‘Community Engagement and Energy Policy: Explaining the Complexities to a Broad Audience’
Queenstown, New Zealand
‘Community Engagement and Energy Policy: Explaining the Complexities to a Broad Audience’
~ Check against delivery ~
It really is a great honour for me to get the opportunity to speak at this conference.
Not only is this a conference for some of the great problem solvers in our society, but what a spectacular part of the world in which to have a conference.
Despite having travelled around the globe for the past 36 years with ExxonMobil, this is my first time visiting New Zealand. When I finished university I had intended to come on an extended bushwalking/camping trip before starting with my engineering career - but failed. So now nearly four decades later, it shows that somethings are worth waiting for.
Now, I’ve been asked to speak today about Community Engagement and Energy Policy.
This is a critically important topic, and these days it is getting increasingly challenging.
In actual fact energy policy is really quite simple. Set clear objectives and then leave it up to energy producers to pursue them in a free market.
I don’t have to tell you that engineers are problem solvers.
Engineers love a challenge -- something we can really apply our technical minds to.
And there’s something about humans that make us love competition.
That’s what we want from policy makers – set and maintain consistent rules that allow a free market to compete.
Engineers approach problems with an open mind – a clean sheet of paper. What is the objective? What are the obstacles? What are our options to achieving the objective? Which is our most effective option?
At every step, we consult, we collaborate and we analyse to ensure we are on the correct course – and then, when we are sure, we invite a final cold-eyes review just to be certain.
However, today when it comes to actually forming energy policy, our advice as engineers – as energy producers who have been doing this for centuries – is only one of a range of voices that policy makers have to take into account.
Politicians have a choice, but today they tend to go with populist sentiment - that’s the nature of our recent Governments.
So we as an industry, as technical specialists, need to get better at relating and being heard.
We need to ensure that as a society we make more informed choices.
I think we know a little bit about how to manage change and ensure we stay in touch with changing needs in society. ExxonMobil heritage businesses started operation in Australia in 1895 and a year later in New Zealand. The business at that time was importing new lubricants to help grease the engines on an increasingly mechanised world.
Over the next 12 decades we continued to evolve and change, try new things to stay relevant and part of the economy and the community. We looked to refining and exploration and development and production to meet growing energy needs.
Our Gippsland operations in Victoria have been the major gas supplier into the eastern Australian market for half a century.
For most of that time the gas production was underwritten by the economics of oil. Now that those large, liquid-rich gas fields have reached their twilight years, the market is desperately calling for new sources of supply.
The east coast has now joined the international gas market, which adds new found pressures.
Today there are a range of projects – exploration wells, import terminals, pipelines – aimed at bringing new supplies to Australia’s eastern states.
With our joint venture partners, we have invested billions of dollars in developing remaining gas reserves from our Gippsland fields.
In our own right we are looking at a potential project to import gas into Victoria in order to meet our customers’ demands.
And we have our fingers firmly crossed as we continue a deep-water exploration drilling program.
The fact is every modern economy will find a way of getting the energy it requires.
Energy policies primarily impact the costs and the reliability of energy supplies.
History has demonstrated time and time again, that the more governments intervene in free markets, the greater the costs of energy in the long run.
We know that every nation is going to rely heavily on oil for decades to come. And we know that gas is critical to helping the world shift to less carbon-intensive sources of energy as the world economy grows.
I’ll expand on this growth of gas in a few moments.
As always, advances in technology will be critical to economically meeting the world’s energy needs while also protecting our environment and meeting community expectations.
Whenever I or anyone talks about advances in technology, what we really mean is new ideas from technically savvy people – scientists and engineers like yourselves.
The right policies can help set the stage, but technology will make the difference.
That’s why ExxonMobil spends about a billion dollars each year on research and development.
Our research focuses on finding solutions to providing energy and cutting emissions. We’re working on areas where we think we can make the greatest contributions.
In the power generation sector, carbon capture and storage is one of our major focus areas.
