speech

Technology, Environmental Enterprise and Energy Solutions

By James R. Metzger, Vice President
Texaco Inc.

Las Vegas, Nevada

Thank you for that kind introduction.

Let me say in response that your conference and exposition is one of the most comprehensive events I have attended.

It is also a pleasure to come to this ever-changing city. A half century ago, Las Vegas was more mirage than reality. Thanks to the imagination of people and the power of technology, that desert mirage has been transformed into the bricks and mortar of this themed city - one that spans from the Old West to a Star Trek future.

Little wonder, then, that the planners of this exhibition selected this as the best place on earth to share futuristic technologies. For my part, I want to show you how the so-called traditional oil and gas sector is meeting the challenge of being a leader in that energy future. I will tell you about some of the new generation technologies that are enabling our industry to progress from being a commodity supplier, to being a supplier of energy solutions.

In thinking about such big transformations, I turn to Peter Drucker, who says that "long-range planning does not deal with future decisions, but with the future of present decisions."

Let me quickly examine some of our present energy decisions, before offering some suggestions about their likely future.

One set of decisions concerns how technology can address the needs of the developing world, where by definition most of the world's growth will take place.

Since the mid-1980s, China's economy has grown by nearly 150 percent and its motor vehicle fleet has quadrupled. Today, India's middle class is now larger than that of the United States. Little wonder that energy demand in the developing nations has nearly doubled since the mid-1980s - contributing to a one-third increase in world energy usage.

Demographic experts believe that the world's population will increase by almost three billion people - nearly a 50 percent increase - by the middle of the next century. Virtually all of this growth will occur in the developing nations. The world appetite for energy is voracious. If the demand curve comes anywhere close to matching the steepness of the population curve, the growth in demand will be almost insatiable.

A related set of decisions concerns our common environment. How are we going to meet the needs of a world that is growing in population and productive capacity, while at the same time minimize the impact on our air, water and soil?

In respect to this environmental challenge, perhaps it is best to begin with a focus on one trend that academics and journalists are calling "decarbonization."

This is not a new concept. Since the beginning of the industrial revolution, humanity has inched up the energy ladder...from wood...to coal...to petroleum and natural gas...releasing fewer atoms of carbon and using more atoms of hydrogen for the energy we needed.

The trend lines of decarbonization are believed to be rapidly accelerating - a story to be told not in centuries, but in decades. If present trends continue, one should expect a gradual and steady shift to a hydrogen economy before the end of this new century. However, such a reliance on present trends reminds me of the chess master who surveyed the board on the opening position and said, "the mistakes are all there, waiting to be made."

A genius can predict such a thing in chess. In the world of energy technology, no one is that smart. Technological change is not a smooth continuum, but a succession of unpredictable lurches and leaps, with one disruptive technology following another.

Throughout history, people have tried to predict when and how new technologies would fall in place. Of course, with so many fast-growing economies around the world, oil and gas consumption is bound to grow. The question is when will oil and gas have serious competition?

At Texaco, we believe that it could happen much sooner than present technology would indicate. In this age of the Internet, after all, change has come faster than anyone could predict. Witness the human genome project, which reached its goal of mapping the genetic code years before originally expected.

Among the many promising technologies on display here in Las Vegas could be a similar "breakout" technology that changes the whole energy equation. Only time will tell.

What we can say is that there is little doubt that fossil fuels will remain the dominant source of energy for the foreseeable future. There is little doubt, too, that there will soon be other sources. Many others.

It is likely that today's monochromatic energy picture will soon give way to an energy mosaic, one in which the insatiable needs of emerging economies will be supplied by myriad forms of energy and power generation.

So the challenge for both government and industry is complex: to foster the creation of exotic new energy sources, to meet the demands of a rapidly growing world - all the while fulfilling environmental expectations.

This is a big challenge, but it is not an insurmountable one. It is being met every day by leaders of business, non-government organization's, government and the technology community - all who share a heightened environmental awareness.

It may sound as if I've laid out many competing goals for our industry - environmental, technological, economic and social. However, as diverse as these goals may be, they are not divergent. If anything, they are goals that converge. You can see a good example of this at the Ford Motor Company.

We've all heard the old saw about Henry Ford, who once said that customers could have their Model Ts in any color-so long as it was black. Now his great-grandson, Bill Ford, is Chairman of the auto company, and he says, "customers can have any vehicle they want as long as it's green."

By that, he means that Ford is trying to stay ahead of the curve by designing vehicles with better emissions performance than what is required. Ford has found a way to sell cars and make money, while doing the right thing.

At Texaco, we have a name for this strategy. We call it "Environmental Enterprise." Environmental Enterprise means not only accepting ever-rising environmental expectations. It means embracing these expectations as business opportunities. In this way, we are replacing the last remnants of skepticism and environmental resistance with something better suited for the demands of the 21st century.

