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Meeting industry challenges through innovation and operational excellence
Sherman J. Glass, Junior
President, ExxonMobil Refining & Supply Company
Global Refining Strategies Summit 2009
Houston, Texas
October 29, 2009
Thank you for that warm introduction. I am honored to have the opportunity to address the 2009 Global Refining Strategies Summit — especially since it is here in my hometown. It is always great to be back in Houston, and see so many friends and colleagues from across our great industry. I hope you all enjoy your time here.
I might add that I consider it a real privilege to be on the dais today with Tom Botts [Shell Executive Vice President, Global Manufacturing] and Gary Heminger [Marathon Petroleum Company President]
I believe this Summit on Global Refining is a very valuable opportunity for us to come together as members of our great industry and share thoughts that will improve each of our efforts to protect the safety and health of our people and the communities where we operate, improve the reliability and safety of our plants, and better manage our businesses in today's difficult economic environment — especially as we prepare for future challenges that will certainly come.
We are meeting at a time when the global economy and, some would say, our industry are facing one of the most severe economic downturns in decades. Here in the United States, we have seen crises in the housing and financial markets spread to other sectors, affecting millions of families as well as businesses large and small. Globally, we are seeing reduced demand for energy, which creates additional pressure on our industry.
Against the back-drop of a global recession, there is significant legislative uncertainty. Negotiators in Copenhagen and legislators in the United States Congress are discussing important climate change policies. These policies could have significant long-term ramifications for every refiner and consumer of energy.
Simply put, there has never been a greater need for members of our industry to implement forward-thinking strategies to address current and future challenges, as well as improve the effectiveness of the entire energy value chain.
To help set the tone for this Summit I thought to focus on three important concepts that we embrace at ExxonMobil.
First, I will comment on our industry's critical role in both strengthening national economies and contributing to global development — particularly important in these challenging times;
Second, I will discuss how members of this industry continue to improve operations, which helps to stimulate economic growth, as well as meet the increasing need for refined products over time;
Finally, I will comment on our strongly held belief that continuing investments in technology are vitally important to further increase energy efficiency, reduce emissions, and deliver the breakthroughs that will enable our industry to meet the world's growing energy needs for decades to come, just as it has for well over a century.
The Energy Industry’s Contribution
Let me then begin with the critical role our industry plays in the global economy. Our financial performance is essential, and not just for our shareholders. The oil and gas industry is one of the primary drivers of economic expansion and growth around the world. For more than 150 years, our industry has helped provide affordable, reliable energy to both mature and developing economies; well-paying jobs; significant tax revenues to governments; leading-edge technologies; as well as shareholder value.
Focusing on the U.S. for a moment, let me share a few very interesting facts with you. According to a recent study by PricewaterhouseCoopers, the oil and natural gas industry contributes more than $1 trillion a year to the U.S. economy alone. Or to put it another way, the oil and gas sector is responsible for 7.5 percent of total U.S. economic output.
We are also major employers. Our industry supports more than 9 million jobs in the United States — or about 5 percent of total U.S. employment — jobs that put more than $550 billion in income into the U.S. economy in 2007.
Our industry's performance is critical to the U.S.'s fiscal health. Without our tax contributions, local, state and Federal governments would be hurting a good deal more than they are today. According to the U.S. Energy Information Agency, major U.S. energy-producing companies paid more than $242 billion in income tax in the U.S. between 2005 and 2007. Last year, ExxonMobil alone paid more than $14 billion in state and federal taxes. In fact, since we are taxed on our worldwide income — the sum total paid in taxes is more money than the profits that we actually made in the U.S.
The industry’s contributions in many other nations are just as significant.
Current Energy Debate
As you are all well aware, the oil and natural gas industry’s strengths have caused some policymakers to seek significant changes in energy policies — policies that would hit refiners especially hard.
Many consumers and some members of Congress see the oil and gas industry as a source for additional revenues during these tough economic times. Congress has enacted tax laws that are expected to cost the oil and natural gas industry around $10 billion in additional taxes over the next 10 years, as compared to what the industry would otherwise be expected to pay today.
