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Remarks by Jim Harris Senior Vice President, ExxonMobil Chemical Company April 22, 2008 Thank you very much. It’s a pleasure to be with you today. I’m especially honored to have this opportunity to speak at East China University of Science and Technology. This institution has been and will continue to be an essential factor in advancing China’s technological expertise, its economic growth and the welfare of its citizens. Today I’d like to share with you ExxonMobil’s outlook for world energy supply and demand. I’ll take a similar look at petrochemicals. Then I’d like to focus on the chemical industry in Asia in general and China in particular. I’ll also discuss ExxonMobil’s role in helping that industry grow. First, let me tell you about my company’s history in China. 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 total investment here has reached nearly $4 billion. ExxonMobil is known primarily as an oil company. But measured by revenues and volumes of products sold, we also operate one of the world’s largest petrochemical companies. That would not be possible without a significant presence in Asia and specifically 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, Guangzhou and Hong Kong. Our customer service center in Shanghai serves Asia, including the China market, and we host a Chinese-language Web site. ExxonMobil is pleased to be in a partnership that represents a major advance in meeting China’s rapidly growing demand for petroleum products and petrochemicals. The Fujian Refining and Ethylene Joint Venture Project is China’s first fully integrated Sino-foreign project involving all aspects of refining, petrochemicals and fuels and chemicals marketing. It will triple the size of the existing refinery and add a world-scale petrochemical plant, plastics unit and paraxylene unit. The joint venture is 50-percent owned by our Chinese partners. ExxonMobil and Saudi Aramco each have a 25 percent interest. Startup of some units is expected next year. We market a variety of petrochemicals throughout China. These include plastics, synthetic rubber and aromatics for producing polyester. And we are one of the largest importers of those products into the country. So, now, let me turn to one of the key focus areas for my talk today. Not everybody on this planet has access to the energy they need. Today, there are 1.6 billion people in the developing world without access to electricity, and about 2.4 billion who rely on basic fuels such as wood for heating and cooking. The desire of people in the developing world for a better quality of life will be the key driver of global energy demand growth over the next few decades. At the same time, the developed world will need increased supplies of energy to maintain and enhance living standards. But meeting this growing global need for energy is a major challenge: providing affordable and reliable supplies to the world’s consumers while at the same time managing the environmental impacts of increasing energy consumption. Today I would like to share some of ExxonMobil’s perspectives on these important issues. This outlook is based on a rigorous study that ExxonMobil prepares every year, built from a detailed analysis of approximately 100 countries, 15 demand sectors and 20 fuel types. The capital intensive nature of our industry makes long-term planning critical. This outlook is therefore vital input for our own business planning. The World Bank estimates that the earth’s population will increase from more than 6 billion today to 8 billion by 2030. Most of that growth will occur in fast-growing nations such as China and India. Over that same period, the global economy is expected to more than double in size to about 70 trillion dollars. As economic conditions improve, particularly in developing nations, more and more people will seek the modern conveniences and products that make life easier and more productive. These two points are critical because population growth and improved standards of living are driving much of the growth we see in energy demand over the next several decades. Let’s now take a close look at the expected contribution of all primary energy types to the global energy picture. Overall growth is likely to average 1.3% per year. Fossil fuels will continue to meet about 80% of demand, with oil and gas alone contributing close to 60%. Oil, driven by transportation and industrial demand, will increase about 1.2% per year. Gas demand will grow about 1.7% per year, benefiting from the demand in power generation from efficient fuels that have relatively low carbon intensity. On the other hand, we see demand for coal -- with high carbon intensity -- rising less than 1% per year. Nuclear will grow significantly, particularly beyond 2020. Renewables will continue to grow. Most of this segment is made up of traditional biomass – wood, charcoal and dung – with slow growth. Hydroelectric and geothermal energy will grow about 2% per year, limited by natural sites. In contrast, “modern” renewables – wind, solar, and biofuels -- will grow close to 9% per year on average to 2030. All of these fuels are likely to grow rapidly, supported by government subsidies and mandates. Biofuels, mainly ethanol, will likely grow about 8% per year, and wind and solar close to 10% per year. Certainly this growth will make these fuels more prominent