Meeting energy challenges with oil and gas technologies
Rex W. Tillerson
Chairman and CEO, Exxon Mobil Corporation
The Academy of Medicine, Engineering and Science of Texas
January 6, 2011
It is always a pleasure to be back in Austin – and being an engineer myself, it is a special honor to address The Academy of Medicine, Engineering and Science of Texas.
This morning, I’m going to talk about the vital role energy will play in helping our economy recover, grow, and create new jobs, and how technology will be a critical enabler in meeting the world's growing energy needs.
In my remarks, many of the principals and challenges attendant to energy can be just as easily found in the other fields of medicine, engineering, and science. We know from centuries of history that reliable and affordable energy is essential to human progress — in Texas, throughout the United States, and indeed around the world. To sustain progress, we must continue to safely expand the world's energy supplies, improve the ways in which we consume energy sources, and address attendant environmental challenges.
As it has been throughout the history of the energy industry, technological advances will underpin solutions to all of these challenges. As always, these advances will be shaped by public policy: does it encourage or discourage certain technological investments and innovations; and to what extent does public policy recognize the economic importance of safe, secure, and environmentally responsible energy production and allow for appropriate risk management approaches.
It is fitting that we are discussing these challenges here in Texas.
When it comes to energy innovation, and building sound and stable energy policies, Texas is an example for the nation — and indeed, the world.
Our state is a major supplier of energy for good reasons. We are blessed with abundant oil and natural gas reserves. We have climatic and meteorological conditions favorable for wind and solar power. We have a highly trained energy workforce, and some of the sector’s leading researchers, scientists and engineers. We have a world-class, innovative system of higher education that cultivates this talent.
And equally if not most important, Texas has a tradition of sound and stable energy policymaking that encourages businesses to invest, develop, and deploy the technologies that can harness the state’s energy resources.
Energy and the Economy
One of the most important reasons for Texas’ leadership in energy technology is the fact that our state’s private and public sectors generally recognize certain fundamental truths about energy markets.
First and foremost, we recognize the relationship between energy and economic growth. As economies grow, and as billions around the world strive to attain an improved standard of living for themselves and their children, the demand for energy rises.
And when energy is abundant and affordable, businesses have the confidence to invest, produce, innovate, expand, and create jobs in new ventures.
A second important factor to energy technology development in Texas is the recognition that we should encourage the development of all economically competitive energy sources.
Too often, energy policy debates frame the issue in “zero-sum” terms, pitting one energy source against another. But the growing energy needs here in the United States, and around the world, make it clear we will need to develop all sources to stay globally competitive. We will need oil, natural gas, and coal. We will need nuclear power. And we will need alternative energy sources such as wind, solar, and next-generation bio-fuels. It is not “either/or” — it is “all of the above.”
In looking at this challenge, it is important to note that hydrocarbon resources — including oil, coal, and natural gas — will continue to play an important role. Currently these sources meet about 80 percent of global energy demand.
Our projections, along with those of most government and independent analysts, indicate that hydrocarbons will continue to meet the vast majority of the world’s growing energy needs well into the middle part of this century, thanks to their availability, reliability, accessibility and their versatility.
Alternative energy sources are expected to achieve relatively high annual growth rates, but because they begin from a comparatively small base, they will continue to comprise a small share of the world’s energy portfolio for many years to come.
This evolution is consistent with the history of energy use. When the world economies began transitioning from wood to coal in the middle part of the 19th century, it took 50 years before coal met half of the world's energy demand.
Likewise, when world economies began shifting from coal to oil and natural gas in the late part of the 19th century, it took three quarters of a century for oil and natural gas to displace 50 percent of the world's coal demand.
The point here is not that growth in alternative energy sources is not important, but rather, that the world's energy challenges span a very long time frame.
In order to meet these future energy needs, we must encourage technological advancements in all potential sources of energy and in all potential ways to improve our consumption of traditional energy sources. As this happens, we increase energy diversity, energy security, and ultimately, economic growth.
Promoting economic growth is a chief concern of many Americans today, and a top policy priority for our elected officials. As we consider ways of creating jobs, increasing efficiency, and generating revenues, it is worth recalling the enormous contributions the energy industry makes to the economy.
According to a PricewaterhouseCoopers study, the oil and gas industry added more than $1 trillion to the U.S. economy in 2007 – about 7.5 percent of the nation’s gross domestic product.
At the same time, we provide significant revenues to government. For instance, ExxonMobil alone had total income and other tax expenses of more than $60 billion over the past five years. In fact, our U.S. taxes exceeded our U.S. earnings by $19 billion during this timeframe.
And, at a time of relatively high unemployment nationwide, it is worth recalling that the oil and natural gas industry directly and indirectly supports more than nine million full- and part-time U.S. jobs.
This fact is often overlooked in policy debates regarding so-called “green jobs.” The fact is, just as we need all competitive energy sources, we also need all competitive energy jobs.
It is not “either/or” — it is “all of the above.”
