By Rhonda I. Zygocki
Former Executive Vice President, Policy and Planning
Plenary Remarks at the World Petroleum Congress
Doha, Qatar, December 6, 2011
Thank you very much, and good afternoon to you all.
I appreciate the introduction by Dr. Al Ibrahim, and the hospitality that we've all received from Qatar Petroleum and from the State of Qatar. It's also a pleasure to be on the program with Peter Sands, who always has good insights to share on our industry and its future.
Peter and I had the pleasure of serving on the board of the Global Business Coalition on Health. We share a mutual appreciation for the work our companies do to fight HIV/AIDS. So I know when Peter speaks, it's always with conviction and commitment.
Conviction and commitment are also characteristics one could use to describe our industry. For over a century, we have explored, innovated, and built a vast enterprise that powers the world, fuels economic growth and drives human progress.
If being at the WPC makes you proud to be in the energy industry, you're entitled to feel that way. Our industry and the benefits that we deliver – mobility, light, heat and power – have shaped the development of the modern world.
While we are an industry that routinely deals with uncertainty, there are two things that are safe bets – the world's population is growing, and with it, the demand for energy. And however you do the math, most of that demand, at least for the next several decades or more, will be met with our industry's primary product – fossil fuels. But this is far from a simple calculation based on growing populations. The growth in energy use runs in direct parallel with the growth of human aspirations for a rising quality of life.
In today's hyper-connected world, where anyone can see what's possible, everyone raises their expectations. Whether you live in Egypt, Caracas, Jakarta, or Louisiana, people share the same fundamental aspirations for a better way of life – sustainable livelihoods, good health and educational opportunities for their children.
Central to these aspirations are the benefits of responsible energy production. Safe and affordable energy is simply one of the fundamental drivers of sustained economic growth and human progress. And I would suggest to you that the continuing ability of our industry to help realize these aspirations is one of the defining challenges of the 21st century.
How will history write our story a century from now – how will it define our contribution to human progress? This is not a question we can put off. We are a long-cycle business. Our collective ability to meet that challenge and shape our legacy depends on the decisions we make right now.
I believe the answer to the question rests on three basic imperatives.
First, we have to maintain the ability to invest, so we can deploy the massive capital expenditures required to meet the demand. Second, we have to keep energy affordable, so that advanced economies can thrive, and developing economies can join them. And third, we have to be a force for good everywhere we operate, so the broader economic and social benefits of energy development are shared with our closet neighbors.
The Investment Imperative
So let's talk about the investment imperative.
When we consider the growth in global energy consumption over the next several decades, it's hard to overestimate the magnitude of the challenge. Consider that just about a decade ago, the industry majors were investing about $100 billion per year in capital expenditures on oil and natural gas projects. Today, that level of annual CAPEX has increased by a factor of four. And the IEA recently updated its estimates and now projects that we'll need on average $800 billion per year to meet the growth in energy demand.
The capital investments we're making are rising, not only to meet demand, but also because the projects we are working on are increasingly large and complex.
Twenty years ago, the investment for a typical major capital project was around $8 billion. Today, these investments routinely exceed that level. Take the Gorgon and Wheatstone natural gas complexes that Chevron and our partners are building in northwest Australia. Together they are a $66 billion endeavor.
So job No. 1 is operating with the fiscal discipline and capital stewardship to ensure our investments are deployed efficiently and effectively. We also have a pressing challenge to continue developing our organizational capacity to manage this complexity. That means our industry must continue to invest in our people, evolve our project management and petro-technical skills, and build partnerships that combine our strengths and expertise.
But even doing all of that, our industry won't be able to meet the investment challenge on its own. We need productive partnerships with host countries, governments, policy makers, multilateral institutions and financial entities to create an environment that encourages and enables investment. And we need to continue working together to promote security, create more fiscal stability in the public sector, uphold the rule of law and contract sanctity, and broaden access to resources.
This is the work of generations. But we have come very far in the 20th century and progress must continue going forward.
Finally, our ability to invest requires, more than ever, an uncompromising commitment to operational excellence. Safe operations and world-class environmental stewardship are the "bedrock" requirements for our industry's license to operate – and earning public trust. Without that public trust, our ability to invest and operate will always be an uphill climb. It will significantly add to the cost of doing business, diminish shareholder value and ultimately impair our contributions to economic growth and expansion.
In an industry that's always edging up against the frontiers of geology, engineering and fence lines, the best practices should be the only practices.
Responsible investment also means responsible actions and, with it, a commitment to learn, share and lead progress in continually raising the bar of operating practices. Let's continue to build on the progress we've made and set a standard of operating excellence that is uncompromising and unassailable.
The Affordability Imperative
The second great imperative for our industry is the product of our investment – that is, affordable energy.
Affordable energy is a key enabler of modern life. The manufacturing revolution of the last century depended on affordable energy; all the innovation and technology of this century depends on it just as much.
Think about it. The latest innovation in technology – the rise of cloud computing – is enabled by huge new server farms that are powered, for the most part, by coal and natural gas. Meanwhile, more than 1.3 billion people in the world don't have access to electricity. Affordable energy is important to both.
If affordable energy is essential to healthy economies, the next step is to support the things that make affordable energy possible – innovative technology, sound policy and efficiency. Technology is the force that continues to redefine and reinvent this industry.