than today, but even so, wind and solar will combine to equal only about 1% of the global demand in 2030. Adding biofuels will bring the three to a total share of about 2%. We draw these three conclusions from our outlook. First, economic progress will drive energy demand significantly higher by 2030, even with substantial gains in efficiency. This growth – approximately 40% vs. 2005 – will be concentrated in developing nations, where economies are growing most rapidly and where billions of people require access to growing quantities of energy to realize just a fraction of the quality of life that those in developed countries take for granted. Next, oil, gas and coal will remain indispensable to meeting demand for reliable, affordable energy for the foreseeable future. Because renewables start from a small base, even with rapid growth they cannot significantly alter the global energy mix over the outlook period. Fossil fuels will continue to provide about 80% of energy in 2030. Lastly, significantly impacting global CO2 emissions growth requires the combination of many challenging essentials, including global participation, step changes in energy efficiency, technology gains and massive investment over decades. Substantial and cost-effective efforts will also need to reach broadly across the economy – from producers to consumers – and maximize the use of markets. If we are to significantly impact global emissions while providing the reliable, affordable energy necessary to support economic progress, all of these are essential. Economic expansion is a desire for billions of people around the world. Providing the reliable, affordable energy necessary for growth is imperative. Understanding the outlook for energy and thoughtfully examining our options are essential. When we talk about the expected growth in oil demand, one obvious question is whether there is enough to supply this demand. The answer is yes. In fact, there are abundant resources remaining to meet demand for the foreseeable future. According to the United States Geological Survey, the earth was endowed with more than 3 trillion barrels of recoverable conventional oil. If you add other sources such as heavy oil and shale oil, the total grows to more than 4 trillion barrels. To put those quantities in perspective, since the dawn of human history, we have consumed just one trillion barrels of oil. And, while this is good news for transportation and power industries – this is also good news for my industry, the chemical industry. Why? Because the chemical industry relies on oil and gas to provide some 99% of our feedstocks. I’ll turn now to a perspective on the petrochemical industry, which a special emphasis on China and Asia Pacific. This outlook has three principal elements. First, the petrochemicals business is a growth business. Demand for chemicals is growing at about 2 to 3 percent above world GDP. This high rate of growth reflects the continued penetration of chemicals and plastics into both existing and new uses around the world. The second element is that demand in developing nations, especially in Asia and specifically China, is driving most of the growth over the next several decades. We expect that some 60 percent of the increase in global petrochemical demand over the next 10 years will occur in Asia. China alone will account for nearly 40 percent of that growth. By 2015, Asia could account for 50 percent of global demand for commodity chemicals. China could account for 25 percent. The Chinese market for petrochemicals is largely export-driven today—whether as parts of consumer goods or as packaging. The purchasing power of Asia’s expanding middle class is growing, and the people of China and the rest of Asia are looking for many of the advanced applications that Europeans and Americans have enjoyed for years. In Beijing, for example, demand for building materials is rising as housing complexes and other new construction reshape the city’s infrastructure in preparation for the 2008 Summer Olympic Games. Finally, leading-edge technological innovation will be critical to meeting future petrochemical demand. Across the petrochemical industry, manufacturing processes are improving and becoming more efficient, and we are producing higher-quality products. As a result, products are finding new applications and markets. Innovation helps us find ways to meet emerging needs in transportation, packaging, construction and health care. There are many reasons for China’s increasing demand for petrochemicals and petrochemical products. The question is how that demand will be met. I’ll address that question from my own company’s perspective. First, let me give you a little background. ExxonMobil Chemical is an industry leader in operational and transactional excellence. We are focused on customers and the market. We continually pursue technological innovation. And we have demonstrated our long-term commitment to the industry through our investments, innovation, products and services. We have been in the global petrochemical business for some 90 years. In fact, we helped create the 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. We began developing our sales and technology network in the Asia Pacific region in the 1960s and 1970s. In the ‘70s and ‘80s, we added hydrocarbon fluids plants to our new refineries. In the ‘80s and ‘90s, we added aromatics and additives plants. We