Tillerson's Speech: North America's Historic Energy Transformation

Each year, CERAWeek brings together leaders and strategists from business and government to discuss the future of the global energy industry.

I am particularly pleased to join you this year because I believe this is a pivotal year for the future of energy – in this country, on this continent, and around the world.

An energy transformation is under way here in North America, and it has worldwide implications.

The new sources of oil and natural gas our industry is developing here – and the way in which we are developing them – will shape their development on a global scale. We are breaking new ground in the United States and Canada in the safe and responsible production of shale gas, tight oil, oil sands, and ultra deepwater. We are seeing encouraging results – results that can be achieved elsewhere with the application of innovative technologies, proven techniques, and rigorous operational standards.

Our industry has not and cannot achieve these results alone, however. Government has an indispensible role in this quest. Policy decisions regarding access, taxes, and regulations have profound implications for our ability to develop these new sources and share the enormous economic benefits they promise. And, being at the vanguard of this global energy transformation, industry and policymakers in the United States and Canada are setting a standard. It is essential that we learn from our success. The world is watching.

A Decisive Moment

The transformation unfolding in North America represents a potentially decisive shift in the history of energy.
New technologies and innovative techniques developed by the men and women of our industry have taken sources of energy once labeled "unconventional," "uneconomic," and "inaccessible" and made them conventional … economic … and environmentally responsible.

In Canada, we are developing oil sands that are giving us access to one of the world's largest known reserves of energy – approximately 170 billion recoverable barrels, or the energy equivalent to fueling today's North American vehicle fleet for about 35 years. The energy industry's innovative techniques and technologies are allowing us to develop these resources in safe and environmentally responsible ways.

Across the United States and Canada, two more unconventional sources – shale gas and tight oil – are transforming the outlook for energy security as well as re-shaping global markets and supply lines. Advances in horizontal directional drilling and hydraulic fracturing technology have unlocked the potential for recovering enough natural gas to power the U.S. and Canadian economy for more than a century.

In fact, by the year 2040, we expect natural gas demand to increase by 60 percent.

At that time, natural gas will satisfy more than 25 percent of global energy demand – meeting a wide variety of needs for heat and electricity generation. Over the next three decades, natural gas from unconventional sources will grow by more than 400 percent to help meet that rising demand.

Similar advances in technology have also enabled our industry to unlock the oil found in shale and other tight rock formations. In the Bakken region alone, our industry is now producing 500,000 barrels of tight oil per day.

Finally, the future of North American energy security continues to be transformed by advances in deepwater exploration and production. In just over a generation, my generation, our industry has taken the concept of deepwater drilling from drawing board to execution – building some of the most complex engineering marvels in human history. In the process, we opened up a new frontier for energy production that has spread around the world. By the year 2040, we can expect North American and global deepwater production to double.

Economic and Environmental Benefits

Our historic energy transformation occurs at a time of urgent economic need here and around the world. As the global economy struggles to stabilize, grow and create jobs, the influx of affordable and reliable oil and natural gas – essential inputs of manufactured goods and an enabler of nearly every delivered service – is welcome. In this time of economic challenge, we ought to reflect on these achievements.

As an industry, we ought to be proud.

Consider just the contributions of shale gas and tight oil in recent years:

In the Barnett Shale, one study estimates that natural gas from shale is now responsible for $11 billion in annual economic output and more than 100,000 jobs in the North Texas region alone.

In the Marcellus Shale, in Pennsylvania, natural gas from shale produced 214,000 jobs through January of last year. Another study by Penn State researchers calculated that Marcellus drilling added nearly $10 billion in value to the Pennsylvania economy in 2011.

In the Bakken Shale, unconventional oil and gas production has made the state of North Dakota an economic powerhouse – driving nearly $5 billion in direct economic activity in 2009. The state's unemployment rate of 3.3 percent is now five percentage points below the national unemployment rate.

