petrochemicals: opportunities, challenges and a path forward

Remarks by Sherman J. Glass, Jr.
Sherman J. Glass, Jr., ExxonMobil Chemical Senior Vice President
NPRA International Petrochemical Conference
March 31, 2008 

 

Good morning! 

Since I work for an oil company as well as a chemical company, I thought I’d begin by first commenting on the oil and gas business because, in large measure, the health of the chemical industry depends on the health of the oil and gas industry.

From our perspective, the two are inextricably linked, especially when you consider that the vast majority of chemical feedstocks come from oil and gas — commodities for which other industries, notably transportation and utilities, also compete.

I’m sure you know that population growth and improvements in living standards — especially in developing nations — drive increased use of energy, chemicals and the products that require both.

The World Bank estimates that the earth’s population will increase from more than six billion today to eight billion by 2030, with most of that growth coming in developing nations such as China and India. 

Over the same period, the global economy is expected to nearly double to about 75 trillion dollars per year. Again, much of that growth will occur in developing countries.

So, how will these trends impact energy and petrochemicals?

Our assessment is that global energy demand will grow by 40 percent from 2005 to 2030, reaching close to 325 million barrels per day on an oil-equivalent basis.

About 25 percent of this growth in global energy demand will come in the transportation sector, mostly from cars and trucks. 

For example, between the year 2005 and 2030, the world's light-duty vehicle fleet will grow by about 450 million, an increase of 65 percent. 

Even with significant efficiency gains, total demand for transportation fuels in 2030 will be about 65 million barrels per day — or 50 percent higher than it is today.

Clearly, a wide variety of energy resources will be needed to meet this increased demand. 

But fossil fuels — oil, natural gas and coal — are the only energy sources of sufficient scale, flexibility and affordability to meet the majority of the world’s energy needs.

We project that fossil fuels will continue to provide about 80 percent of the world's energy over the next two decades, and oil and gas together will provide close to 60 percent of energy needs over the same period.

As you know, there’s a lot of discussion about modern renewable energy sources. 

Use of these is expected to grow rapidly, spurred on by government subsidies and mandates. 

But while growth in these will be dramatic, the total amount of energy provided by renewable resources will actually be very small.

Today biofuels, wind, and solar make up about one half of one percent of world energy sources.

And, even with dramatic growth, they’re expected to provide only about two percent of energy supplies by 2030.

The overarching fact is that even with aggressive efficiency efforts as well as deployment of emerging technologies, the world will need significantly more energy in the future and the majority of the increase in energy demand will be met by oil, gas and coal.

Recognizing this reality, it’s fair to ask whether the world has the oil and gas to meet this growth in demand.

The U.S. Geological Survey now estimates that since the dawn of human history, we and our ancestors have consumed about one trillion barrels of oil.

The same agency also estimates that some two trillion barrels of conventional oil are still in the ground, waiting to be tapped.

In addition, current estimates indicate there is as much as one trillion barrels of “frontier”, non-traditional resources, such as heavy oil and shale oil, available — even though they are more difficult and more costly to recover. 

Accordingly, the world has about three times as much oil available for future use as we have used to date.

We also believe that oil and gas will continue to be the primary source of feedstocks for the chemical industry for several decades to come.

So, with that, let me turn to chemicals… a business we believe has a number of promising opportunities.

First, chemicals continues to be a growth business.

We estimate the chemical business is growing about two percent per year above world GDP, a growth rate two to three times that expected for energy. 

This higher growth reflects the continued penetration of chemicals and plastics into both existing and new uses around the world. 

Second, market demand in the developing nations, especially in Asia and specifically in China, is driving most of the growth we will see over the next several decades. 

This means North America will likely shift from a net exporter of chemicals to a net importer, by as early as the end of this decade. 

In fact, we expect that some 60 percent of the increase in global petrochemical demand over the next 10 years will occur in Asia, and China alone will account for nearly 40 percent of that growth. 

By as soon as 2015, Asia will likely account for half of the global demand for commodity chemicals, and China alone will account for 25 percent of global demand.

Third, our products continue to displace older, more traditional materials such as steel and glass — improving the performance of end products and often at lower cost — and there is plenty of opportunity for new uses for our products.

So, the future for our industry is bright — but we do have some challenges. So let me talk about a few of the most pressing.

Perhaps foremost is continued availability of reliable and affordable raw materials. Ones that not only provide fuels for transportation and power, but also provide the majority of our feedstocks. For our part, ExxonMobil is making massive investments in energy development.

In fact, over the past 25 years our investments in new energy projects and production facilities have exceeded our earnings over the same period.

Earlier this month, ExxonMobil announced plans to invest more than $125 billion over the next five years to progress additional projects to help meet the world’s growing energy needs.

A second challenge is the environmental impact of rapid increases in energy use, including that in our industry. 

Climate change is a global issue and greenhouse gas emissions are rising, especially in the developing world.

Meaningful solutions must be affordable, be applicable both in the developed and developing world, and allow continued economic growth.

With this in mind, scientists and engineers at ExxonMobil are working hard to reduce emissions every day, while also supporting development of new technologies that could significantly reduce emissions long-term.

And, to this end, we believe advances in technology will be critical in finding cost-effective solutions – a subject I’ll come back to. 

Third is the changing mix of suppliers and customers in our business.

As I’ve discussed, most increases in demand will be in emerging economies, shifting the center of our customer base.

At the same time, our industry has many new players — some are a re-mix of old and new companies, and some are oil-producing states looking for ways to move downstream from the well head.

So while opportunities for chemicals are significant — we do have some real challenges — challenges in where feedstocks will come from, challenges in protecting the environment and challenges a new landscape of both customers and suppliers brings.