Energy, Safety, and the Environment
Just as technological progress has promoted economic growth, so it has also played a crucial role in the energy industry — improving safety, reducing environmental impacts of energy production, and enabling access to new sources of energy supply. With technological advances and breakthroughs come exposures to new risk — risk that must be recognized, accommodated and actively managed. This is the role the technological and researcher — whether you are in energy, medicine or telecommunications must play.
The Deepwater Horizon accident and spill in the Gulf of Mexico last year was a painful reminder of the human and environmental damage that can result from a failure to uphold these standards
At ExxonMobil, we learned this lesson after the Valdez accident of twenty years ago. It was a low point for our company, but also a turning point. In the aftermath, we took the initiative to transform our processes, our procedures, and our people from within, cultivating core values of safety, integrity and environmental responsibility.
We must never grow complacent, and indeed our own efforts will forever remain a work in progress, but I am proud of the progress ExxonMobil has achieved in safety and environmental performance in the oil and gas industry here in Texas and around the world. And we share our approaches freely with any and all industry participants.
We believe that incidents like the Deepwater Horizon explosion, with the tragic loss of life, and subsequent spill should not happen if industry standards, best practices and appropriate risk management processes are followed — and, indeed, much of the industry’s efforts have always been focused on prevention, as is evident in the 40 year record in the Gulf of Mexico prior to the BP incident. However, the spill did reveal that our nation, and the energy industry, could have been better prepared for the possibility, however remote, of a deepwater well blowout. Our systems and technology advancements must always recognize the human element and its fallibility.
After this tragedy, many of the leaders in our industry saw the need to re-build public trust by seeking new solutions. One of our most important efforts has been a public commitment to develop an innovative well containment system. ExxonMobil has joined with three other major oil and gas companies, Chevron, ConocoPhillips and Shell, to develop a system that can rapidly respond to an incident in the deepwater Gulf of Mexico.
This new innovative system, to be mobilized within 24 hours of an incident, will be designed to capture up to 100,000 barrels of oil a day from a well blowout in waters as deep as 10,000 feet. The four member companies have committed to a total initial investment of $1 billion on this important project.
The Marine Well Containment System is only one part of a broad set of industry initiatives to improve well control, emergency response, and spill prevention. It is our objective that we are building a response capability that will never be called upon. But if we do need it, it will be there.
Safety is important for its own sake — we have no greater responsibility than to ensure that no one — employees, contractors or the public — are injured as a result of our activities.
But beyond that moral imperative, safety and operational integrity are squarely in our nation’s economic interest. The resources from the Gulf of Mexico account for about 30 percent of U.S. oil and natural gas production — and support more than 170,000 jobs.
This is a challenge that industry and government can meet, with each playing their appropriate roles. And like many challenges we face in this industry, technological advancement will enable the solutions.
Energy and Technology
Few Americans realize that the U.S. energy industry is one of the most technologically advanced sectors of the economy.
Energy technologies have not only helped expand supplies and increase safety, but they have also made America more competitive. When the public and our policymakers think about technological innovation, they typically think of Silicon Valley or MIT or some other research institute on the West Coast.
But because of our role in creating new energy technologies, it is worth noting that Texas is one of the most important locations in the nation for developing new energy innovations — innovations that have been exported to the rest of our nation, and the world.
To illustrate this point, I’d like to touch on a just a few examples of energy technologies ExxonMobil helped develop here in Texas. We are only one company in an innovative sector, and there are many more examples of technologies developed by other companies based in the state. The few I will highlight are by no means the only ones — just the ones I am most familiar with.
To start with, over the past century, scientists and engineers with ExxonMobil invented butyl rubber, a critical commodity to the Allied war effort in World War II which today is found through continuing innovations and countless expanded uses from in applications from industrial to medical. We developed the fluid catalytic cracking process for upgrading heavy crude components into large volumes of transportation fuels. We developed the first digital reservoir simulators and we pioneered 3-D seismic technologies to more accurately locate energy resources in new challenging locations. All of these technologies can be found in our industry the world over today.
More recently, the integration of directional and extended reach drilling with hydraulic fracturing have opened up new supplies of natural gas, once thought to be unrecoverable. By combining these time-tested techniques in innovative, new ways, we have unlocked a 100-year supply of cleaner-burning natural gas in the United States. These technologies, perfected in the Barnett Shale gas fields of North Texas, are currently at work across the nation in many fields in other states, but also here in Texas in the, Freestone, Haynesfield and Eagleford Shales.
Similarly, Enhanced Oil Recovery technologies have enabled us to produce energy once believed to be too expensive to recover, allowing us to revitalize mature fields, thought to be reaching their economic limit.
The energy industry here in Texas is also making it easier for consumers worldwide to save energy. For example, our researchers in Houston are leading a global team which has developed a host of new innovations for the transportation sector. Thanks to advanced plastics, we are helping make cars strong, but lighter-weight. We have also been instrumental in developing battery-separator film technology for lithium-ion batteries. This could enable the more widespread use of hybrid and electric vehicles. And we are pioneering technologies that make tires last longer and stay inflated better, which helps with fuel mileage and handling.