We believe this is a scalable solution, and we’re making good progress.
In the transportation sector, we’re taking the lead on developing next-generation biofuels from algae.
A lot has changed since I joined this industry as a young chemical engineering graduate over a third of a century ago. And a lot has remained the same.
Technology advances have certainly delivered more options for us as energy providers. Included in this are breakthroughs that have completely changed the landscape – rotary steerable drilling, computers and reservoir modelling, advances in seismic processing technology and unconventional extraction techniques just to name a few.
We would not be in a position to pursue many of our new Gippsland gas developments without this technology.
The rise of social media provides us with challenges and opportunities. Being optimistic, I believe the opportunities far outweigh the challenges.
For example we now have a number of avenues to speak directly to our stakeholders. We have an opportunity to get our messages out unfiltered, and I think we are getting better at this using the full range from community meetings to social media.
So what remains the same?
The fundamentals of the energy industry remain the same.
Maintaining the energy supplies we rely on, while providing growing supplies for the world’s emerging economies continues to be a huge challenge.
This challenge will continue to require huge capital investments to develop all viable energy supplies.
Customers always play a crucial role in determining the outcome.
We as people communicate our wants and needs in two ways – everything we do and everything we say.
Often these are at loggerheads. There can be a huge gulf between what we say we want – which is what we truly believe we want – and, all things considered, what we actually want.
Policymakers have to listen to what people say. They have a tough gig. They are driven by what’s popular. Their job depends on it every three or four years. What we need is policy for the long term benefit of the country as a whole, rather than reactionary popularist decision making.
Whereas we in the energy industry have to be more attune to what people do. That’s what determines our future direction.
You know what they say – actions speak louder than words.
The clearest example of this for me is the public debate about moving totally away from fossil fuels. I’ve been hearing this all through my career.
Today this call has reached a crescendo – we even have calls for investors to boycott fossil fuel companies.
At the same time we the consumers are buying products that rely on oil and gas and petrochemicals in unprecedented amounts. Things like smart phones, synthetic fabrics, computers, solar panels, even our growing trend towards electric cars that require more light-weight, durable plastics as well as more electricity.
Then there’s our growing trend to order goods online. This is contributing to a marked growth in the commercial vehicles and the fuel needed to deliver parcels to our homes. This in itself is significantly contributing to the global increase in oil demand.
So with that in mind, let’s look more broadly at what our actions are saying about our energy future.
I want to briefly step you through ExxonMobil’s current Outlook for Energy. This outlook is available in great detail on our website.
This is not how ExxonMobil thinks the world should be in 2040. It’s a look at the energy future based on the energy choices people and nations have made and will continue to make.
There continues to be two stand-out drivers behind the world’s growing need for energy – population growth and increasing living standards.
In little over a decade from now the world’s economic middle class will likely expand from 3 billion to more than 5 billion people.
This growth means vastly improved living standards and purchasing power, resulting in rising energy use as people in developing countries start modern businesses and gain access to the sorts of things that we take for granted, like cars, whitegoods and heated and air-conditioned homes.
Despite efficiency gains, global energy demand will increase nearly 25 percent by 2040. Nearly all that growth will be in non-OECD countries in Asia, where demand will likely increase about 40 percent.
Let me try to put that into perspective. Think of all the energy we currently consume in Australia – transport, homes, commercial businesses and heavy industry.
Well the world currently consumes 105 times that. That’s the equivalent of 105 Australias.
The global economy will almost double by 2040.
However, rather that adding another 105 Australias to the world’s energy supply it will only add the equivalent of 24.
This is because we know advances in technology will continue to deliver energy efficiency gains.
According to our Outlook, new ideas, coupled with shifts towards less carbon-intensive sources of energy, will contribute to a nearly 45 percent decline in the carbon intensity of global GDP.
As a result, global energy-related CO2 emissions are expected to peak by 2040 at about 10 percent above the 2016 level.
