Vice President Global LNG Marketing, ExxonMobil Upstream Oil & Gas Company
ExxonMobil Gas & Power Marketing
European Gas Conference 2018
May 29, 2018
Voksenåsen Culture and Conference Hotel
"The fundamental role of natural gas in meeting the dual challenge of global growth and environmental goals."
Throughout the day there have been two strong, recurring themes – the outlook for gas in meeting the world's growing energy needs, and the need to deliver a less carbon-intensive future.
I would like to use my remarks to make the case for why natural gas is so well positioned to drive meaningful environmental progress while underpinning global economic growth.
ExxonMobil in Norway
Before doing so, however, I'd like to say a few words about ExxonMobil's long and proud history in this wonderful country.
You may not know that ExxonMobil is Norway's oldest oil company. Established in 1893, as Østlandske Petroleumscompagni, the company sold and distributed petroleum products. In 1965 Esso Exploration Norway Inc. was awarded the first three licenses on the Norwegian Continental Shelf. Esso drilled the first well on NCS in 1966 using the drilling rig Ocean Traveler. After discovering oil in 1974, Mobil was responsible for developing the giant Statfjord field, which started production in 1979. Operatorship was handed over to Statoil in 1987. And today we remain a significant investor in Norway, as both a producer and downstream shipper.
The dual challenge
Now, coming back to our main topic, let us consider the two-pronged challenge we face: providing the affordable energy the global economy requires… in ways that safeguard the environment for future generations.
Growing energy demand
Over the next quarter century, the global population will grow to over nine billion people. At the same time, billions are poised to escape poverty and join the global middle class, which is profoundly good news. This growth will be accompanied by a 25 percent rise in global energy demand – an enormous figure.
To this end, it's clear that all viable energy sources will be necessary to meet society's development needs. The mix of viable sources continues to evolve with technological advancement: In the middle of the 19th century, the world was almost entirely dependent on wood. Today, oil and natural gas meet more than half of the world's energy needs. The rest is met by coal, nuclear, solar and other sources.
Need for ongoing investment
This chart is based on data from the IEA. It shows that current global liquid supply is about 95 million oil-equivalent barrels per day.
The short bar in the center shows the projected reduction in supply over the next 25 years if no further investments are made to offset natural field decline.
On the right, the chart shows 97 million barrels of additional supply needed in 2040. This is with increasingly stringent emissions policies and is consistent with the pledges of the Paris Agreement. This is what they call the "New Policies Scenario."
To meet this demand, more than 18 trillion dollars' worth of investment in oil and gas is required.
An even more aggressive scenario known as IEA 450 sets out a pathway consistent with the goal of limiting temperature increase to 2 degrees Celsius. Even that would require more than 11 trillion dollars of investment. The point is - trillions of dollars of upstream oil and gas investment is required even under the scenarios that limit carbon emissions to a 2 degrees pathway.
And beyond the new investment, ongoing delivery of gas supplies to Europe will require the continued use of the existing infrastructure of pipelines and processing facilities. This will demand careful, collaborative and creative work among producers – like Norway - working with shippers, consuming countries, and other stakeholders. I believe exciting challenges lie ahead in this area.
In addition, we must deliver energy that is affordable to consumers.
If energy is too expensive, the global economy suffers, harming not only those seeking to escape poverty in developing nations but also businesses and individuals in developed economies. It is vital that we avoid regulations and policies, including ineffective subsidies, which make energy so expensive that it stifles economic development and opportunity.
Mitigating the risk of CO2 emissions
The second part of our challenge is that while providing affordable energy supplies to fuel global prosperity, it is imperative for our industry to do so with the utmost concern for the environment. This must be part of our planning and part of our operations. And it is incumbent on us to take into account not just how energy supplies are produced, processed and distributed, but how they are used by consumers.
It is clear that we need solutions that lower CO2 emissions. The risks of climate change are real and warrant action. Governments and policymakers, working with industry and other stakeholders, should take meaningful action to mitigate those risks.
