Healthy energy industry key to economic growth

ExxonMobil Senior Vice President Mike Dolan spoke at Cambridge Energy Research Associates’ CERAWeek conference in Houston in February. He emphasized that the energy industry can play a critical role in rebuilding confidence amid today’s challenging economic times.

The energy industry’s role in managing risk and helping to restore economic confidence will be paramount as the world continues to face economic uncertainty, ExxonMobil Senior Vice President Mike Dolan told attendees in a keynote speech at the 2009 CERAWeek.

Equally clear, said Dolan, will be the importance of energy policies that encourage investment, reduce risks and focus on the long term.

Industry excels in risk management
Dolan explained that the energy industry has a long history of managing risk effectively.

“Each day, energy companies manage a variety of risks — operational risks, technological risks as well as risks related to project investments and the ups and downs of commodity prices,” he said. “The fact that these risks go largely unnoticed by consumers is a testament to our industry’s success and reliability.”

Since July 2008, crude oil has dropped in value from a record of nearly $150 a barrel to around $40 in the first quarter of this year. Dolan said few industries could weather such a steep and sudden decline in the value of their core commodity.

The fact that the energy industry is managing this volatility testifies to its long-term planning and effective risk management. At the same time, it continues to provide affordable energy to consumers around the globe, while generating billions in government revenues and shareholder returns.

“ExxonMobil, for example, had total tax expenses of nearly $65 billion in the United States between 2002 and 2007, exceeding our U.S. earnings by almost $20 billion during that time,” said Dolan. “For the same period, our dividends and share-buyback programs put nearly $118 billion into the hands of pension holders and investors, the great majority of whom are in the United States.”

The industry supports nearly 6 million jobs in the United States alone. It is also a major employer and investor in human capital around the world.

“These facts — combined with our ongoing investments in new energy sources and new technologies — make it clear that a healthy energy sector will be critical to reigniting economic growth.”

A two-part energy challenge
Dolan added that the industry must also focus on the dual energy challenge facing the world over the long term — meeting increased global energy demand while reducing the growth in greenhouse gas emissions.

Despite the current economic downturn, global energy demand is expected to continue to increase, even with substantial energy-efficiency gains. At the same time, energy-related carbon-dioxide emissions are expected to rise by almost 30 percent — rising primarily in developing nations where populations and economies are growing the fastest.

“To help put this potential new demand in perspective, consider the scale of China’s development,” Dolan said. “Today, China has one car or light-duty vehicle for every 100 citizens. In contrast, here in the United States, we have 78 cars or light-duty vehicles for every 100 citizens. Similarly, per-capita electricity use in China is only one-seventh that of the United States.”

The industry faces economic and environmental challenges as it works to find and produce reliable, affordable energy. To do this and reduce emissions growth it must continue to pursue integrated solutions.

Dolan explained that integrated solutions are those that combined will help the industry develop new supplies of energy from all economic sources, accelerate gains in the efficient use of energy, and develop and deploy new technologies to curb greenhouse gas emissions.

Policy options
To continue making these needed long-term investments during both good times and bad, Dolan told attendees that the industry depends on stable and predictable legal, tax and regulatory frameworks.

In providing these frameworks — and resisting the urge to micromanage markets — governments can play a constructive and necessary role in helping industry meet the world’s energy and environmental challenges.

“It is ultimately a question of risk,” Dolan said. “Policies that increase risks for industry are likely to decrease needed investments. Policies that reduce risks are likely to increase long-term investment and expand the availability of reliable, affordable energy that is essential to economic progress.”

As an example, he cited the area of policy options to reduce greenhouse gas emissions.

One option supported by ExxonMobil is a revenue-neutral carbon tax. Dolan said that a carbon tax would reduce policy risks for businesses and investors in a way that cap-and-trade schemes would not. In addition, by reducing other taxes — such as income or excise taxes — a carbon tax can be revenue-neutral and offset the impact of higher taxes on the economy.

“By reaching out to inform the public on these policy options and by working together with policymakers, we can ensure that our energy policies provide the long-term stability our industry needs to do what we do best: manage risk and provide energy to the world,” Dolan said. “With a positive policy and investment climate in place, we can continue to pioneer solutions that power our economy, increase energy efficiency and curb greenhouse gas emissions.”