquid natural gas supplies.

China consumed over 25 percent of the world’s coal production in 2000, and this will increase to about 35 percent by 2030, driven by power generation requirements. Over half of global coal-demand growth through 2030 will be here in China, with most of the demand met by indigenous production.

The petrochemical industry will continue to directly compete with the transportation sector for liquids from crude that we need as feedstocks. And because motor fuels are changing in response to growing concerns over emissions, we will continue to see changes in the molecules available for our industry to use as feedstocks.

Will the chemical industry have continued access to the feedstocks it needs to support its continued growth and prosperity? The short answer is yes. 

A wide range of energy sources will contribute to meeting the growing global energy demand, but affordable and reliable oil and gas will continue to provide the majority of the world’s needs for the foreseeable future.

The good news is that abundant resources are available to meet the projected growth in demand. The earth was endowed with more than 3 trillion barrels of conventional oil. This estimate has grown steadily over the years, as the oil and gas industry has developed new and more sophisticated technologies to locate and produce these resources. To put those quantities in perspective, since the dawn of human history, we have consumed just one trillion barrels of oil. 

Throughout its history, the oil and gas industry has fulfilled a critical role of providing the energy that fuels economic development and allows people everywhere to improve their standard of living. The industry has and will continue to invest to develop new supplies to meet the increase in demand.

Despite the need for huge investments, efficient energy supply is likely to be available -- physically. We, the petrochemical industry, need to guard against imposed supply constraints, on the notion that oil and gas are best used for power and transportation. We must continue to make the case that the products of chemistry are a valuable, if not more valuable, use of oil and gas molecules and are a part of the solution to reducing greenhouse gases. 

 

A growth business
As mentioned earlier, the petrochemical business is a growth business. This, of course, is especially true here in Asia. 

Over the next 10 years, we expect that some 60 percent of the world’s petrochemical growth will occur in Asia. Over one-third of that growth will be in China. By 2015, we expect Asia will account for 50 percent of global demand for key commodity products and China alone will account for 25 percent.

The Chinese market for petrochemicals is largely export driven today -- whether as parts of consumer goods or as packaging. However, the purchasing power of Asia's expanding middle class is growing, and the people of China and the rest of Asia are beginning to look for many of the advanced applications that Europeans and Americans have enjoyed for years.

In Beijing, for example, demand for building materials is rising in tandem with housing complexes and other new construction reshaping the city’s infrastructure in preparation for the 2008 Summer Olympic Games.

Changing life styles increase the need to use more flexible packaging to deliver food fresh to consumers. This requires increasingly sophisticated packaging with improved toughness, clarity and flexibility. Polymers with good attributes like ExxonMobil Chemical's metallocene polyethylene meet the challenge.

Today's plastics have revolutionized the design of auto body exteriors and reduced the weight of automobiles by 500 to 750 pounds. From bumpers to door panels, light-weight plastic gives cars better gas mileage and allows designers and engineers the freedom to create innovative concepts that otherwise would never be possible.

Plastics affect just about every facet of our lives. From improved packaging and new textiles to components in computers, cell phones and MP3 players, the use of plastics is limited only by our imaginations. In fact, plastic has been the world's most widely used material for the past three decades.

There are good reasons for this. For example, polymers in general are more energy efficient than other materials such as paper. Four times as much energy is required to make a paper bag and 85 times as much energy is needed to recycle it versus plastics. 

 

Meeting China’s Petrochemical Demand
So, given the huge opportunity for growth of petrochemicals, particularly in China, the question you probably ask is: What is ExxonMobil Chemical doing to address that growth?

ExxonMobil Chemical is an industry leader in operational and transactional excellence, customer and market focus and technology. We have continually demonstrated our long-term commitment to the industry through our investments, innovation, products and services.

We have been in the global petrochemical business for almost 90 years. We helped create this industry in 1920 when we commercialized isopropyl alcohol, the first chemical product made from petroleum.

We invented butyl rubber and continue to lead the industry in that business.  And we developed the process of steam cracking, which many regard as the engine of most chemical complexes.

My company is known for its financial strength, disciplined investment and a long-term perspective.

This approach makes us a preferred partner with host governments, other companies and customers, as this approach benefits each of these important groups, as well as our own shareholders.

We began developing our sales and technology network in the Asia Pacific region in the 1960s and 1970s. Then, in the 1970s and 1980s, we added hydrocarbon fluids plants to our new refineries. We added aromatics and additives plants in the ‘80s and ‘90s.

We culminated a multibillion dollar investment program in the year 2001, with the target market being Asia -- more specifically China. We brought on a world-scale chemical plant in Singapore and a steam cracker and plastics expansions in two Saudi Arabia joint venture facilities. That huge level of investment demonstrates our commitment to the region. Our goal is to be the preferred supplier here.

