CEO Rex Tillerson on Energy Innovation and Investment

Notes from the McCombs Alumni Network’s 8th Annual Alumni Business Conference on February 8, 2012.

Rex Tillerson, Chairman and CEO of Exxon MobilRex Tillerson, Chairman and Chief Executive Officer, Exxon Mobil Corporation

“If we are not careful this will become known as the Land of a Thousand Nos.”

Speech Preview Notes:

Innovation creates new opportunity. This has never been more evident than in today’s energy industry, where technological breakthroughs have led to a revolution in domestic unconventional resource development, which in turn has created thousands of new jobs, millions in government revenue and billions in economic growth. Thanks to innovation, an energy transformation is now underway in North America, the dimensions of which are still unfolding. We are breaking new ground in the safe and responsible production of oil sands, shale gas, tight oil and ultra deep water.

To sustain such innovation at the breakneck pace the world needs, the International Energy Agency estimates industry will need to invest $25 trillion by 2030. As you know, successful investment requires long-term vision and discipline as well as a secure and stable environment. For such long-term investment strategies to work, business and government must each know and fulfill their duties. The duty of government is to facilitate the safe and responsible development of energy within the context of a level playing field.

This new era of abundance has made it possible for the United States to meet our nation’s needs for energy and become something we have not been in decades – a major energy exporter. We must work together to build energy policies that strengthen markets, encourage free trade, promote the rule of law and provide a sound and stable policy environment to support the investments that enable continued innovation and improvement. If we can deepen our emerging energy consensus, we will develop the diversity of sources and security of supplies that a growing and more prosperous world needs.

Tillerson’s Remarks on Technology Innovation and Investment:

Rex Tillerson began with a remark sure to please the audience of UT school of business alums. “It’s always a pleasure to get back to the Forty Acres,” he says. “Most of the places I go aren’t this pleasant.”

He quickly turned to the core of his remarks, that in the midst of a challenging economy there has been a rebirth in the energy industry and in technology innovation in the energy sector, and we are in a race to meet the rising need for energy around the world, including developing nations.

“In households in the developing world, when the sun sets, reading and learning stop,” he says. “If we don’t plan for the future, we cannot spread prosperity across the world.”

“We look at the next decades, and we project 2 billion more people by 2040, to total of 9 billion. Energy demand in developing nations will rise by 60%. There will be billions of people who expect the qualities of life we have in the United States.”

Oil and Gas to Dominate Renewable Energy Technologies

Tillerson sees oil and gas as the energy source that will continue to shoulder most of the energy load in future decades. “Alternative energy will grow, but wind will only account for 7 percent of global supply, solar will only account for 2 percent of global supply,” he asserts. “Oil will remain the world’s number one fuel, but natural gas will surpass coal to become the number two energy source.”

He predicts that the energy transformation in the U.S. will continue to unfold as estimates of available oil and gas supplies continue to climb with increases in technological solutions for obtaining it.

“Estimates of available oil has doubled since 1975, despite our continued use of it,” he claims. “I used to debate peak oil production theorists that predicted massive shortages by 2020. Anyone who tries to predict the future has never been very good at predicting the impact of new technologies.”

Government/Private Cooperation to Create New Jobs

“Oil and gas could support another 1.2 million jobs in the years ahead,” he asserts. “We have natural gas resources to meet nearly two centuries of demand, and it has reinvigorated steel manufacturing in the U.S., petrochemicals, and large equipment manufacturing.”

At the same time, he says energy related carbon emissions, most of which come from electric power production have dropped, close to what they were in 1995.

He calls for cooperation between business and government to increase technology innovation and energy production. “Energy projects are the ultimate long-term investment, the payouts are long and the depletion cycle is long, requiring reinvestment along the way. Business and government must each know their roles and fulfill their respective duties.

He calls for business leaders to do what is right for society and for business, with a culture of accountability, safety and efficiency. On the government side, he hopes for regulation governed by sound science while accounting for risk and rewards.

“The regulatory process has stifled growth,” he says. “If we are not careful this will become known as the Land of a Thousand Nos.”

Energy Regulators Should Feel Confident to Allow Growth

He believes the government should feel confident to allow responsible development given the breakthroughs in technology that allow more efficient and safe exploration.

“It’s about open competition and sound regulation,” he says. “We know how to do this, we used to do it very well. We need leaders in corporations, in government and academia to grapple with the issues of energy policy.”

Tillerson tells attendees that leadership with integrity is a high calling. “Because of the contributions of institutions such as McCombs I am optimistic about our energy future.”

For further university discussion on the energy industry and technology innovation, visit Texas Enterprise Energy Insights.

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