Exxon Mobil Corporation (XOM)
March 08, 2012 9:00 am ET
David S. Rosenthal - Vice President of Investor Relations and Secretary
Rex W. Tillerson - Chairman, Chief Executive Officer, President, Chairman of Finance Committee and Chairman of Executive Committee
Mark W. Albers - Senior Vice President
Andrew P. Swiger - Senior Vice President
Michael J. Dolan - Senior Vice President
Douglas Terreson - ISI Group Inc., Research Division
Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division
Iain Reid - Jefferies & Company, Inc., Research Division
Paul Sankey - Deutsche Bank AG, Research Division
Arjun N. Murti - Goldman Sachs Group Inc., Research Division
Paul Y. Cheng - Barclays Capital, Research Division
Edward Westlake - Crédit Suisse AG, Research Division
David S. Rosenthal
Previous Statements by XOM
» Exxon Mobil Management Discusses Q4 2011 Results - Earnings Call Transcript
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» Exxon Mobil Management Discusses Q2 2011 Results - Earnings Call Transcript
Next, I would like to draw your attention to the cautionary statement that you will find in the front of your material. This statement contains information regarding today's presentation and discussion. If you have not previously read this statement, I ask that you do so at this time. You may also refer to our website, exxonmobil.com, for additional information affecting future results, as well as supplemental information defining key terms that we will use today.
Our review today will begin with Rex Tillerson discussing some of the key factors influencing the industry and the business environment, followed by a look at our financial and operating results and the competitive advantages, which led to the strong performance across the business. Following Rex's discussion, we will take a short break. And then Mark Albers and Andy Swiger will provide a look at how ExxonMobil is unlocking greater value in our Upstream. Rex will then provide an outlook on investment plans and production volumes and then close with some summary remarks. We will then conduct our question-and-answer session, and the meeting will end by noon.
It is now my pleasure to introduce our Chairman and CEO, Rex Tillerson. Rex?
Rex W. Tillerson
Well, thank you, David. And good morning to everyone. It's always nice to see you again in New York City, and we appreciate the great spring weather. It's wonderful for a visit, but it's really bad for natural gas prices. Also, I want to welcome all of those who are maybe joining us either by listening in on the telephone or by way of the webcast. We're delighted you can listen in today as well. I'm pleased today to share with you our 2011 financial and operating results, and also talk through some of the elements of ExxonMobil that we believe do give us certain competitive advantages that will allow us to continue delivering value for our shareholders for many, many years to come.
Our competitive advantages, combined with the strength of our approach to managing our business, we believe continue to distinguish ExxonMobil and really do put us in a unique position to help meet the world's evolving energy needs. The global business environment continues to provide a mix of challenges, but of course, with challenges also come opportunities. The global economic recovery is progressing at a mixed but overall slow pace, with particular challenges in Europe yet to be played out.
While developed nations continue to manage fiscal concerns, developing nations are working to sustain stable growth while tampering inflation risk. The Asia Pacific region has shown some signs of slowing, but overall continues certainly to outpace the U.S. and Europe. Despite some near-term economic weakness, we project that over the next 30 years, economic output will more than double as people around the world seek to improve their standard of living. This long-term growth requires nations to maintain appropriate and sustainable regulatory frameworks as they seek investments that enhance their security, their economic competitiveness and the environment. While today's economic and business environment does present its set of challenges, as I said, it also presents opportunities. And we believe our company is well-positioned to help make long-term global energy and petrochemical demand, which is forecast over the long term to be quite robust.
By the year 2040, the world's population is likely to expand by close to 2 billion people, approaching 9 billion inhabitants of the planet, while overall economic output will also more than double. Coincident with this expanding prosperity, ExxonMobil's 2012 outlook for energy anticipates that global energy demand will grow by 30%, even with significant efficiency gains across the world. Ensuring reliable and affordable energy supplies to support this human progress safely and with manageable impact on the environment will remain a challenge, requiring a diverse set of broad-based solutions.
The bar chart on the left shows projected demand growth from the year 2010 to the year 2040 by energy type. Oil, gas and coal are the most widely used fuels today, providing about 80% of supplies. As we look ahead to the year 2040, we anticipate a gradual shift in the global energy mix. Oil will remain most prominent, while demand for natural gas will rise by about 60% and we believe will surpass coal to become the second most widely used source of energy. Natural gas is increasingly recognized as a reliable, affordable and relatively cleaner fuel for a wide variety of applications, and its growing importance is supported by technologies that enable vast new supplies. We expect global demand for the least carbon-intensive fuels, natural gas, nuclear and renewables, will rise at a faster than average rate. The anticipated growth of these fuels will be driven significantly by power generation requirements, as global electricity demand increases by 80%.
In our outlook, we see stark differences in energy use as we compare nations and regions at different stages of economic development. On the left, we show the demand by fuel for the relatively mature economies represented by the nations of the OECD. Here, even though economic output is expected to nearly double over the outlook period, we expect energy demand will remain essentially flat. This illustrates the magnitude of efficiency gains across these more mature and developed economies. Over the period, we also see a shift in the mix of fuels. Oil demand will gradually taper down, reflecting significant fuel economy gains of personal vehicles, while less carbon-intensive fuels will become more prominent. By the year 2040, we expect natural gas will meet about 30% of OECD demand.