In addition, in the 2010 budget, the Administration has proposed new taxes and fees on the oil and natural gas industry. These taxes and fees could potentially total more than $400 billion over the next 10 years.
We all know that targeted tax policies that focus on one industry versus others are invariably counter-productive. Targeted tax policies place a burden on economic growth, and they undermine job creation.
Punitive taxes levied on the energy industry would, without question, raise energy costs for all consumers.
These punitive taxes undercut future growth by hindering the energy industry's ability to invest in new supplies and conduct the research and development needed to develop and apply new technologies.
As our local and national leaders debate these critical public policy issues, we refiners must make ourselves heard in the national dialogue. We need to impress upon our elected leaders the importance of sound, stable public policies that ensure members of our industry can make the long-term investments needed to reduce emissions, improve energy efficiency and increase supplies for an ever-growing marketplace.
However, these economic and public policy challenges are only part of the near-term issues we currently face.
We also face the challenge of meeting the world's enormous, growing need for energy.
Meeting Demand
The fact is, government and private-sector assessments of the world’s energy needs consistently highlight the certainty of rising demand over time. As the world grows and economies develop, future demand for energy will grow dramatically. The International Energy Agency and many others predict that the world’s total energy demand will grow by 35 percent in 2030 versus the demand in 2005, even after factoring in the current economic slowdown.
Most demand growth will come from developing nations, as their populations increase and their economies become more advanced. This is good news.
Growing energy demand means that hundreds of millions of people are achieving higher standards of living each year: living lives that are safer, healthier, and filled with greater opportunity.
Of course, enormous demand growth for energy around the world also means that nations must establish policies that allow the energy industry to develop energy from all available and commercially viable resources.
Where it is economic, alternative energy sources such as nuclear and wind will play a role. In fact, we anticipate that these sources will grow at a rapid pace in the years to come.
However, since alternative energy sources start from a relatively small base, their contribution to the global energy mix will remain limited for the foreseeable future. And as they become more advanced, alternative energy sources will play a larger role over time.
Accordingly, we will need to find and produce more oil and natural gas. As you know, fossil fuels currently provide the vast majority of the world’s energy — and due to their availability, affordability and versatility, they will continue to do so. Oil and natural gas alone are projected to supply nearly 60 percent of the world’s energy needs through the year 2030.
With this in mind, our industry must clearly communicate the size and scale of the challenges we face in getting energy to consumers. Each day, consumers worldwide use more than 230 million barrels of energy, measured in oil equivalents, from all sources. Oil alone is consumed at a rate of 40,000 gallons a second.
The good news is that the world has sufficient oil and natural gas to meet these needs. According to the latest U.S. Geological Survey, the world is endowed with about three trillion barrels of conventional oil. In addition, resources such as heavy oil, oil sands and oil shale raise the estimated recoverable resource base to over four trillion barrels — of which only about one trillion has been produced to date.
Despite the available resources, we still face a tremendous challenge in terms of the scale of effort and technology deployment needed — both require long-term planning horizons. Time in the oil and gas industry is not measured in business cycles — or election cycles — but in generations. The energy we use today is the product of investment decisions and technology development that were made decades ago.
In addition, for most nations, the energy that powers their economies requires a vast, complex infrastructure. New supplies of energy can come from hundreds, even thousands of miles away – often originating thousands of feet below sea level or drawn from layers of rock once thought impenetrable.
To keep reliable, affordable energy accessible for all, the International Energy Agency estimates that the energy industry will need to invest more than 25 trillion dollars to find and bring to market the energy supplies needed by 2030 to meet growing energy demand.
With steady increases in future energy demand, there is a second, very important aspect of the energy challenge: an increase in greenhouse-gas emissions associated with energy use. Globally, we expect energy-related carbon-dioxide emissions to rise by an average of one percent per year through the year 2030. Much of this enormous emissions growth will come from rapidly developing nations such as China and India.