The industry is also playing an important role in the development of commercially viable, renewable energy sources. Our advanced synthetic lubricants developed and manufactured by ExxonMobil help wind turbines in Texas operate safely and reliably.
Another example is our collaboration with Synthetic Genomics Incorporated, on research into the potential of algae as a biofuel. Researchers are hoping to develop strains of algae that could ultimately produce refinery feedstock for the production of transportation fuels.
If research and development milestones are successfully met, we expect to spend more than $600 million on the algae biofuels program over the next decade. And while we have much research and development still to do, the theory is that certain types of algae, grown with water, sunlight, carbon dioxide and nutrients, could produce bio-oils on a sufficient scale to be processed in our refineries to supplement supplies of conventional gasoline, diesel, aviation fuels, and marine fuels.
Again, these are just a few examples, but Texas-based technological advances like these, and the many others across our industry, have had a tremendous impact on energy supplies the world over, the ways in which consumers use energy, and consumer choices around the world.
They have also spurred investment and economic growth. That is especially true in Texas. For example, in 2009 ExxonMobil made capital investments of over one and a half billion dollars in the state. That number increased to over $2 billion in 2010 — much of which was associated with the development and deployment of new technologies here in Texas.
Energy and Policy
To achieve technological advances such as these, the energy sector must engage in long-term planning and sustain investments over extended periods of time. Therefore, to enable such long-term investments, stable policy frameworks are essential.
In Texas, policymakers have traditionally refrained from picking winners and losers, and as a result, we have seen the state take a lead on nearly every energy frontier. By upholding sound legal, tax, and regulatory frameworks, Texas has enabled the private sector to invest for the long term with confidence.
As Texas has shown, government policies that maintain a level playing field and treat industries equally are the most conducive to technological innovation, job creation and economic growth.
Policies that pick winners and losers through mandates, subsidies or penalties can have the perverse effect of actually stifling innovation. By supporting options that are unable to stand on their own, such policies may be delaying the next phase of innovation or misdirecting the effort entirely.
While there can be an appropriate role for government incentives or funding, policy makers must avoid subsidizing certain sectors, companies or jobs — especially if those policies hinder the ability to invest in new technologies.
Energy, Technology, and Education
In addition to upholding stable energy and regulatory policies, an area in which state and national policymakers and the private sector can make a tremendous contribution to continued technological progress is in education.
As technology and innovation are the bedrock of American competitiveness, economic progress and job creation, people are the bedrock of technology and innovation. In the energy industry, as with all American industry, the ultimate source of innovation is people. The technological breakthroughs of tomorrow begin in the minds of scientists, engineers and researchers today. There is a clear nexus between education, innovation and economic progress.
Given this vital connection, it is especially troubling to see how our nation’s leadership in science, technology, engineering and math education has eroded in recent years relative to other industrialized nations. Three decades ago, the United States ranked third among developed nations for college students earning science and engineering degrees. Now, about 20 other countries rank ahead of us in these vital subjects.
At ExxonMobil, this is a point of great concern to us, and as you heard in the introduction, we have put significant energy and financial resources into supporting education programs, particularly in math and science. It is an investment that directly impacts our competitiveness, and our ability to remain a technological leader.
As part of this effort, we partner with other companies, state governments and universities through the National Math and Science Initiative, or NMSI, focusing on programs that support both teachers and students.
I am pleased to say one of the programs NMSI identified as being particularly effective is the UTeach program, which began here in Austin at the University of Texas. UTeach has become a model for increasing the supply of qualified math and science teachers through rigorous undergraduate education programs at colleges and universities across the country.
Thanks in part to NMSI support, this program is now being utilized in 22 universities across the nation — and helping build the foundation for future technological and economic progress.
The National Math and Science Initiative is an example of the kind of productive public-private partnership that can help lift education results in math, science and other critical subjects.
This, in turn, drives technological progress across our economy, including the energy sector, and supports long-term economic progress that can help drive growth, increase revenues and create jobs.
Our nation is faced with great challenges: an economic and jobs challenge, with a fiscal house that is in disarray, an education system that is in need of reform, and an erosion of our technology and innovation global leadership position.
I would submit that addressing our needs in education and technology as our highest priorities — if we address those, it will take us a long way down the road to ensuring America’s place in the global community is secure, and will underpin an economy that will allow us to get our fiscal house in order. These should be our highest priorities.
And as we bring along the next generation of mathematicians, scientists, engineers and medical researchers, we must instill in them a keen sense of their obligations to scientific integrity and ethics. You and they alone, stand between the public policymakers, the public themselves, and scientific fact and theory, scientific theory and fiction. Failure to have the courage and conviction to provide clarity around these differences can misinform and mislead policymakers and set back many solutions to our most daunting challenges.
The oil and gas industry has long made an important contribution to our state’s proud history of innovation. As a Texas-based energy company, ExxonMobil is proud to have played a role. And, together with others across our industry, and with the support of state government and our leading science and engineering institutions, we look forward to continuing to be an important part of technological progress in the future.
I thank you for all that you do for science and technology and I thank you for your kind attention.