Taken in full, in 2010, the unconventional resource development supported 600,000 jobs and contributed more than $76 billion to the U.S. gross domestic product (GDP).

Across the United States, from Pennsylvania to North Dakota, from West Virginia to North Texas, from Oklahoma to Ohio, affordable and reliable natural gas and domestically produced crude oil have helped strengthen and create jobs far beyond our industry.

Natural gas is revitalizing America's steel industry, which will help rebuild our nation's infrastructure and auto manufacturing. It is reinvigorating America's petrochemical industry, which will help us develop advanced plastics and export high-value consumer goods. And new supplies of natural gas are helping our heavy-vehicle manufacturers build bulldozers, farm equipment, and earthmovers for construction and agriculture here in America and around the world.

When combined with the development of Canadian oil sands and Mexico's resources, U.S. unconventional oil and natural gas are fueling the North American economic engine, and revealing the value of sound policy in energy progress.

The benefits of North America's energy transformation will mean more than the creation of good jobs and increased international competitiveness.

The historic shift that is bringing abundant new supplies of natural gas carries environmental benefits. Natural gas is cleaner burning than other major energy sources and this will help us meet our shared goals for reduced emissions and environmental stewardship.

And thanks to our ongoing investment and innovation, we can now produce oil sands in places like the Kearl region with the same emissions levels as many other oil sources from around the world.

Emerging Energy Consensus

The unanticipated benefits of this energy transformation are also changing the political landscape.

With our success has come a renewed public respect for the importance of high-impact technologies and the role our industry can play in powering the broader economy. A new energy consensus is emerging.

Policymakers from both sides of the political aisle, and from around the world, recognize that energy is essential to growth and progress – and that every technological advance in our field offers tremendous economic and environmental opportunities to achieve our shared aspirations of hope and opportunity for all.

In his recent State of the Union speech, President Obama said that "This country needs an all-out, all-of-the-above strategy that develops every available source of American energy."

The president has recognized the transformative potential of our technologies and investment. In an important statement of the emerging energy consensus, he noted that "The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don't have to choose between our environment and our economy."

Secretary of Energy Steven Chu has echoed this message. He has stated that our natural gas recovery methods are environmentally sound and that "natural gas is a good transition fuel" because of its cleaner burning qualities.

This consensus, however, is not universal. Many American and Canadian citizens are asking questions about unconventional oil and gas development. Every new energy source raises new fears as it opens new opportunities. Many of these fears spring from misunderstandings of the technologies involved and the standards our industry adheres to – misunderstandings that the media, unfortunately, sometime perpetuate. If we are to sustain and enlarge the emerging energy consensus, all of us in industry must increase the knowledge and understanding of policymakers and the general public alike.

Energy policymaking is most effective in meeting national goals when the deliberation and dialogue are driven by open and frank discussions of the scientific, economic, and practical realities that shape global energy markets. In pursuing the "all-out, all-of-the-above strategy," we need to welcome every voice from every sector of the energy industry as we develop all economically competitive sources.

Roles and Responsibilities

For this reason, in the decades ahead, the successful development of conventional, unconventional, and alternative supplies of energy will depend on more than just geologic conditions and technological innovations. Success will depend on the private and public sector fulfilling their respective responsibilities – and, where they can, working together to build a climate of investment in and discovery of new technologies.

In short, government and business must both do their part.

When we understand the individual strengths each can contribute in energy production, we can pursue a pathway forward to energy security. A fundamental recognition of our roles helps us put in place policies that provide access and accountability … create a climate that welcomes investment and innovation … and ensure government and industry build on the lessons of how to work together.

Three recent events – the surge in shale gas development over the last several years … the Macondo oil spill in the Gulf of Mexico in 2010 … and the administration's Keystone XL decision this January – provide lessons in the importance of government and industry meeting their respective responsibilities.

The transformational development of shale gas is a lesson in what is possible when the energy industry is given access to energy resources under an effective, responsive, and stable regulatory framework. By working with state and local regulators as well as individual resource owners, our industry proved, once again, that we can safely and responsibly unlock new supplies of energy.

