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petrochemicals: the growth business of the Middle East
Remarks by Michael J. Dolan
President, ExxonMobil Chemical Company
16th Annual Arab-U.S. Policymakers Conference
October 25, 2007
You might be wondering why a chemical guy like me is represented on this energy panel.
As background, ExxonMobil has operated in the Middle East for more than six decades. From a chemicals perspective, the region clearly enjoys an unparalleled advantaged energy and chemical feedstock position.
And, by integrating chemicals into the bigger resource management strategy, we see equally unparalleled opportunity for the region to benefit from proximity to growing markets in Asia. In part, I’m here today to share the perspective of a big energy consumer. The chemical industry relies on oil and natural gas to produce the things that make everyday life better -- and this will be the case for many years to come. Today, 99 percent of chemicals depend on oil and gas.
But in addition to sharing the perspective of an energy user, I’m also here today to share my views on the growth opportunities for the chemical industry in the Middle East, and more importantly, to discuss how chemical industry investment can help maximize the region’s natural resources to promote long-term economic development.
These opportunities are contingent on a policy environment that welcomes international trade and investment, and one that fosters global competition and free enterprise. Strategic alliances and international cooperation are enablers that drive success in the global marketplace.
ExxonMobil’s long and mutually beneficial relationships in the region are prime examples of the value that can be derived from U.S.-Middle East cooperation.
Energy overview
I think it’s important to anchor this discussion with the knowledge that oil, natural gas and coal are expected to meet 80% of the world’s energy demand over the next quarter-century and beyond.
This is no small feat given that the World Bank projects that the earth’s population will increase from more than six billion today to eight billion by 2030. Most of that growth will come in developing nations.
Over the same period, the global economy is expected to more than double in size to about 70 trillion dollars. Much of that increase will occur in large countries such as China and India.
As populations expand and living standards improve, the use of energy, chemicals and related products will increase. As a result, we expect global energy demand to grow by 30% over today’s levels by the year 2030.
The growth in global liquids demand through 2030 will be led by the transportation sector with the world’s light-duty vehicle fleet growing by 60%.
Total transportation demand in 2030 will be about 45% higher than it is today.
These projections are important to the chemical industry for several reasons.
First, the industry will continue to compete directly with the transportation sector for liquids from crude needed as petrochemical feedstocks.
Second, we will continue to be a significant supplier of raw materials to produce all those additional cars and light trucks creating a large market opportunity.
And finally, the quality of motor fuels will change in response to growing concerns over emissions. This will have an impact on the molecules available to our industry.
These factors add up to a critical question: Can there possibly be enough oil to meet growing energy and chemical needs?
According to the U.S. Geological Survey, the earth is estimated to have more than three trillion barrels of recoverable, conventional oil.
This estimate has grown steadily as the oil industry has developed more advanced technologies to find and produce those resources.
If we add estimated non-conventional resources such as heavy oil and shale oil, this recoverable volume rises to more than four trillion barrels. Over history, mankind has used about 25% of that, or one trillion barrels of oil.
That means ample resources are available to meet growing oil demand well into the future.
The energy outlook is positive, but it is challenging:
Getting to those supplies and bringing them to market will continue to present us with technological, financial and geopolitical challenges.
Chemical industry review
These challenges are of interest to the chemical industry. Ninety-nine percent of chemical feedstocks come from oil and natural gas. In other words, the health of the chemical industry depends on the health of the petroleum industry.
Energy is required to fuel our manufacturing processes. But oil and natural gas are also important feedstocks we use to make countless consumer products.
Worldwide, demand for these consumer products continues to increase as a result of ongoing economic development and the pursuit of improved living standards.
The chemicals business is based on maximizing resources — or more specifically, generating the most value for society from every molecule.
Chemical manufacturing, though a couple of steps removed from oil and natural gas production, is an integral part of the bigger resource management picture.
It’s also an exciting time to be in the chemical industry. World demand for chemicals is growing at a brisk pace — about two to three percent above world GDP.
That’s an average growth rate of about five to six percent per year, or about triple the expected growth rate for all forms of energy.
This high demand growth reflects the continued penetration of chemicals and plastics into end-product markets such as automotive, packaging, construction, and health and personal care. These products are fundamental to everyday life.
Over the next 10 years, we expect some 60% of the world’s petrochemical growth to occur in Asia. China alone will account for more than one-third of that growth.
