Asia-Pacific Economic Cooperation (APEC): A Strategic Framework for Energy Security

George L. Kirkland

By George L. Kirkland, Executive Vice President for Upstream and Gas
Chevron Corporation

Remarks to APEC Business Advisory Council and The National Center for APEC

Singapore, November 12, 2009

It's an honor and a privilege to participate in this workshop. I commend the APEC Business Advisory Council for choosing to focus on energy security, which we define as the reliable and affordable energy required for economic growth and human progress.

Chevron has operated in the Asia-Pacific region for more than a century. Today, we are active in nine countries across the region and are the largest resource holder and producer among international oil companies in Asia. Chevron Asia Pacific Exploration and Production Company is responsible for more than a quarter of Chevron's worldwide production, and has 10,500 employees.

I've been in the energy industry for 35 years. And that experience tells me that the long-term stability and success of APEC economies will depend on, as much as anything else, secure supplies of affordable energy. That is especially true as we emerge from the global economic downturn of the past 18 months.

So I'd like to offer some ideas on how APEC can help build energy security in the region in a way that ensures that all our economies grow and prosper.

First, let me provide some context.

Today's global energy equation is fairly straightforward. We need to produce more energy, reliably and safely, with less carbon, at affordable prices. Solving that equation, however, gets very complex, very quickly. Figuring out that solution is absolutely critical to every government, business and consumer on the planet today, because energy is the lifeblood of our economies.

Of course, energy security means different things to different people. Energy consumers think of it as security of supply. Energy producers think of it as security of demand. The answer, of course, is that energy security is both — in a world that is more interdependent than it has ever been. So how can we work together to ensure that the Asia-Pacific region has the reliable and secure supplies of energy that will fuel robust, long-term economic growth?

I believe that energy security must be built on a strategic framework with three components.

First, we need to promote policies that will expand and diversify the energy resources that are so vital to economic growth and competitiveness — especially natural gas. Second, we need to moderate energy demand by promoting conservation and improving efficiency. And third, we need to accelerate the development of clean energy and technological innovation.

Let's talk about each one of them briefly, starting with how we can best expand and diversify the region's supply of energy.

Given global energy demand projections, we'll need every available source of energy — in every available form. This will not happen without sound policies and partnerships that allow us to diversify and expand all sources of energy. We need comprehensive, integrated policies that provide a stable, long-term climate for investment and innovation.

APEC countries have discussed strategies, policy frameworks and best practices for 10 years. Now it's time to take action. Let me give you a specific example. Let me tell you about the Gorgon project.

The Greater Gorgon area natural gas fields are located offshore northwest Australia. The initial investment in liquefied natural gas plants and upstream facilities is 43 billion Australian dollars. It's one of the biggest natural gas projects in the world. How big? Gorgon will produce enough natural gas to power a city of 1 million people for 800 years.

Chevron and its partners made a final investment decision on the Gorgon project in September. The timing could not be better. World energy demand is expected to rise roughly 40 percent by the year 2030. And nowhere is this demand more pronounced than in Asia. The region is expected to account for 60 percent of the total growth in global energy demand through 2030. Gorgon will supply natural gas into the Asia-Pacific region as well as Australia domestically — with half the carbon footprint of coal. Natural gas from Gorgon will significantly help expand and diversify the Asia-Pacific region's energy supplies.

But that's not all Gorgon will do. There's more — much more.

Gorgon will create tens of thousands of jobs. It will boost net present value of Australia's GDP by $64 billion, contribute 33 billion Australian dollars in goods and services to the Australian economy, and produce government revenue of almost $40 billion in today's dollars.

These kinds of benefits to the government and people of Australia don't just happen by chance. They are the direct result of the state and federal governments in Australia aggressively fostering policies and a political environment that provide stable legal frameworks, predictable fiscal and tax regimes, contract sanctity, and rule of law.

I'd like to emphasize the significance of the Australian government working cooperatively with Chevron on the carbon capture and sequestration component of the Gorgon project. It's the largest, most advanced carbon injection and sequestration project in the world — and the willingness of Australian government leaders to assume responsibility for this important CO2 project allowed us to move Gorgon forward to a final investment solution.

Right on the heels of Gorgon is our Wheatstone natural gas project, which also is set to become one of Australia's largest energy projects — offering still more jobs, government revenue and local business opportunities.

Australia got it right with natural gas, a resource whose time has come.

Here in the Asia-Pacific region, and around the world, natural gas offers the fastest and most efficient way to diversify and expand the energy portfolio to meet growing demand. First of all, there is an abundance of natural gas on this planet. Global natural gas proved reserves at the end of 2007 were estimated at well over 6,000 trillion cubic feet — equal to around 60 years of current global production.

Chevron, for example, has almost 150 trillion cubic feet of unrisked gas resources around the world — and roughly half of that is in the Asia-Pacific region. That's equivalent to nearly 30 billion barrels of oil.

Then, there's the fact that natural gas is the cleanest-burning fossil fuel there is. Natural gas produces almost 45 percent less CO2 than coal, and almost 30 percent less CO2 than oil. It will play an integral role in the energy mix as the world moves toward a lower carbon future.

Yet, as we move toward that lower carbon future, it's important to remember that over 80 percent of the global economy today is powered by oil, natural gas and coal. And this reliance on traditional fuels is just as great in APEC economies, despite all the good progress we've made on renewables and other alternatives.

Clearly, renewable energy sources are important to future expansion and diversity of supplies. And, renewables are being developed at a very impressive rate. Chevron, for example, is the largest producer of geothermal energy in the world, accounting for more than half of all privately-developed geothermal power. Our geothermal operations are located right here in the Asia-Pacific region — Indonesia and the Philippines — and they meet the energy needs of millions of people.

