ExxonMobil CEO says energy demand set to rise by 30% to 2040

Riyadh (Platts)--21Nov2011/740 am EST/1240 GMT

Global economic output is set to double as the global population grows to 8.7 billion people by 2040, when global energy demand will be 30% higher than it was in 2010, ExxonMobil CEO Rex Tillerson said Monday.

Speaking in Saudi Arabia at the launch of the King Abdullah Petroleum and Research Center, Tillerson said meeting that all sources of energy would need to be harnessed "wherever they are economically competitive" to satisfy this demand.

However, developing new sources of energy alone will not be enough without effective policies to improve energy efficiency.

"Increasing energy efficiency is not a luxury. It is a necessity. Without the gains in energy efficiency that are projected for the next three decades, energy use would need to be four times higher just to enable the same level of economic progress," Tillerson said.

That is why the role of governments is crucial in establishing competitive and effective energy policies.

"The energy challenges the world faces require a business climate that encourages and enables investment, innovation, and cooperation," Tillerson said. "This means governments play a crucial role in the energy industry's ability to expand supplies of energy and increase efficiency in a safe and environmentally responsible way," he added.

"Governments that promote the rule of law and the sanctity of contracts attract capital flows that help direct national and international resources to their highest and most efficient use," the ExxonMobil boss said.

"Sound energy policies that provide a stable and fair legal, tax, and regulatory framework encourage the long-range thinking, investment decisions, and mutually beneficial partnerships that allow the industry to excel," he said, adding that as long term investors in Saudi Arabia "we can confirm that the kingdom has proven to be an excellent partner in this regard."

Tillerson made no mention of a reported agreement between ExxonMobil and the Kurdistan Regional Government for six oil blocks, a deal that has raised questions because three of the blocks appear to be in disputed territory. The contracts -- reportedly concluded in October with no formal announcement yet by ExxonMobil -- also appear to challenge Baghdad's view that production-sharing contracts awarded by the KRG are illegal.

He refused to comment when asked to confirm whether ExxonMobil had indeed entered into an agreement with the KRG nor would he comment on the fate of the West Qurna 1 oil field development project, where it is operator in partnership with Shell under a long-term service contract rather than the more attractive production-sharing formula offered by the Kurds.

The KRG announced the agreements last week during a conference in Erbil.

In a question and answer session after his presentation, Tillerson said the future energy mix is likely to look much as it is today despite the anticipated growth in renewable energy.

"My expectation is that the sources of energy are not going to be too different than they are today. Oil, gas, coal and nuclear are going to play the same important role as they do today and roughly in the same proportions," he said. "As alternative fuel components are developed...they will grow at a very rapid pace but but they start from a very small base." Where wind, solar, hydro and other forms of energy such as biofuels will continue to develop and even register double digit growth, they will still account for single digits in the overall energy complex, Tillerson said.

"The world will require the same sources of energy that it requires today," he added.

Yet each of these resources face challenges and limitations, Tillerson noted.

Biofuels, for example, are being manufactured according to old, well established technologies and a lot of work is needed to improve efficiency.

However, subsidies discourage innovation, he added.

The industry needs "a breakthrough before biofuels will be competitive.

Work is ongoing but each of them has their own challenges," Tillerson said.

"The subsidies that have gone into corn-based ethanol have set biofuel innovation back because they have picked an old technique to subsidize rather than new technology," Tillerson said, adding that the policy on ethanol amounted to a "quick fix" as opposed to a long-term sustainable solution.

As for shale gas and shale oil resources, while they are abundant globally, they are not all equal. While shale gas deposits were present in the Middle East and will potentially be important, developing them would require higher unit costs than conventional gas, in particular onshore gas.

In the US and Canada, however, the cost of supply of shale gas has been driven down to a point where "it is viable to be considered for export to nations elsewhere," Tillerson said.

--Kate Dourian, kate_dourian@platts.com

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