So what is the key to a successful path forward to capture these opportunities and deal with the challenges?

We believe it is rooted in the use of leading-edge technologies and innovation.

Last year, we at ExxonMobil spent over $1 billion in R&D and technology applications — to improve our manufacturing processes, to lower energy use and emissions, to improve product yields — and to develop new and better products for our customers. 

We believe innovation through technology will be the key to providing solutions to current and emerging needs in transportation, packaging, construction, health care, and the environment.

So, what are we doing at ExxonMobil Chemical to develop new, leading-edge technologies and capture the opportunities of this remarkable future?

One area we focus on very closely is feedstock management, especially recognizing the changing quality and availability of both crude oil and natural gas. 

ExxonMobil Chemical has a very active program to expand feedstock flexibility through deployment of new technologies that enable us to effectively process a wider variety of feeds, at lower cost and with higher yields; especially at our steam crackers.

For example, over the past four years we have qualified nearly 300 new steam-cracking feeds of varying qualities from around the world for our plants.

Many of these are tailored for us at other ExxonMobil operations — refineries, gas plants — capitalizing on our ability to integrate all the way back to the well head.

The ability to process both liquid and gas feedstocks from diverse sources enables us to quickly respond to changes in feedstock quality, availability, and cost. 

Feedstock flexibility not only captures additional value, it strengthens our ability to reliably meet our customers' needs in any economic environment. 

It is difficult to overstate how important feedstock flexibility is in today's hyper-competitive and ever-changing marketplace. 

Another key area of emphasis is more efficient use of energy. Last year, nearly half of our operating costs went to fuel. 

Accordingly, we continue to seek new ways to recover and reuse heat, reduce heat loss, and improve energy efficiency. 

For example, about 60 years ago, ExxonMobil began operating the world's first steam cracker at our Baton Rouge plant.  

Today, that same unit consumes less than half the energy — per ton of olefin produced — than it did when it started up in 1941.

We keep improving that technology to process different feedstocks, to reduce energy consumption and emissions, and to increase product yields. 

For example, over the last five years alone, the energy consumed per unit output across ExxonMobil Chemical has decreased by about 10 percent. 

In steam cracking, our pace of energy efficiency improvement is about twice that of competition.

As a result of this and many other advances in technology, the air, land and water around our operations are much cleaner today than in the past.

Finally — we have a relentless focus on operations reliability and use a very structured Operations Integrity Management System.

Running plants at full capacity with fewer outages not only results in safer and lower-cost operations. 

It enables us to increase our manufacturing capacity with little to no additional capital. 

Now besides working to improve our process operations, we have an equally strong effort targeted at new and improved products that deliver ongoing benefits to consumers.

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. 

According to the U.S. Department of Energy, American drivers waste more than a billion gallons of gasoline every year just due to underinflated tires.  

Other examples of innovation can be found in the many products we supply to the auto industry.

Did you know that the average light vehicle produced in the United States contains over $2,000 worth of chemistry – chemical products and processing?

A large — and growing — portion of that chemistry is in plastic and composite components. 

According to the American Chemistry Council, today’s average car contains over 300 pounds of such components, about eight percent of the car’s total weight.

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 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.

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.

Now before I close, I'd like to comment on our approach to participating in emerging markets. 

As I said earlier – we project by 2030 half of the world's demand for commodity chemicals will be in Asia, with about half of that demand in China alone.

The question is – how to effectively participate in that huge market opportunity?   

At ExxonMobil, we are capitalizing on the core assets we already have in the region. For instance, we are more than doubling the size of our Singapore chemical complex, building a highly feed-flexible steam cracker and multiple derivative units – all to be started up by early 2011. 

This will enable us to capture multiple synergies with our base plant and ExxonMobil's refinery co-located on the same site. 

Singapore is well positioned to serve the entire Asia Pacific Region, and we are very pleased with the strong support from the Singapore government. 

In China, we are part of the only fully integrated refining, chemicals and marketing joint venture with our partners Sinopec, the Fujian government and Saudi Aramco.  At Fujian, an existing refinery is being expanded from 80 to 240KBD and we are building a new 800KTA steam cracker, as well as polymer and aromatics derivative units. 

These projects are targeted at efficiently serving the emerging markets in Asia – many in concert with highly capable partners.

Through deployment of state-of-the-art technologies, these should result in highly competitive plants and good logistics to serve both existing and emerging markets.

So with that, let me wrap up with three key thoughts.

First , driven largely by population growth and improving standards of living, energy use will grow by about 40 percent between 2005 and 2030 — despite substantial improvements in energy efficiency and fuel economy.

Second, notwithstanding the rapid deployment of renewable energy sources such as wind and solar, traditional hydrocarbon energy sources — oil, gas and coal — will meet about 80 percent of energy needs through 2030.

Third, the chemical industry will enjoy strong growth over the next 20 to 25 years — about two percent per year over GDP growth — with most of this increased demand in the emerging economies of the world, especially in Asia.

We do have a number of challenges, including continued availability of raw materials, the projected growth of greenhouse gas emissions, and the rapidly changing mix of customers and suppliers.

We believe the solutions for tomorrow will be rooted in new technologies — just as they have been in the past.

With continued innovation and careful deployment of new assets, I am confident that our industry will overcome any hurdles in our path and continue to provide products that are essential to everyday life.

So finally, when you pull it all together — for chemicals — the future is bright. 

There is strong demand for our products and ample opportunity for new product applications in virtually every business sector.

Thank you very much for your attention and please accept my best wishes for a successful meeting here in San Antonio and perhaps more importantly — continued success in your business.