In states and communities that have put in place hydraulic-fracturing moratoria, we have sought to respond to public concerns and point to the successful practices. Industry has a key role to play in building public confidence in, and the effectiveness of, our risk-management practices.

That is why more than two years ago, ExxonMobil decided to advocate for frac-fluid disclosure in the United States. We joined with other companies to work with state regulatory agencies as they created the FracFocus website, an online-disclosure registry where companies could voluntarily submit fluid data about their drilling.

In the months and years ahead, ExxonMobil will continue to build on this leadership. We will be calling on our government and industry partners to implement in Europe the same level of openness and accountability that FracFocus has delivered in the United States.

Unconventional gas development holds tremendous promise in many places in Europe. But we want policymakers and the public to be confident in these proven technologies – and their track record of safety and operational integrity.

By disclosing the specific content of the small amount of chemicals mixed with the water and sand for hydraulic fracturing, we provide important basic information. Today, FracFocus in the U.S. allows the communities and policymakers in the area of a potential drilling site to understand the components of fracking fluids – and to recognize that the majority of ingredients are already widely used in many other applications, including a broad array of common consumer products found in households.

We believe that citizens in Europe deserve the same level of disclosure.

An initiative similar to FracFocus in Europe will allow citizens and communities to begin their consideration of this technology with a strong factual foundation. And we believe that will lead to open and fruitful discussion about the risks we manage and the benefits we foresee for shale and tight-sand gas-and-oil development in Europe.

In addition to the disclosure of fracking fluids, we also recognize we have a leadership role to play in setting the stage for safe development of natural gas at every stage of the process.

We work with local leaders to study the land and environmental impacts where we drill …we design and build wells with safeguards in place to protect groundwater … and we have rigorous standards in place to monitor and maintain wells after drilling is complete. And as we identify new questions from the public, such as recent concerns surrounding seismic activity, we will support the use of sound science to inform reasonable regulatory frameworks.

Shale gas development is the result of years of industry investment in technology and safety techniques. Yet, even with this commitment, state and local government play a vital role of oversight and accountability.

For this reason, ExxonMobil and General Electric recently announced we would provide $2 million in seed money for university-led programs to ensure that state regulators have access to the latest technology and operational expertise to support their environmental assessments of natural gas development.

This funding will go to Penn State University, the University of Texas at Austin, and the Colorado School of Mines to design the curriculum and administer the program. These three institutions are strategically located around the major centers of shale development. And each has an internationally recognized reputation for academic independence, research integrity, and expertise in studying energy technologies.

We believe that industry's success in the Barnett, Bakken, Marcellus, and beyond has been possible because of the mutual respect among industry leaders and state and local officials. We are committed to continuing this positive relationship, which recognizes our different strengths and builds upon them.

The 2010 Macondo spill provided a different kind of lesson. It reminded all of us that the failure to manage risk effectively carries enormous consequences – in terms of loss of life, significant financial impact, and environmental harm.

Our industry has a responsibility to pursue flawless operational integrity – not just in deepwater, but throughout all of our operations. It is not enough to state a goal of operational integrity and safety. We must establish the management systems to turn those goals into measurable actions that build a culture of accountability and safety in every company in our industry.

Of course, even with a singular focus on best practices, accidents will occur. That is why with all of the precaution that our industry invests in we must back it up with preparedness. Responsible risk management means maintaining operational readiness for emergencies and, when necessary, responding swiftly and effectively to limit damages and mitigate harmful impacts.

In the Keystone XL decision, we were reminded that even when our industry does things the right way and meets high standards set within industry and by government, policymakers must do their part.

Policymakers at the state, local, and federal level have a responsibility to respect the protections and safeguards built into our nation's environmental assessment and evaluation processes.

In the case of Keystone XL, the inspector general of the Department of State recently found that the three-year process for evaluating the pipeline's route from Alberta to Texas was not improperly influenced by the industry. It was, in fact, a neutral and uncompromised evaluation.