Just twenty or thirty years ago, there were more than a few critics who saw nothing but bad things ahead for this industry. They could hardly have pictured the World Petroleum Congress in 2011, because they saw an industry running out of time and a world running out of oil. In the catchword of that whole argument, conventional fuels were simply "unsustainable."
Of course, it's turned out quite differently, with proved reserves of oil and natural gas greater today than they were in 1980. Technology is driving sustainability. We're drawing new oil out of old fields, gas out of new rock, and safely exploring and producing in places once thought unreachable.
By itself, natural gas from shale, in the Americas, Eastern Europe and other parts of the world, is changing the energy equation. In the Gulf of Mexico, where Chevron has been operating since the 1940s, the last decade has brought dramatic discoveries and advances in production – all made possible by technology. And then there are the fields discovered more than a century ago in places like the Central Valley of California, where advances in technology are enabling continued production and driving recovery rates about twice the world's average.
As if all of that weren't enough, technology is also helping us use fossil fuels with a much smaller environmental footprint. Today's car, for instance, emits 75 to 90 percent less pollution than new cars in the 1970s. And technology will ultimately help us develop lower carbon resources that can compete with conventional hydrocarbons, economically and at scale.
The benefits of technology to sustain energy affordability can't be fully realized without the right policy environment. That means developing market-based incentives so technological innovations can flourish. It means allowing energy resources to be developed on a level playing field which, by and large, cannot be done with long-term subsidies. And it means avoiding the temptation to tax supply when demand is surging and economies are struggling.
Yet even with vigorous investment and innovative technology, meeting the demand for energy in a future world of 9 billion people will be challenging. So using the energy we produce and consume more efficiently will be critical. The world's two largest energy-consuming countries – the United States and China – both have huge opportunities for efficiency improvements. Using energy wisely can also help keep energy affordable.
If we're looking for one principle that can guide us through the complex issues of economic growth and sustainable energy policy, we cannot do better than affordability. It's the prime economic value that we give to the world, and makes possible the broader benefits our industry can deliver in the nations where we operate.
Without affordable energy as a foundation, long-term economic growth and higher social and environmental standards simply aren't possible. This, too, is the work of generations.
The Development Imperative
This leads me to the final imperative – I call it the development imperative.
Most of us here understand that we operate today at the center of a complex ecosystem that includes host governments, business partners, regulators, communities, NGOs and multilateral organizations. In this ecosystem, we commit ourselves to energy development to serve the world's aspirations for economic and human progress.
In doing so, we have always brought jobs, revenue, investment in local suppliers and community programs to countries where we explore and produce – all the right ingredients for development. But too often, the potential of broader economic and social benefits has not been sustained locally.
As technology stretches the frontiers of resource development, community expectations are also growing. Innovative thinking in our industry has changed so much else, and now it's changing the way we think about community development. Today, that development is being done through multilateral partnerships that include companies, local communities, governments and NGOs.
By pooling resources and spending efficiently, we can build larger-scale multi-year initiatives focused on building broad economic capacity. We do this by creating vocational schools, microfinance and other industrial institutions – and by encouraging stronger local government capacity to promote economic development. We aim for institutions that can stand on their own two feet and whose value can multiply many times over.
At Chevron, we've seen remarkable results in our Angola partnership. And we're particularly excited about our newest initiative in the Niger Delta. This innovative program is integrating Chevron and several other major partners in a $100 million initiative to build capacity for conflict resolution and long-term development in the region.
Who benefits from these new models of development? We all do.
Responsible energy development brings investment, local jobs and tax revenues to governments. Development builds local capacity. Innovative approaches enhance the health, education and economic development of the community. From these positive trends flow stability and economic growth. And a growing economy requires more energy, allowing us to create new customers by fundamentally improving their lives.
At Chevron, we call this idea "shared progress" – an idea ideally suited to our industry.
Our scope, scale, long time horizons and natural ability to partner put us in a unique position. We're able to make the same generational commitments for economic development as we make for energy development – everywhere we operate.
Under this model we move from donors to partners, from building bricks to building capacity and from one-off endeavors to generational commitments. Most importantly, we will move from celebrating shared ceremonies to celebrating shared progress.
Seizing the Initiative
Let me close with a final observation.
When we step back from it all and consider the long arc of history, there's an encouraging conclusion to be drawn, even with all the serious challenges we face: This is an industry that's been getting a lot of things right.
Looking ahead to inevitable demand growth, we can't wait on events and wonder who will find answers. We must find them ourselves – seizing the initiative, making the investments, acting responsibly and delivering the solutions.
From the centers of gravity in the global economy, to the smallest communities where we operate, so much rides on what we do, and how well we do it. I know of no industry from which the world expects so much, and no industry better equipped to meet that high measure.
This congress is one of those rare opportunities where we come together, face-to-face, as an industry. Let's use it as a chance to commit ourselves to the great responsibilities and challenges we'll face in the 21st century.
Let's seize the initiative today. For if we maintain our ability to invest, keep energy affordable and remain a force for shared prosperity, the story of our industry at the end of the century will surely be defined as much by human development as it is by energy development.
Let's all commit ourselves today to ensure that happens.
Published: December 2011