culminated a multibillion dollar investment program in the year 2001. The target market was Asia—more specifically, China. We brought on a world-scale chemical plant in Singapore and a steam cracker and plastics expansions in two joint ventures with Saudi Arabia. That huge level of investment demonstrates our commitment to the region. Our goal is to be the preferred supplier. The year 2001 was a low point in the petrochemical economic cycle and not 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. The expansion program was a good example of how ExxonMobil maintains a long-term perspective and a disciplined approach to investment. Our strategies have been tested repeatedly in the ups and downs of the petrochemical industry in all parts of the world. Those strategies are as follows: One—to operate a portfolio of differentiated global businesses well positioned to take advantage of integration synergies with other ExxonMobil affiliates. Two—to maintain a relentless focus on operational excellence, featuring industry-leading practices and systems that enable best-in-class performance. Three—to invest selectively in advantaged projects. And Four—to underpin these strategies with superior technology. Other companies also share these same strategies. What makes us stand out versus competition is our ability to execute these strategies. ExxonMobil spends about $1 billion on research and development and technology applications each year. A significant segment is dedicated to the chemical business. Steam cracking is a good example of the advantage this provides. 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, we’ve developed the capability to process a broad range of feedstocks and convert them into higher-value products. This gives us increased flexibility to meet our customers’ demands. At ExxonMobil, we build technology innovation into every aspect of our business, from manufacturing to marketing and sales. 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. The petrochemical industry has ample reason to be optimistic about the prospects for growth in the Chinese economy. But as we endeavor to meet the growing energy and petrochemical needs of China and the world, we must do so in a way that addresses environmental concerns and ensures that energy needs will continue to be met in the future. Let me share with you just a few examples of what we’re trying to do. Recently ExxonMobil Chemical developed a new blend of synthetic rubber and nylon that enables tires to maintain air pressure longer. Our technology makes tire innerliners as thin and light as a plastic bag – about 80 percent lighter than traditional innerliners but with superior air retention. This breakthrough means that tires stay properly inflated longer, which has significant potential to reduce vehicle fuel use. Other examples of innovation can be found in the many products we supply to the auto industry. A large – and growing – portion of the average automobile is made up of plastic and composite components. Of course, the primary reason that plastics and composites have continued to grow in popularity with auto manufacturers is the weight-savings they provide. Today’s plastics have reduced the weight of the average automobile by about 10 percent, and the US Department of Energy estimates that a 10 percent weight reduction leads to about a 6.6 percent improvement in fuel economy. The lightweighting features of our products enable auto manufacturers to improve a car's performance while maintaining affordability and reducing fuel consumption. ExxonMobil Chemical provides metallocene-based polyethylene resins with outstanding qualities for the benefit of China’s film manufacturers and their greenhouse farming customers. China is the world’s largest market for agricultural film. The use of high quality films made from our products helps farmers compete in both local and international markets. In addition, ExxonMobil Chemical’s latest product helps make strong, but significantly thinner films. This benefit reduces the amount of raw materials consumed during manufacturing. It also has less process waste and it is recyclable. Finally, my company recently introduced a new film technology for lithium ion batteries that we expect will help usher in a new generation of hybrid and electric vehicles. By improving the safety performance of the battery’s separator, ExxonMobil has helped solve one of the key challenges that has delayed the widespread adoption of smaller, more powerful batteries, into the next wave of lower emission vehicles. These product innovations all have a common theme – better products, less energy usage and reduced environmental impact. They show us how managing for today – and tomorrow – can provide not only better products for our customers today, but also enable us and our customers to operate more efficiently over the long-term. In closing, my remarks today provide proof that energy is not a small subject. It affects virtually every aspect of our lives, our well being, and our hopes for the future. I hope that in some way I have stimulated your thinking and inspired you to find innovative ways to meet the energy and petrochemical needs of your country—and the world. It is most certainly an exciting time to be a student, and I wish you all the best in your studies and future careers. Thank you. | |
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