The unfortunate decision to halt progress on the pipeline was a product of political calculations in Washington – negating the work of hundreds of hours of public hearings … thousands of hours aimed at regulatory compliance … and tens of thousands of pages of study that confirmed the pipeline would pose no undue risks to citizens or the environment. In the end, it was also a disservice to the public employees who carried out their responsibilities as regulators in this process.

In such cases, government has a responsibility to focus on national interest when setting energy policy. Keystone XL would contribute to the national interests of both the United States and Canada by expanding and linking the continent's enormous oil-sands resources with world-class refining capabilities.

We must continue to engage elected officials and the public to communicate the consequences of failing to move forward with such strategic opportunities.

In working to meet surging global energy demand, our energy industry needs to be able to plan over ten-, twenty-, even thirty-year time horizons. Political considerations based on two- and four-year electoral cycles are a significant hindrance to long-term planning and investment, which can affect jobs and competitiveness for decades. And this type of dysfunctional regulation is holding back the American economic recovery, growth, and global competitiveness. Where sound and thoughtful regulation once provided U.S. businesses and industries the rules for how to get things done, today the regulatory process, with its layers of complexity and oversight by multiple, duplicative agencies has become the obstacle to getting anything done. It has become the tool of opponents of development and special interest groups, providing 1,000 ways to say 'no.'

The U.S. policy approach differs from other important resource-owning countries. We know from experience that there are common elements to the successful development of energy supplies.

Whether it is Brazil or Russia, China or Argentina, Turkmenistan or Kazakhstan, when leaders recognize the fundamental role of energy … the vital contribution of oil and natural gas … and the benefits of developing their national resources, they can begin to put in place sound, lasting policies.

In different ways, each of these nations has shown that when our industry is given resource access, policy stability, and the opportunity to compete and plan over the long term, there is a corresponding increase in the investment and innovation that can bring transformative progress.

The Role of Business and Investors

For industry, our responsibility is clear whenever we are given these opportunities. We have a responsibility to unlock and deliver new supplies of energy in a safe, secure, and environmentally responsible way.

As part of this responsibility, we must engage in effective risk management at all levels. We must engage in long-term planning – undeterred by the episodic up and downs of regional and global economic performance. We must invest with discipline and boldness. And we must focus relentlessly on our operational integrity and best practices – to protect our employees and the communities where we operate.

Our greatest strength is developing the technology and techniques that maximize value while increasing safety, efficiency, and environmental performance. The private sector has an incentive to find and deploy game-changing technologies and projects – and we do it every day.

The Role of Government

By recognizing this core private-sector strength, the government can help expedite technological breakthroughs.

The government's role is best fulfilled when it allows markets to operate freely and openly. Sound energy policies do not pick winners and losers – through subsidies or mandates or punitive tax policy. They allow companies to invest today and over the long term in the innovations that will give them a competitive edge for delivering energy more safely, more securely, or more efficiently.

Governments, though, can help in other ways.

Policymakers are in a unique position to encourage the fundamental academic research that companies typically do not undertake themselves.

We have seen the positive impact of government support for basic research in the past. The Internet … the semiconductor … the Manhattan Project were all facilitated by government support for path-breaking researchers who were re-thinking science and technology at the most fundamental level. Many of our technologies were built on their research.

These successes are reminders that government is most effective when it acts as a research catalyst, not as a venture capitalist.


The energy transformation unfolding in North America has shown the world we are capable of achieving many great things when we work together.

We have shown that our industry is prepared to engage the public and policymakers as never before – at the state, local, and federal level – to increase safety, improve performance, and even build regulatory capacity as we deploy new and revolutionary technologies.

Industry and government have both played a role in this great energy transformation. By recognizing our mutual contributions in this positive change, we can build on our achievements and provide a model for the world to increase investment, innovation, opportunity, and progress for all.


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