By 2030, China’s CO2 emissions will be comparable to the combined emissions of the United States and Europe.
Meeting this dual energy challenge — the challenge of expanding energy supplies while reducing emissions — will require our industry's sustained leadership, particularly in the area of technology. We must continue to develop and apply “integrated solutions” — solutions that leverage technology at every opportunity, allowing us to expand energy supplies, increase efficiency and reduce emissions.
For decades, our industry has proven that innovative thinking and advanced technologies can add value and efficiency to every link in the energy chain. Taken together, integrated solutions that leverage technology hold the promise to transform both our industry and our world for the better.
Building Operational Excellence
This brings me to my second topic — how refiners are continuously improving their operations over time to meet the increasing energy needs of the global economy.
We know that regardless of economic conditions we must continue to improve the safety and the reliability of operations, increase the efficiency of plants, steadily improve shareholder returns as well as invest in new technologies
Safety
My first point here is most essential — safety. We believe the first and most important measure in pursuit of operations excellence is our respective companies' safety records. All of us are dedicated to protecting our people and those living in the communities where we operate.
Conferences like this are important, because here we can share ideas that improve safety. Knowing that our industry's collective safety record reflects on every company. Through forums like this Refining Summit, we can keep our industry moving forward toward the shared goal of zero incidents. I'm sure you'll agree, this begins with keeping safety as a core value in everything we do.
While ExxonMobil is a leader in the industry, with very low incident rates for work-related injuries and illnesses, we will never be satisfied until every employee and contractor around the world leaves our workplace at the end of the day, just as safe and sound as when they reported to work.
Since 2000, we have reduced our corporate-wide lost-time incident rate by more than 12 percent per year. Such results come from setting priorities, measuring progress, and holding people accountable.
We begin by setting high standards through our Operations Integrity Management System — or OIMS. OIMS provides a common structured framework of expectations for all of ExxonMobil’s businesses around the world. This framework helps ensure our operations are safe and reliable as well as help us maintain best-in-class operations.
It is also important to create and support a culture where every employee and contractor understands he or she must take part in creating a safe workplace. For instance, at our refineries in Beaumont and in Joliet, Illinois, we have worked to achieve OSHA recognition as “Star” sites in OSHA's Voluntary Protection Program (VPP).
Through VPP, management, Labor, and OSHA work together to implement a comprehensive safety and health management system. VPP Star recognition requires outstanding efforts by employers and employees alike and is awarded only when together we have achieved exemplary occupational safety and health performance.
I'm sure you will agree, achieving success in safety takes more than day-to-day diligence. It requires foresight and vision, which is why we continuously focus on identifying and reducing risks inherent in our businesses, strengthening our systems and work processes, and upgrading our facilities.
A recent example is our new Plant Automation Venture, which provides our operators with the latest technologies for operating procedures, real-time plant monitoring, and abnormal event detection and management. By identifying issues early, we can quickly take corrective action that ultimately improves the overall safety of our operations.
Our commitment to safety also yields benefits reflected in the bottom line — especially important in these challenging economic times. A safe workplace is a more productive one.
Increasing efficiency
My second point regarding operational excellence refers to a constant focus on improving efficiency. As several presenters will be discussing during this summit, a more efficient operation yields numerous benefits, including lower costs and fewer emissions.
In terms of identifying energy savings at ExxonMobil, our Global Energy Management System has proven to be one of our most important tools for bringing about positive, near-term change. This initiative helps identify potential energy efficiencies in our operations, and allows us to use resources more effectively, ultimately reducing e energy usage and emissions from our operations.
This energy efficiency program began by tapping knowledge from our best operations around the globe. We looked at every link in the energy chain, documented our best practices and then applied those lessons to our worldwide operations. Each day, as part of this initiative, we track more than 12,000 energy variables worldwide, using them to improve both individual plants and global operations. Since 2000, we have identified $1.5 billion in potential efficiency savings, approximately 60 percent of which have now been captured.
One of our most important energy efficiency stories is one that is critically important to refining – cogeneration.
