Taming the Asia-Pacific Energy Dragon Together
By Melody Meyer, President, Chevron Asia Pacific Exploration & Production
Remarks at the Pacific Energy Summit
Seoul, Republic of Korea, June 30, 2014
Thank you Dennis and distinguished participants. I am honored to be here and appreciate the opportunity to speak at this Summit.
Our company has been a key energy investor in South Korea for nearly 50 years. We’re partners in the big GS Caltex refinery in Yeosu and we supply nearly 3,500 filling stations flying the CALTEX flag in Korea. It is wonderful to be here in Seoul.
South Korea also manufactures many of the giant components for Chevron projects around the world—in fact more than $4 billion as of 2012 and more since then. And because this country is one of the world’s largest consumers of LNG—and Chevron will soon become one of the region’s largest LNG producers—we have just opened a new office in South Korea to support our efforts to market LNG in the region. We are excited to be here.
I want to thank the National Bureau of Asian Research for bringing us together again to discuss common challenges and shared opportunities. As the lead sponsor for the Summit in 2014 and as a Board member, I have great respect and appreciation for NBR’s insights, high standards and consistent focus on the relevant issues of our time.
We believe the NBR team shares with us both a genuine interest and a concern for the people in the Asia Pacific region. They help us understand the issues critical to the region, from the future role of nuclear energy, to the security risks of growing oil imports, to the rewards—and the strategic implications—of regional competition. Ultimately, NBR helps us see the big picture of what is going on in the Asia Pacific region. And through their tireless efforts—and this annual summit—they inspire us to focus on the complex task of fueling the economic growth in the region. So I will call this, “taming the Asia Pacific energy dragon.”
Throughout Asian culture, the dragon has been revered as a magical and often benevolent creature, while in Western folklore, it is typically seen something to be fought and defeated.
I think our Asia-Pac energy dragon is a little of both—it has a few heads. It’s challenging side—delivering the substantial energy supply that will drive Asia’s economic growth. On its opportunistic side—fueling the energy and economic growth in the region signals hope for better lives and prosperity for hundreds of millions of Asians in the region. Growing all types of energy resources and delivering them reliably and affordably is a big challenge.
But I believe we can do it—together.
We all know that the mythical dragon slayers were individuals that finally got it right—the hero, by “himself” or “herself”—the “silver bullet” concept. It makes for a good story but it doesn’t work in today’s complex environment.
To tame our modern-day dragon, we can’t count on just one hero. We need a team of talented partners from the IOCs, the NOCs, research labs, governments and consultants. We need governments committed to creating an optimum investment climate and regulatory environment for the responsible development of natural resources.
This is why the Pacific Energy Summit is such an important event. What we do here can help to set the stage to attract the capital and ingenuity that will make safe, reliable and affordable new energy supplies a reality in the region. The enthusiasm of the IOCs alone won’t be enough. New ideas, technologies and R&D, by themselves, aren’t enough. World-class environmental standards and clean, safe operations—on their own—won’t get us there. Wise government policies and trade relationships aren’t enough. We need all these elements working together to tame the dragon.
The good news is: We’re working on it. The bad news is: We are not doing this fast enough.
So let’s review, how large is this challenge?
The International Energy Agency estimates that Asia’s energy sector will require more than $700 billion in capital investment through 2035, with most of that needed for gas exploration, production, LNG infrastructure and pipelines. The IEA also says China is entering a “golden age” of gas, with consumption forecast to double within five years. And even with domestic gas production expected to grow 65 percent, China will need LNG to meet a lot of its new gas demand.
Looking more broadly, the IEA also believes that overall Asian LNG demand will double in the next 10 years. However, when we add up the new LNG capacity we now have under construction, we’re looking at a potential supply shortfall in 2025 of around 100 million tons per year. That’s the equivalent of seven projects the size of our huge Gorgon development in Australia.
In my view, projections like these should fill us all with a sense of urgency.
Here is a clean and abundant hydrocarbon of truly formidable value. Where would the economies of Bangladesh and Thailand be today without natural gas? And in the aftermath of Fukishima, where would the Japanese economy today be without LNG?
Two years ago, speaking at this event, I said that energy development partnerships are the key to developing the Asia-Pacific energy future. Today I believe this more than ever.
Yes, we have to work on renewables, nuclear and energy efficiency are a big part of the equation. Indeed, we need to grow all forms of energy. But we especially need continuous investment in the core resources of oil and gas to meet both domestic and international trade needs.
For our part, Chevron and its partners are investing $80 billion to develop the Gorgon and Wheatstone LNG projects in Australia. Together, these two projects will add more than 24 million tons per year of LNG capacity to the region—and most of that is already under contract to Asian customers.
In fact, Gorgon is on well on its way to completion. Today I am pleased to announce delivery of the last of the 21 modules for the first train of Gorgon's LNG processing facility to the project site on Barrow Island. These modules were built right here in South Korea. It is a big milestone for us. And when we make our first shipments of LNG as scheduled in 2015, we and our customers will owe a debt of gratitude to our South Korean fabricators.
In Bangladesh, where we are the top domestic gas supplier, our $500 million expansion will boost gas production to about 1.4 billion cubic feet per day. In Indonesia, we produce about 40 percent of the country’s oil and we are pursuing government approvals that could enable the country’s first ultra-deepwater gas project. We are aiming to add 3 trillion cubic feet of reserves—and a billion cubic feet of production per day to Indonesia’s energy mix. Elsewhere, new phases in our established partnerships continue to help fill the energy supply pipelines sustaining economic growth.