Rising to the challenge
So the question is: how can we provide affordable energy supplies that support economic growth, with a smaller environmental impact?
I believe that natural gas has a vital role, and gives us a significant advantage in applying workable global solutions to this challenge – and those solutions are available today.
When weighing the economic and environmental benefits of energy sources, natural gas checks many boxes – it is abundant worldwide… it is available at scale… with appropriate policy, it can be affordable… and it produces up to 60 percent fewer greenhouse gas emissions than coal when used for utility-scale power generation.
As we heard earlier today, the global marketplace has taken notice of these attributes, evidenced by the fact that demand for natural gas has grown – and is expected to continue growing – at a faster pace than the overall demand for energy.
One key benefit of natural gas is that it also provides the opportunity to make sizeable near-term environmental progress.
In addition to achieving CO2 emissions reductions worldwide by coal-to-gas switching in electricity generation, natural gas also emits significantly fewer pollutants than coal, including NOx, SOx, mercury, and particulates. This makes natural gas a better fuel to improve air quality not just with regard to power generation, but also in industrial and residential heat.
In addition to its baseload capabilities, natural gas is also the fuel of choice to enable renewables. It provides proven, cost-effective, scalable, flexible, responsive and reliable generation to balance the intermittency of variable renewable energy. This can enable the broader penetration of renewables into the energy mix, reducing CO2 emissions while helping to maintain reliable electricity supplies.
Natural gas, in both compressed and liquefied forms, could also contribute to the de-carbonization of the transportation sector, especially heavy-duty vehicles and maritime vessels. This will facilitate compliance with air quality regulations in certain regions and significantly improve air quality in those regions without such regulations.
For ExxonMobil, addressing this dual challenge of providing affordable energy while reducing environmental impacts is a priority. In the near term, we are improving our own operations, and our drive to operate more efficiently reduces emissions and environmental impacts. Our chemical businesses also manufacture products that improve the sustainability of our customers' products and reduce associated emissions. We are further helping to lower emissions in today's power sector by facilitating the switch to cleaner-burning natural gas, the benefits of which I've already mentioned.
And it's not just about near-term opportunities. Looking for future emissions reductions, advancing carbon capture and storage technology is an important part of ExxonMobil's suite of research into lower-emissions solutions to mitigate the risk of climate change. In 2016 we announced a new partnership with FuelCell Energy, Inc. to pursue a novel application of carbonate fuel cells to CCS, which could provide a more economic pathway toward large-scale CCS application globally. Deploying large-scale CCS to gas-fired power plants would further lower emissions. An important next step will be testing the technology at a pilot plant.
Our algae biofuel program also holds great promise. The world will need liquid transportation fuels for road, sea, and air. We are conducting fundamental science in pursuit of needed breakthroughs in these and many other areas.
Natural gas demand around the world
Gas is a versatile fuel for power, industrial and residential heat, and cooking, all of which supports economic development. The lower emissions of particulate matter make it the cleaner fuel to support growth and improvement of the quality of life. So let us briefly look at the contributions of natural gas to boosting economies and driving down CO2 emissions around the world, as well as in Europe.
In the United States, natural gas production has increased by 46 percent over the past decade due to the shale gas revolution, leading to a 66 percent decrease in US natural gas prices between 2007 and 2017. Emissions in 2017 from the power generation industry were around 670 million tons, or 28 percent, lower than in 2005 for a roughly equal quantity of demand. Overall, emissions dropped by 14% over that period. Switching from coal to gas in the U.S. contributed more to this reduction than all the wind turbines and solar projects brought on line in the decade. And, importantly for affordability, this was achieved without subsidies or mandates.
In the Asia Pacific, meanwhile, we see perhaps the world's most dynamic natural gas region, and clearly one with the most upside.
In China, natural gas demand increased by 81 percent between 2010 and 2015. That demand growth is expected to continue, outpacing domestic production.