We currently have interests in approximately 100 cogeneration plants in more than 30 facilities around the world. Our latest expansion in Antwerp, Belgium, inaugurated a 125-megawatt cogeneration facility. That new plant will reduce Belgium’s carbon dioxide emissions by approximately 200,000 tonnes per year.
Leveraging Scale and Integration
There are also opportunities for refiners to capture efficiency benefits from world-scale, integrated manufacturing sites. At ExxonMobil, more than 75 percent of our refining capacity is integrated with either our lubes or chemical businesses — or in some cases, both. These integrated operations allow us to optimize manufacturing processes, lower costs and improve product yields.
Integration also brings significant “circuit synergies.” Our global network of reliable and efficient manufacturing plants, transportation systems, and distribution centers enable us to provide fuels, lubricants, and other high-value products to customers in more than 100 countries and territories. Our global supply organization directs raw materials to our refineries, finding the most efficient processing configuration and determining the best way to supply products to our customers around the world. Every day, this network lowers costs and optimizes overall supply chain performance.
We also think it is important to find ways to improve product yields and increase feedstock flexibility. Our refineries currently have 40 percent more conversion capacity than the industry average, allowing us to produce more, higher-value products per barrel of crude processed.
In fact, since 2003, we have added about 90,000 barrels per day of additional conversion capacity to our refineries — effectively adding one new conversion unit to our facilities every two years.
In addition, by using our proprietary Molecule Management technology we continue to grow our raw material flexibility. As part of this program, we have developed molecular fingerprinting technology that enables us to better understand of the key characteristics of a crude well beyond its physical characteristics, right down to its chemical and molecular makeup.
This, in turn, has allowed us to make a step-change improvement in crude selections that maximize yields of higher-value products, while at the same time increasing utilization of new and lower cost crudes. In fact, last year we processed 150 crudes new to individual refineries.
Long-term Investments
This brings me to a key point — investing through the business cycle. At ExxonMobil, we believe that to be successful long term, we must continue to invest to sustain our competitiveness regardless of business conditions.
We know that in the long run, demand for energy and for refined products will grow. If we are to meet future demand, we must act now and invest capital and human ingenuity into expanding supplies and increasing efficiency. That is why we continue to invest in improvements and new projects, even during these challenging times.
You may have seen our announcement late last year regarding significant investments to increase production of low-sulfur diesel. We plan to spend more than $1 billion to expand our refineries in Texas, Louisiana, and Belgium, to meet the growing demand for low-sulfur diesel. When completed next year, these expansions will increase our diesel production by approximately 6 million gallons a day — the equivalent to the diesel produced from about four average sized refineries. With these expansions we are taking steps not just to meet that demand, we will be meeting growing demand with a more advanced, cleaner-burning fuel.
Any discussion of demand growth in developing countries must include Asia Pacific. Between 2005 and 2030, we expect total liquids demand to grow about 2 percent per year in this dynamic region. This translates to an increase of 65 percent by 2030. Refiners will need to move aggressively to meet that demand growth.
Next month my company will participate in a celebration marking the completion of the Fujian Petroleum and Petrochemical Complex, a joint venture between Sinopec, the Fujian Province in China, Saudi Aramco, and ExxonMobil. This expanded facility will process 240 thousands of barrels per day of crude, and includes a 250-megawatt cogeneration facility. But even with this ambitious project in place, more capacity will be needed as energy demand soars around the world.
Investing in technology for the future
This brings me to my third topic — the promise of technology. Interestingly, some people do not realize that the oil and gas industry is a high-tech industry! But those of us here today know that our best hope for addressing the enormous dual challenge of meeting growing energy demand while mitigating emissions is through development and deployment of new advanced technologies.
Developing and deploying promising technologies requires long-term thinking, focus, and disciplined investments — the same fundamentals that have driven our businesses for more than 100 years.
In this regard I'd like to discuss a few examples of ExxonMobil's more recent technology developments. I know full well that many of the companies represented here today have some very interesting, new technologies as well.