In 2011, we completed a $3 billion project which boosted Thailand’s gas output by more than 300 million cubic feet per day—a 10 percent increase in that nation’s gas production.
A big part of our job as an IOC partner is to bring technology and know-how to Asia-Pacific. We have achieved this at the giant Minas Field in Indonesia, where we’re advancing techniques to recover new oil from old fields. At the same time, we continue to explore across the region, from deepwater China to the remote frontiers of Australia. Our ongoing exploration program in the Carnarvon Basin has yielded more than 20 discoveries and a potential 10 trillion cubic feet of new gas over the last several years. Last fall we added new exploratory tracts in the Bight Basin off Australia’s southern coast. And these are just a few examples of how we’re making it happen, project by project, well by well, along with our partners in the Asia Pacific, many of them in this room today.
And we need to do a lot more.
For governments, this means a focus on attracting and sustaining investment. We need stable legal frameworks, predictable tax regimes and sanctity of contracts. To compete with other opportunities around the world, timely project approvals and clear regulations are essential.
Our investments have a long cycle time. Stability is often needed for more than 20 years. Sustaining and trusting partnerships are critical. Investors want to make an economic return for shareholders; governments want energy security and to optimize the benefits of their resource development; and customers want reliable and affordable energy. Strong relationships are needed over many decades.
We need to balance local content with competitive pricing—and set stable terms for concessions and production sharing contracts.
Speed and a sense of urgency are all the more important for domestic gas development. They provide lower-cost supplies compared to imports and they generate jobs and significant government revenue. We believe that governments should be taking a leading role to promote and enable these homegrown energy opportunities.
Working together to create the necessary investment climate is all the more important because in the energy game, not every prospect works, and regulatory approvals and construction can take longer than they should. But every struggle makes us stronger and smarter. And we need to keep asking, “How can we accelerate our progress?”
Perhaps one way is to fully appreciate energy development for its extraordinary contributions as a catalyst for economic activity and growth—and not just in the host countries. I’ve already mentioned the impact of Chevron’s global projects on the busy shipyards and fabrication yards of South Korea. By turning out the giant components for deepwater and LNG projects in Asia, Australia, Africa and beyond, these proud facilities are supporting thousands of jobs in South Korea. In fact, the closer we look, the more compelling the evidence becomes for promoting new Asia-Pacific energy development.
Last year, Chevron asked IHS to measure the economic value of our long-standing partnership with Thailand—jobs, GDP, paychecks, government revenue and more. Of course, many of you know that our operations produce some 40 percent of the country’s natural gas. To help make that happen, in 2013 alone, Chevron Thailand completed around 400 wells. Our super-efficient drilling operations there are almost an industry in themselves. But beyond our direct impact, IHS found that every Chevron Thailand job supports another 29 jobs—that’s more than 200,000 Thai jobs—and by 2016, it will grow to 220,000 jobs.
What else did IHS find?
Based on revenue, Chevron Thailand is nearly half as large as the entire tourism industry and a quarter the size of the country’s vehicle manufacturing industry.
In 2012, the company paid over $2.4 billion in royalties and corporate taxes to the Thai government.
And our business activities stimulated an additional $310 million in government revenues from workers and suppliers.
So let’s take some inspiration from this success, not just in energy development, but in the economic prosperity it provides from the construction phase through to the long-term operations. And we can find similar, positive stories everywhere that major energy partnerships are developed and encouraged to thrive in the Asia-Pacific.
There are still more reasons to keep core energy development top of mind. Major IOC projects today are conceived, designed and executed with local communities and economies top of mind. The best energy companies bring considerable skills and capabilities in Community Engagement with built-in benefits to local citizens. Our shareholders and partner countries expect this and so do our employees—more than 92 percent of whom are local to the countries in which we operate. We work with top NGOs and local governments with a focus on economic development, health and education.
In Indonesia, we built polytechnic universities to train local students for jobs in the industrial sector. This is what’s required today to be a partner of choice—and an employer of choice—in energy.
In Bangladesh, we’ve worked since 2006 to build one of the industry’s most effective social investment programs. Partnering with Save the Children, we’ve helped 450 underprivileged elementary school kids and their teachers. Our next program will reach 3,000 more. We train villagers to launch small businesses. We support clinics to improve eyesight and correct facial deformities. Last year, we launched an initiative to elevate social investment in Bangladesh to a new level.
We want to create a world-class model for this essential element of major energy projects and become a catalyst for local community opportunity. We’ll do this by working more closely with Village Development Organizations, local chambers of commerce and others—not just to fund programs but to build capacity and elevate business skills in the community.
We believe that the future operation of our gas projects depends on helping to create local economic opportunity. We want to empower our project neighbors to improve their lives in meaningful ways. And I know many of you here today feel the same way.
Taming the energy dragon will enable economic growth. We have to be smart though to overcome the challenges in meeting the growing demand for energy, but we also have to seize the opportunity to find and deliver new energy supply as partners, project by project, year on year.
Chevron is a top producer in the Asia Pacific with the largest reserves. I want to make it clear, as I did in 2012, that we are committed to working collaboratively, to invest in energy development throughout the region.
Every country needs and deserves reliable fuel and power to pursue its economic destiny and elevate the quality of life for all citizens.
 $500 million cost was made public in original Chevron news release on Bibiyana expansion
Updated: June 2014