Yet, if we look at the data, there is no avoiding a simple conclusion: The sheer scale of the world's energy needs is far beyond the capacity of any one source or technology.

So again, it is critical to enact sound economic and energy policies that enable us to make the investments needed to expand and diversify our energy supplies — and generate the kind of benefits to host countries that flow from those investments.

The second component in a strategic framework for APEC energy security is moderating energy demand by promoting conservation and efficiency. Energy efficiency is the cheapest and most plentiful new form of energy that we have. A reduction of just 5 percent in global energy use would save the equivalent of more than 10 million barrels of oil a day.

Using energy more efficiently makes sense for many reasons. It reduces carbon emissions. It lowers costs. And it conserves the supplies we have.

Chevron has improved energy efficiency across our global operations by 28 percent since 1992. A local example of our improved energy efficiency is the Yeosu refinery in South Korea, where our subsidiary GS Caltex has improved energy efficiency by 17 percent in the last 8 years.

In fact, the Asia-Pacific region is helping to lead the way. Japan, Singapore, Korea, Australia, China, Thailand, New Zealand and others are making meaningful efforts to use energy more efficiently. Going forward, conservation and energy efficiency will be essential tools to manage growing global demand for energy and ensure secure supplies for all of us.

The third component of a strategic framework for energy security is the development of clean energy and technology innovation. The development of clean energy is important for the long-term energy future of all APEC economies, because it's another way to expand and diversify the energy portfolio while managing carbon. And technology makes it possible.

Technology is the common denominator in the energy industry. It touches every part of our business. Despite the fact that most people see Chevron as an “oil” company, we think of ourselves as an “energy” company. But you could argue that we're a “technology” company that produces energy. Just as technology has always shaped how we find, produce and deliver energy, it is technology — directed by human creativity and drive — that even today is moving us toward a cleaner and lower-carbon energy future.

The energy industry is a global leader in developing and applying new technology, especially when it comes to how we explore for, drill, develop, produce and process oil and natural gas. Technology has allowed us to produce more energy supplies while addressing environmental challenges — from clean air and water to the challenge of reducing carbon emissions.

Few responsibilities today are greater, and our industry is rising to the challenge.

Earlier, I mentioned the carbon injection and sequestration component of Chevron's Gorgon project in Australia. It will be a global leader in carbon capture and storage technology. Approximately 120 million tons of CO2 will be sequestered over the 40-year life of the project. Through carbon sequestration — and the energy efficiency of the project's equipment — Gorgon will be one of the most carbon efficient LNG projects in the world.

This achievement will not only advance carbon capture and storage technology, it also shows the way for the Asia-Pacific region, with its abundance of natural gas, to take a real leadership role in helping to move the world toward a lower-carbon future.

Let me briefly talk about coal. It's important to acknowledge that coal is an important energy source that produces a substantial amount of the world's electricity — particularly in the United States and in the People's Republic of China.

The challenge we face is to find solutions to environmental issues around coal — solutions such as co-generation of power with natural gas — as we continue efforts to make burning coal cleaner. Cleaner power generation technologies — especially liquefied natural gas (LNG) — can provide more secure, diversified systems of energy supply with lower carbon emissions as clean coal technologies are developed.

For this to happen, however, APEC economies must advance policies and technologies that promote the development of cleaner energy and the improvement of energy efficiency. And we must understand that even with the best of intentions, with leading-edge technologies, and with an all-out effort, significant reductions in carbon emissions will take much longer — and cost much more — than many people would currently have us believe.

If we were to replace today's global transportation system with a zero-carbon solution — eliminate all cars, trucks, buses, trains, planes and ships — we would reduce greenhouse gas emissions by only 15 percent. So, the goal of managing the transition to lower-carbon energy is quite a challenge and will require a long-term commitment and a grasp of the true size and scale of the undertaking.

At Chevron, we see the way forward in terms of these core principles:

Energy security — our topic today — which is steady, affordable, and reliable supplies to keep our economies functioning and competing.

Maximize conservation — which I also have touched on. Because saving a gallon of fuel is like finding a gallon of fuel.

Measured and flexible approaches also are essential so that we know whether we're meeting our goals and can make adjustments if unintended consequences start to outweigh the benefits.

A fourth principle is broad and equitable treatment, because no industry or sector should be unduly burdened with taxes, regulations, or job losses.

Next, enable technology with more public and private support for R&D, because we have no greater ally in working for energy security than human ingenuity.

Transparency also is critical. Simply stated, we need to be honest and up-front about the true costs of any climate change policy we adopt in terms of money spent, restrictions imposed and jobs destroyed.

The final principle is global engagement. This means that, just as every nation stands to gain from reduced emissions, all must work together in realizing that objective.

Fostering policies that expand and diversify the supply of energy, moderating energy demand by conservation and improving efficiency, and accelerating the development of clean energy and technological innovation — with these three components in place, I am confident that APEC economies can build a strong, strategic framework for true energy security.

However, success isn't guaranteed.

At Chevron, we believe that our industry must demonstrate responsible, accountable leadership — and we also expect it of policy-makers and society. Ultimately, all stakeholders in APEC economies must take action today to ensure a robust and secure supply of energy for tomorrow.

The potential is enormous — the responsibility great.

I am confident that we'll meet the challenges before us and that, decades from now, the world will look upon the APEC framework for energy security as the cornerstone of a secure, efficient and robust energy future for all of us.

Thank you.

Published: November 2009