Thanks to the lower emissions of pollutants and particulate matter, natural gas is playing an important role in improving air quality and bringing back blue skies in China.
We also think that natural gas is poised to play a major role in helping boost India's economy while helping slow the overall growth of CO2 emissions and significantly improving air quality. And it will play an important role in further developing the growing economies of Indonesia, Malaysia, Pakistan, and other Asia Pacific nations.
Then there's Europe.
The mature economies of Europe are not candidates for rapid natural gas demand growth. Still, they constitute a significant market. Opportunities exist for natural gas to make a bigger contribution than its current 22 percent share of the EU's energy mix.
But that will require a shift in the approach being taken by many European policymakers. Recent years have seen a number of policies that have discouraged natural gas production through high taxation and technology restrictions. Not surprisingly, natural gas imports have risen, and EU statistics indicate that dependence on non-member supplies grew from 57 percent in 2005 to nearly 70 percent by 2015 – of which Norway provides nearly half.
At the same time, particularly in Germany, policymakers have encouraged renewable power generation through mandates and massive subsidies. This has indeed resulted in reductions in total CO2 emissions – about 8 percent Germany between 2005 and 2017 – though it is worth pointing out these are considerably smaller than those achieved in the United States under less interventionist policies. Different policy choices could have achieved greater CO2 reductions at lower societal cost.
As an example, the United Kingdom has taken an alternative approach, including a greater reliance on natural gas. The estimated cost of its renewable policies this year is about a quarter that of Germany's. And between 2005 and 2017, CO2 emissions in the U.K. fell 32 percent.
I am not anticipating Europe will replicate the experience in the United States. But I do think that the experiences in the U.S. and U.K. hold a number of lessons for continental European policymakers to consider.
The policy opportunity
In the wake of Paris' climate agreement, there is an opportunity that arguably did not exist five, ten or 20 years ago. The accord signed there is important as the first climate agreement to incorporate pledges from both developed and developing economies. It creates an opportunity to craft thoughtful, workable, and consensus-driven strategies for addressing climate risks that are mindful of the economic costs that such policies will necessarily entail.
low-emission fuels, considering the benefits and limitations of each. Good policy requires an honest and open consideration of the pros and cons of each available energy source.
Further, we believe the long-term objective of effective policy should be to reduce the risks of climate change at minimum societal cost, in balance with other priorities such as poverty eradication, education, health, security, and affordable energy.
We believe that free markets, innovation, and technology are essential in addressing the risks of climate change. Success in developing and deploying technologies will be highly dependent on governments creating a policy environment that enables innovation and competition. Policies should be clear and guard against duplicative, overlapping and conflicting regulations, which may distort markets and impose unnecessary costs on consumers.
We believe that effective policies are those that:
• Promote global participation;
• Let market prices drive the selection of solutions;
• Ensure a uniform and predictable cost of greenhouse gas emissions across the economy;
• Minimize complexity and administrative costs;
• Maximize transparency; and
• Provide flexibility for future adjustments to react to developments in climate science and the economic impacts of climate change policies.
Given the wide range of societal priorities and limited global resources, all policies should be as economically efficient as possible. ExxonMobil believes that market-based systems that place a uniform, predictable cost on greenhouse gas emissions are more effective policy options than mandates or standards.
A final thought to conclude.
Our industry has proven that it can meet the challenges of the future. With access to resources, a positive climate for investment, and the development and deployment of new technologies, we are well-placed to unlock new sources of energy – in increasingly safe, efficient, and responsible ways.
As such, we have an obligation to spread the benefits of affordable and reliable energy widely to raise living standards, promote economic development, and alleviate poverty.
And, crucially, we need to do so in a way that safeguards the environment for future generations.
It is clear that natural gas is well-suited to play a key role in meeting this dual challenge. With policies that support open markets, free trade, and a level playing field, we can fully develop and deploy natural gas resources in Europe and around the globe for the benefit of individuals, countries and the future.