On the right, we see a very different picture. Our outlook is that demand in the developing world will increase by about 60%, led by growth in the Asia Pacific countries. While efficiency gains will have a large impact, they will not be enough to offset the rise in energy needs associated with expanding prosperity for over 80% of the world's population. As a result, we expect all fuels to grow to meet demands for transportation, business and homes, industrial facilities and electricity generation. Oil and natural gas will likely account for approximately 70% of the growth in meeting global demand.
We expect that oil and other liquid fuels will remain the world's largest energy source for the next 30 years, meeting about 1/3 of demand. Advances in technology will continue to be important to help expand liquids fuel supplies. As conventional crude oil production holds relatively flat, demand growth will be met by newer sources. As you can see on the chart on the left, large gains are expected from global deepwater sources, with production more than doubling through the year 2040. Natural gas liquids supply is also expected to increase, as production of these resources benefit from established techniques used to extract shale gas. We also expect to see significant growth from unconventional resources, including oil sands and tight oil. Oil sands are likely to account for most of the unconventional supply through the year 2040, though contributions from tight oil will be significant. Biofuels see gains as well, rising to around 5% of liquid supply.
On the right is the outlook for natural gas supply and demand, which, rising by 60%, will be the fastest-growing major fuel over the next 3 decades. An increasing share of global natural gas demand is expected to be met by unconventional supplies such as those produced from shale, coal bed methane and tight gas formations. By the year 2040, unconventional gas will account for 30% of global production, up from 10% in the year 2010, thus requiring a growth in volume of almost 400%. The implication of both the oil and gas outlook is that there is a growing requirement for unconventional resource development, along with expanding supplies from deepwater and conventional resources.
By 2040, we expect energy demand for the transportation sector to increase nearly 45% relative to today. The increase is driven by growth in non-OECD countries where demand is expected to double as a result of rising economic prosperity. OECD demand is projected to be essentially flat, reflecting significant efficiency gains. Despite the potential positive effects of demand growth on the Downstream industry, we expect a very challenging business environment. This view reflects a global increase in the industry refining capacity in countries around the world, the development of alternative fuels and realized efficiency gains, many of which are mandated by governments. There is also the ongoing potential, of course, for the expansion of regulatory-related policy and further mandates, which would just add to the challenge for existing refinings capabilities and may well further alter the fuel mix of the future.
As shown in the chart, the transportation product mix is changing. We expect a continuing shift to transportation fuel demand to diesel, driven in part by high growth rates in developing countries as they expand truck, marine and rail transportation. This expansion in the commercial transportation sector, including heavy-duty vehicles, is significant, with more than a 70% increase in demand expected by the year 2040 compared to the year 2010.
Gasoline demand is expected to be flat to down as personal vehicles grow more fuel efficient, with ongoing improvements to the internal combustion engine and drivetrains, as well as hybrid vehicles become more mainstream.
This chart illustrates our expected global demand trend for lubricants. Total lubes demand, which includes not only synthetic lubricants but also conventional lubes, is growing at about 1% per year, primarily driven by growth markets in Asia Pacific. Total demand is expected to be nearly 20% higher in the year 2020 versus the year 2000. Over the next 10 years, the global synthetic sector is forecast to grow at 6% per year, with United States and China driving 40% of this growth. OECD total lubes demand is expected to be flat to down over the longer term, as demand in the mature markets, including the United States, Western Europe and Japan, is expected to only partially recover in the near term from the recession low point. However, synthetics demand continues to grow and improve in most OECD markets.
On the chemicals front, we expect global demand for commodity chemicals to continue the historical trend of exceeding GDP growth rates, as you can see from the graph, which shows global GDP growth in red and demand for key chemical commodities in blue. While variable year-to-year, chemical demand growth is projected to outpace GDP by 1.5 percentage points, again, driven by improving prosperity in the developing countries. 2/3 of the demand growth will come from Asia Pacific, of course, led by China. Middle-class households will purchase more packaged goods, appliances, cars and clothing, many of which contain the chemicals we produce.
Overall, chemical products such as plastics and synthetic rubber will continue to grow as preferred materials versus wood, paper and aluminum because of advantages in performance, economics and life cycle energy consumption.
In the decades ahead, the world will need to dramatically expand energy supplies to meet growing demand. The scale of the challenge is enormous and will require the pursuit of all economic options to expand supplies in a way that is safe, secure, affordable and environmentally responsible. A commitment to the development of new energy technologies is also required to both expand supply of traditional fuels, as well as advanced new energy sources, as we have recently seen with natural gas from shale and new supplies of oil from resources previously deemed noncommercial. An unprecedented $1.5 trillion per year of investment will be needed globally to develop technology and resources that expand and diversify the supply base. The governments play a major role by maintaining sound and reliable policies that reduce investor uncertainty.
We also know from experience that the best way to achieve our shared goal is by effectively managing and addressing the risk inherent in our business and by maintaining a relentless focus on operational excellence. Risk management is not only about preventing and mitigating negative impacts, but it is also about achieving and maximizing positive outcomes for consumers, stakeholders and investors. Risk management is fundamental to our business, and ExxonMobil has established common worldwide approaches and expectations for addressing the risks that are inherent to our operations. These expectations are fully embedded in our culture, and we remain focused on continuously improving our ability to effectively identify and manage risk. Our approach is supported by well-developed, clearly defined policies and procedures to ensure that we have a structured, globally consistent approach with the highest standards in place. Management commitment and accountability in all aspects of the business are key to achieving our expected results.