One of our technology focus areas directly relates to consumers — our work on advanced vehicle technologies. In the world’s massive transportation sector, even tiny improvements in efficiency can yield impressive benefits to both consumers and society.
As an example, our energy-saving plastics are making vehicles lighter, and our improved tire inner liners help reduce tire weight and keep them inflated longer, which is important for fuel economy. We've also developed lower viscosity lubricants like Mobil 1 Advanced Fuel Economy, which can improve fuel economy by up to two percent versus motor oils most commonly used. To put that savings in perspective, if one-third of U.S. motorists reduce their gasoline consumption by two percent, it would prevent the emission of about 8 million metric tons of carbon dioxide per year, which would have the same effect as taking about 1.5 million cars off the road.
We are also improving vehicle-battery technologies. In 2007, we unveiled new separator films, developed by our chemical company, for lithium-ion batteries. These films have the potential to improve the energy efficiency and affordability of next generation hybrid electric vehicles. If just 10 percent of the light-duty vehicle fleets were hybrids, the resulting carbon-dioxide reduction would be equal to taking five million cars off the road.
And finally, ExxonMobil scientists and engineers are working with those from other industries on a breakthrough technology that could advance the use of hydrogen fuel cells. This new technology, which has been under development for more than a decade, will be applied first to industrial applications, such as forklifts. Our approach — quite different than most — converts traditional hydrocarbon fuels, such as gasoline, into hydrogen directly on-board the vehicle, eliminating the need for separate facilities to produce and distribute hydrogen.
Measured on a “well-to-wheels” basis, this on-board hydrogen fuel system could be up to 80 percent more fuel-efficient, and emit 45 percent less carbon dioxide, than internal-combustion engines.
ExxonMobil is also investing in integrated solutions that could be even more transformative.
In 2002, we launched the Global Climate and Energy Project in concert with Stanford University. Along with our co-sponsors General Electric, Schlumberger, and Toyota, we are investing $225 million at Stanford and other leading institutions around the world to research and develop truly game-changing technologies.
Our goal is to bring together some of the world’s best scientific and engineering minds to perform fundamental scientific research — research that can redefine the field.
We believe one of the most game-changing technologies of all is the potential to generate energy from algae.
In July, we forged an alliance with a leading biotechnology firm — Synthetic Genomics, Incorporated — to research and develop next-generation biofuels from photosynthetic algae. According to our analysis, there is evidence that select species of algae can produce oils through photosynthesis that could one day be converted into diesel fuel.
If successful, algae could play a role in expanding transportation fuel supplies, and because algae absorb carbon dioxide, this revolutionary technology could also help reduce greenhouse gas emissions. In addition, unlike first generation biofuels, like those made from corn or sugar cane, algae production would have no adverse impact on land use or food production.
Like so many in our industry, ExxonMobil is committed to investing in new technologies. Over the last five years, we have invested more than $3.7 billion in research and development. Our 125-years of success and our proven business model remind us that our future success depends on making steady and disciplined investments in integrated solutions and breakthrough technologies that will help us and consumers increase efficiency and reduce emissions for decades to come.
Conclusion
In closing, let me summarize a few points that I hope will guide our discussions during this Summit.
First, we should be proud of the work we do and the contributions we make to society. Few industries are more instrumental to economic growth and development than the energy industry. And in the years ahead, the role we play in meeting the world’s increasing energy needs will only grow.
Second, as we look out on our current economic challenges, we must maintain our commitment to safety, reliability, and continuous improvement in our operations.
And finally, the world's shared energy challenges will require long-term planning and a steadfast commitment to develop and deploy new technologies that meet multiple objectives. A commitment to innovative thinking and deployment of new technologies will expand energy supplies, increase energy efficiency and reduce greenhouse gas emissions — all helping to keep people, communities and nations safe and prosperous.
Not only will these strategies ensure we return value to our shareholders, they will be key to economic growth and increasing opportunity for all.
Thank you for your attention.