By 2015, Asia is expected to account for 50% of global demand for key commodity chemicals, and China alone is expected to account for 25%.
With large oil and natural gas reserves, Middle East nations are uniquely positioned to help meet this rising demand.
And, they are geographically situated to provide efficient access to the emerging markets of Asia Pacific.
However, meeting future petrochemical demand requires more than access to advantaged feedstocks and being in the right place at the right time.
It also requires innovation rooted in leading-edge technologies. As manufacturing processes improve and become more efficient, industry can produce higher-quality products that will serve new applications and markets.
Building capacity in the Middle East and Asia
For the Middle East, the goal is to get the highest value out of its natural resources while building a thriving economy. The growing chemical demand I’ve described presents major opportunities for the region to upgrade its natural resources into higher margin products and strengthen its economy.
The Middle East enjoys an enviable and unparalleled advantaged energy and feedstock position, and the revenue from oil and gas production supports further investment and development.
Adding value to the gas at the crude oil well head became the cornerstone of the competitive and robust Middle East petrochemical industry. ExxonMobil remains highly optimistic about prospects in the region.
Currently, we already have a large asset base, and we continue to pursue major projects to provide additional advantaged capacity.
Our joint ventures in Saudi Arabia are conducting a major study to examine the feasibility of building capacity to make butyl rubber, elastomers and carbon black.
These products are essential for tire manufacturing. The growth we’re seeing in Asia translates directly into more cars on the road, underscoring the significance of this investment opportunity.
In 2006, Qatar Petroleum and ExxonMobil agreed to move forward with studies for a world-scale petrochemical complex in Ras Laffan. The proposed project would include a steam cracker, along with derivative units designed to provide premium products to the Middle East, Asia and Europe.
In addition, we’ve also partnered with Sinopec and Saudi Aramco on a project in China.
The Fujian complex is a fully integrated, joint project with downstream and chemical. It is also the only fully integrated project with foreign investment in China.
Synergies from these world-scale, integrated businesses, closely coupled with the strengths of the partners and a long-term crude supply agreement with Saudi Aramco, significantly enhance the competitiveness of this project, and help ensure its world-class performance.
Based on our overall growth plans, we anticipate our capacity in the Middle East and Asia will increase by nearly 50% over the next several years.
And, we continue to look for more advantaged growth opportunities.
Our investments bring with them well paying long-term jobs and multiplier effects on local economies, thereby enhancing overall economic growth.
Providing for today and the future
At ExxonMobil, our focus is meeting today’s needs while protecting the aspirations of future generations.
Without a doubt, the chemical industry makes everyday life better by providing raw materials for more than 70,000 products that help keep us all safe, healthy, warm, cool, on time, in motion and connected.
But they also play a fundamental role in helping society be more energy-efficient and environmentally responsible.
One example is plastic.
We all know that plastics are used in almost everything: protective packaging, lightweight components for cars and aircraft, mobile phones, toys, medical devices, and even the pipes that carry our drinking water.
But because these materials often allow us to do more with less, plastics actually contribute to a more efficient use of resources.
Even with all of those end uses, plastics account for just 4% of the annual consumption of oil and gas.
No other material can compete with plastics when it comes to meeting technological demands while preserving our natural resources. Across all industries and in all parts of the world, the drive to reduce human impacts on the environment has never been greater.
For our part, ExxonMobil is taking action to mitigate greenhouse gas emissions today and we support the development of advanced energy technologies to significantly mitigate emissions in the future.
We’re also implementing new technologies to make our products more environmentally friendly and energy efficient.
By finding ways to reduce our environmental footprint, ExxonMobil is helping to leave the world in better environmental shape for future generations all while providing products and energy the world needs today.
Let me leave you with a few thoughts to sum up my remarks.
As we in the energy and chemical industries go about our work, we must do so with detailed attention to the impact it will have on the world’s well-being today and in the future.
From the chemicals side, part of our contribution to that well-being is to provide affordable and reliable products that enhance quality of life in a manner that is economic, safe and environmentally responsible.
The Middle East offers exciting new opportunities to expand industry’s capacity to make those products efficiently and profitably.
With the support of public policies that promote free trade, competition, innovation, investment and access to resources, the chemical industry can help bring long-term economic development to the region and much-needed consumer products to the world’s growing population.
Thank you for your attention.