Some of you may remember that the year 2001 was a low point in the petrochemical economic cycle and not exactly the best time to bring on new capacity. We looked through that and saw an investment that would serve our customers well over the long term. This expansion program is a good example of how ExxonMobil maintains a long-term perspective and disciplined approach to investment. 

Let me explain.

In our industry, particularly today, it would be easy to be influenced by the siren song of growth. What's harder is patience and critical assessment to deliver the sources of competitive advantage that result in a project that's robust over the average of the cycle. A long-term perspective perseveres throughout the ups and downs of the economic cycle.

After all, our customers, our partners, and our shareholders have common interests -- returns that allow new investment to meet the growing demands of customers as well as earnings growth.

ExxonMobil pursues attractive opportunities where ever they may be around the world. We anticipate that the major projects the company is pursuing in Saudi Arabia, Qatar, Singapore and China would increase our capacity in Asia and the Middle East by over 50 percent over the next several years.

These projects are based on advantaged feedstock and infrastructure, and they will help us to meet the growing customer demand for petrochemical products in China as well as the rest of the region. Much of this new capacity increases the supply of premium and specialty products in anticipation of customer needs for higher-valued applications.

 

Strategies and Strengths
I've been in this business for 35 years, and I've seen ExxonMobil Chemical's strategies tested through the ups and downs in the rough and tumble of the petrochemical industry in all parts of the world.

Let me make note of these strategies:

• We operate a portfolio of differentiated global businesses, well positioned to take advantage of integration synergies with our other ExxonMobil affiliates,

• We maintain a relentless focus on operational excellence, featuring industry-leading practices and systems that enable best-in-class performance,

• We selectively invest in advantaged projects,

• And all of this underpinned by superior technology.

ExxonMobil Chemical's strategies do not distinguish us from the competition.  It is the disciplined, steadfast way that we execute them that sets us apart.

I'll focus for a moment on technology to explain how the pursuit of these strategies provides added benefits to our customers and our shareholders.

ExxonMobil maintains one of the industry’s largest research and development programs. A significant segment is dedicated to the chemical business.

A good example of the advantage it provides is steam cracking. The new furnaces we’re building are 20 percent bigger than the industry standard and have a 4 to 5 percent conversion advantage.

In addition—and this is a crucial issue in our business--we’ve developed the capability to process a broad range of feedstocks and convert them into higher-value products. This gives us the increased flexibility to meet our customers' demands.

At ExxonMobil Chemical, we build technology innovation into every aspect of our business, from manufacturing to marketing and sales. That means researchers and scientists are integrated into the teams that focus on customers’ needs and how to meet them. They help us find the best ways to make our products, to improve their properties, and to give customers exactly what they want.

For example, ExxonMobil Chemical provides metallocene-based polyethylene resins with outstanding qualities for the benefit of China's film manufacturers and their greenhouse farming customers.

Here in China -- the world's largest agricultural film market --the use of high-quality films made from our products help farmers compete in both local and international markets.

Films made with our product have better optical clarity to stimulate plant growth, are more dust resistant, staying cleaner over a longer period of time, and are more puncture-resistant, increasing their ability to withstand greenhouse supports and shade coverings. These properties make our product more cost-effective as less resin is needed to make the film.

 

Looking Ahead
Let me conclude by telling you about a major joint venture project that's all about partnership.

Those doing business in China understand the importance of developing friendships and relationships that will fuel the economy here. ExxonMobil is pleased to participate in a partnership that represents a major advance in meeting China’s rapidly growing demand for petroleum products and petrochemicals. This undertaking is China’s first fully integrated Sino-foreign project involving all aspects of refining, petrochemicals and fuels and chemicals marketing.

The Fujian Refining and Ethylene Joint Venture Project triples the size of the existing refinery and adds a world-scale petrochemical plant and plastics units, as well as a world-scale paraxylene unit.

As a splendid example of cooperation, the joint venture company will be 50-percent-owned by our Chinese partners. ExxonMobil and Saudi Aramco each have a 25 percent interest. And start-up of some units is expected in 2009.

What you may not know about this project is that the Fuels Marketing Joint Venture will manage and operate approximately 750 service stations and a network of terminals in Fujian Province. 

The synergies between these two projects, closely coupled with the strengths of each partner, significantly enhance the competitiveness of this project.  While the projects have taken time to develop, world-class performance is expected for the long term.

The petrochemical industry has good reason to be enthusiastic about the prospects of the Chinese economy.

Our business has long-term horizons. Success requires the ability to make long-term commitments that sustain themselves through the ups and downs of the economic cycles that affect our business.

Bear in mind that our Chinese friends can teach us a lot about taking the long-term view. After all, that would probably be true of any nation with a history that goes back 5,000 years.

Speaking for ExxonMobil, I can say that our past investments have positioned us to be a long-term partner in China with our customers and perhaps with those of you in the room today, who represent some of the most dynamic and successful businesses in the world.

Our efforts to date, along with our planned investments, are evidence that together we are positioned to contribute to China's bright and prosperous future.

Thank you.