As you can see all energy sources grow considerably with the exception of coal that remains pretty flat and starts to decline after 2030.
I feel it’s important to point out that coal has not vanished by 2040 – far from it. As you can see here, it remains a major source of energy for the world’s economy.
I say this because all through my career I have been hearing a great deal about energy transitions – transitioning to renewables for example.
But so far in the history of humans there has never been such a transition. As we have progressed, our energy needs have increased.
New ideas from scientists and engineers – supported by entrepreneurs – have added new sources of energy to the mix.
All these energy sources have continued to grow.
Back in 1800 the world ran on biomass – which is essentially burning wood and in some parts of the world, dung. This was about 98 percent of our energy with coal making up the other two percent.
Today biomass is only about 10 percent of the world’s energy, yet we consume about three times as much of it as we did back in 1800.
The decline in coal consumption we see post 2030, will be the first time any significant source of energy has declined in history.
As coal declines as a proportion of the overall energy mix, its share is largely taken up by gas.
Natural gas use is increasing more than any other energy source.
This is why back in 2011 the IEA declared we were entering the “Golden Age of Gas”.
When you take a realistic look at the objective – supply the energy the world needs while reducing our environmental footprint – you appreciate the increasingly important role gas plays.
As a result of all this the world needs to increase gas production by almost 40 percent in just 25 years.
It’s important to remember that just maintaining gas supplies at today’s level requires continuous investments in exploration and development because these are diminishing resources.
While Asia’s emerging economies – particularly China and India – drive growth in global energy demand, efficiency gains and slowing economic growth in developed OECD countries like Australia and New Zealand help keep our energy demand relatively flat.
However, like everyone, we are all still heavily reliant on fossil fuels for the foreseeable future.
When it comes to supplying energy, most of these Asia Pacific OECD countries are treading water – they are focused primarily on maintaining their own energy supplies.
The exception is Australia, which is also a major energy exporter – coal, uranium and gas.
This brings me to the importance of energy policy.
I think it was US Congressman Tip O’Neill who famously said “all politics is local”.
While this is true it also represents one of the obstacles we need to consider as we form our energy policies.
Because providing the energy the world needs while tackling climate change is a global challenge.
Policymakers must develop a constructive framework that gets the international community to work in unison.
We supported the Paris Agreement for this reason. It explicitly recognised that dealing with climate change is a global challenge and it demands a global response.
Without a concerted, coordinated approach, we hinder our ability to make realistic progress.
The Paris Agreement has underlined the importance of gas in our global energy future. Countries that don’t have gas resources are turning to those that do and this has contributed to significant increases in LNG.
This presents a tremendous opportunity for gas-rich countries like Australia.
However, developing new gas resources – like all new energy sources – will mean successfully competing for investment capital.
The International Energy Agency, in its New Policies Scenario, estimates cumulative oil and natural gas investments could exceed US$20 trillion between 2017 and 2040.
The competition for these investment dollars is always intense.
There are many potential gas investments opportunities across the globe. The successful nations will be those that can provide a stable, fiscal and regulatory environment and can deliver the gas to market at a competitive price.
Long-term stability is essential for gas developments because of the huge up-front capital required and the certainty of supply that is essential to customers.
This is where energy policy is being undermined by today’s near term politics.
In the past we, as energy producers, would work in consultation and collaboration with the government and the regulators in order to deliver the best outcomes.
This usually involved extensive negotiations and compromises.
Today, it seems like everyone is in on the negotiations. Everyone has an opinion on energy.
Policy makers have to listen to everyone, regardless of their expertise, and they have to answer to popular opinion.
And like I said earlier, what people say they want can be far removed from what they actually want.
I’m optimistic for the future. I’ve seen what our scientists and engineers are capable of.
I’ve seen the quality of the graduates coming out of our universities.
I believe we are getting better at being heard in the political arena.
And importantly, I believe politicians the world over are getting a better understanding of the technical complexities involved in supplying our energy needs while protecting our environment.