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Chairman and Chief Executive Officer
Exxon Mobil Corporation
On accepting USCIB’s International Leadership Award
Monday, November 7, 2005
New York Stock Exchange, New York City
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Thank you, Bill [Parrett, USCIB Chairman]. I am honored to accept this prestigious award. It is an honor I share with all my colleagues at ExxonMobil whom I have had the privilege of working with for over forty years.
I would also like to thank everyone at the United States Council for International Business, including its former Chairmen Dean O’Hare and Dick McCormick… past Presidents Tom Niles and Abe Katz… Chairman Bill Parrett… President Pete Robinson… and the superb staff of the USCIB for their hard work today and everyday on behalf of ExxonMobil and all member companies.
I would also like to thank John Thain [CEO, NYSE] for hosting this evening’s dinner at the New York Stock Exchange.
This year marks the USCIB’s diamond anniversary. Exxon was a charter member at its founding in 1945, and we have proudly supported its important work ever since.
We do so because we share the values the USCIB stands for – open markets, free trade and international investment.
Today, I would like to make some brief remarks on how these values relate to the energy industry… how they capture the essence of international business leadership… and how they provide the guiding lights for sustaining U.S. economic preeminence in the 21st century.
The Importance of Energy
A speech on energy from an energy company executive may seem parochial. It is not. Energy is essential to nearly all economic activity. The recent hurricanes in the Gulf of Mexico reminded us all of its vital importance.
Energy, and oil in particular, is the world’s true supercommodity and the lifeblood of the global economy.
Any barrier to its free flow – the economic equivalent of a clot or a cardiac arrest – can stunt growth, limit economic opportunities and lower living standards in developing and developed countries alike.
This was true when the USCIB was founded sixty years ago. It remains true today. And it will be true in the future, as we seek ways to meet the great energy challenges we face.
Future Energy Challenges
These challenges are driven by three essential facts.
First, the world’s demand for energy is expected to increase by nearly 50 percent over the next 25 years.
Second, close to 80 percent of this demand growth will come from the developing world, which is predicted to account for over half of total energy demand 25 years from now.
And third, over this timeframe, oil, natural gas and coal will remain predominant sources of supply, constituting approximately 80 percent of the world’s total energy portfolio.
Taken together, these numbers make clear that, for the world economy to grow and prosper, we must continue to vigorously develop and market the world’s hydrocarbon resources.
The Hard Truths
To achieve this, we must face some hard truths.
First, the current level of energy production falls well short of future needs. To meet growing demand, we must continue to explore, develop and produce new resources at home and abroad. And to be successful, we must have access to resources, and continue to develop and deploy advanced technologies.
Second, alternative energy sources – like solar, wind, bio-energy and nuclear – will become more important over time but will do very little to change the overall energy mix in the next 25 years, due to technical hurdles and fossil fuels’ enduring competitive advantages, including cost and ease of use.
And finally, no nation – including the United States – can insulate itself from the global energy challenges. We are all in this together.
The Burden of Leadership
To succeed we must be grounded in reality, keep our focus on the long term, and search for solutions that are scientifically and economically viable. This is the burden of leadership.
Too often short-term problem-solving is mistaken for true leadership. A current example in the energy industry is the response to a perceived shortage of refining capacity in the United States. So-called refining “experts” say we are in a crisis, that we must quickly build new grass-roots refineries, and that energy companies profiting from high oil prices can afford them.
A rush to respond in this way is not leadership, however. Yes, oil prices are high at the moment, but history shows no commodity can sustain high prices over the long term. In fact, today’s price has little bearing on an investment, such as a new refinery, that may take 10 years to bring on stream.
The more effective response is the one we have steadily taken over the years – increasing refining capacity by using new technologies to increase efficiency and expand our existing facilities.
Despite reducing the number of refineries in the United States by half since 1981, refinery output has increased by 25 percent over this period due to growth and capacity utilization gains at existing refineries. Over the past five years, ExxonMobil alone has invested $3.3 billion in our U.S. refineries.
Over the past 10 years, we have grown our capacity the equivalent of three new average size refineries.
The Investment and Technology Solution
There is no quick fix, no silver bullet for solving the future energy challenges. The solution lies in consistent, long-term investment combined with a continued commitment to research and new technologies. This combination has been the driving force behind our industry’s success for more than a century.
Last year, with the price of oil averaging just below $40 a barrel, ExxonMobil invested nearly $15 billion in capital expenditures. In 1998, when the oil price dropped to $10 a barrel, we also invested $15 billion.
To ensure we can supply energy in the future, we make enormous investments when prices and earnings are high – as they are today – and when prices and earnings are low – as they were less than a decade ago.
Our earnings today are at a record high, driven largely by the price of the commodities we sell. We are proud of our profitability not just because it is indicative of our performance, but also because we direct these profits to developing new technologies and to other productive ends that deliver superior value to our shareholders and to society as a whole over the long term.
A focus on technology is especially critical, and in this area ExxonMobil has led the industry. Our achievements range from innovations in exploration and production, to partnering with others to improve the efficiency of vehicles and the environmental performance of the fuels that power them.
This focus is also exemplified by our investment in the Global Climate and Energy Project at Stanford University, which is researching ground-breaking energy technologies that are economically and environmentally sound.
Building a Competitive Framework
Spurring investment and unlocking human ingenuity to develop new energy technologies requires creating a favorable global business environment, a competitive framework in which companies, investors and governments can make realistic analyses of risk and reward.
As a member of USCIB, ExxonMobil is committed to help build this competitive framework.
We support opening markets, not only to provide more access for more people to energy and other vital commodities they need, but also to enable investors and operators to make the most educated and most effective decisions on the allocation of capital.
We support expanding international trade, to help close the growing gap between net energy producers and net energy consumers through open commercial circuits, and to eliminate the premium consumers pay for artificial obstacles.
And we support increasing investment, to marshal the vast sums required to produce hard-to-access energy resources and to foster the technological progress needed to keep pace with growing demands, economic and environmental.
The Paradox of Economic Leadership
These three interlocking policy objectives help define what I call the paradox of economic leadership – to be competitive, nations must compete.
To those of us in the corporate community, this is not paradoxical, but self-evident. Some policymakers, however, view these policies as counter-intuitive. They see economic freedom and economic security as a zero-sum game. The on-going debate in this country about the merits of so-called energy independence is a prime example.
If it were even feasible, energy independence would require closing the U.S. market, restricting trade and reducing investment – policies totally opposed to what the USCIB stands for. It would put the U.S. energy industry and many American businesses at a severe competitive disadvantage.
And it would cost U.S. consumers dearly, not just in higher energy prices, but higher prices across the board.
Sustaining U.S. economic strength in the energy sector and others requires that we become more interdependent, by diversifying our overseas sources of oil and natural gas… by deepening our partnerships with foreign governments… and by strengthening our commercial networks.
The hard truth is that all consuming countries are trying to gain access to the same resource pool – and that all producing countries are contributing to the same pool. Access to energy is a collective issue that must be dealt with collectively. Energy unilateralism is ultimately self-defeating.
I believe that. ExxonMobil believes that. And, as members and supporters of the United States Council for International Business – dedicated for the past sixty years to free trade and investment – I know you believe that, too.
Thank you.
More on USCIB’s Annual Dinner
ExxonMobil website