Years ago, our industry saw the prospect of an energy mosaic as a faint, long-shot threat to our core business. Today, we see the fractionalization of energy markets as a natural extension of our core products and services.

What will be the elements of such a mosaic?

First, it must be acknowledged that with 600 million automobiles in the world, the internal combustion engine is going to remain with us for some time to come. What will change - and change soon - is its impending and gradual replacement.

Hybrid vehicles, already on showroom floors, are harbingers of even greater things to come.

Part of this future and ours can be seen in what I am holding here (displays disc). This disc is a component of the Ovonic hydrogen storage system, developed by a strategic partner of ours, Energy Conversion Devices Inc. (ECD). It is the potential solution to one of the trickiest hurdles between us and a hydrogen economy - the ability to safely store and transport hydrogen for use in fuel cells and other energy technologies.

At present, it is impractical, costly and potentially dangerous to store and transport hydrogen in a liquid or gaseous state. With this remarkable technology from ECD, hydrogen can be stored in a solid state. It is safe and rechargeable. In a few years, such a device could run a laptop for a month or fuel cars for hundreds of miles.

We don't have to wait to replace the world's 600 million cars to begin to enjoy the benefits of a hydrogen economy. This hydrogen system can even be used to fuel existing internal combustion engines with simple modification, not to mention mobile and stationary fuel cells.

Texaco, like a number of traditional oil and gas companies, has also decided to get into the business of generating power. This strategy is based on the simple premise that electricity demand growth in many markets will outpace total energy demand growth. At Texaco, we think we can play an important role in providing the clean, efficient power to meet that demand.

One way we do that is through "gasification," which allows us to convert dirty fuels such as high sulfur coal and petroleum coke into clean gas to generate power and manufacture chemical products. This technology can bring significant emissions reductions to areas of the world that otherwise would use less efficient and more damaging processes to generate these same products.

Another example is cogeneration, which is taking us deep into the business of selling energy by the electron as well as by the molecule.

The exploitation of coal bed methane is another significant factor that can push up the trend lines of decarbonization, especially in the fast-growing economies of India and China, where coal as a natural resource is used.

Texaco, like some of our competitors, is also investing in renewables - like solar and geothermal.

The day is not far off when remote villages will use renewables to skip the traditional power grid - much as cell phones are already allowing many to skip copper wire. We can envision new technologies that will allow them to leapfrog many stages of development - plugging right into the Internet by solar-powered telecommunications, lighting schools and homes with "mini-grid" systems.

It is important to remember that with most of these technologies, the hydrocarbon will not disappear. After all, it takes energy to make hydrogen. But hydrocarbons will be used in different forms, with far greater environmental efficiency.

This, then, is the new face of our industry - one that is harnessing the profit motive to drive ever-improving environmental performance.

As if this wasn't enough change to throw at us, this fast-forward evolution of the energy sector is taking place in the midst of the most transformative, disruptive technology of all time - the Internet.

We live at a time when a high-end Mercedes contains as much computing power as a mid-range personal computer... when fiber optic lines are being laid in America at the rate of 4,000 strand miles a day... and when e-business is transforming the economic landscape - with Delta Airlines earning 10 percent of its revenue online and, according to an article in this week's Forbes, General Electric is reaping efficiencies that have risen from $200 million in 1999 to more than $5 billion projected for 2000.

It is reasonable to ask how these "new economics of information" will interact with the new technology of energy. It should be noted that in both the energy and Internet sectors, some see a dichotomy between the old and the new economy.

For instance, Philip Evans and Thomas Wurster of the Harvard Business School see the advantage going to the new and the nimble in their bestseller, Blown to Bits. They write that "insurgents are advantaged precisely by their lack of legacy systems, legacy assets, and a legacy mindset. Having nothing to lose becomes an advantage."

Eloquent words. It is important to keep in mind, however, that they went to press just before the bottom fell out on so many "e-tailers" and other dot-coms.

An opposing view comes from Carly Fiorina, head of Hewlett-Packard, who said that "people who concluded in the first couple of years of the Internet boom that the large companies would fail and only the new ones would succeed, fundamentally misunderstood the true transformational power of the Internet."

The old economy itself is increasingly transformed, as established brands enter the fray of e-commerce with a built-in infrastructure of expenses and existing sales and customers. For the new energy company, the significance of e-business is that it will enable us to reorganize supply to our customers around the world.

You can see this future emerging in a new economy upstart, "Altrade" - altra energy's online market for the trading of natural gas, crude oil, natural gas liquids, and electric power- already markets itself as "the largest independent B2B exchange on the planet."

Texaco is banking on the future of a similar enterprise, Petrocosm, another virtual market just now coming online. Online markets like these are important to the energy future because they hold the promise of allocating energy markets on a global basis with near-perfect efficiency.

For instance, e-businesses will soon enable the trading of emissions credits on a global basis. Such trading holds the promise of dramatic improvements in emissions control, as we harness the power of the market to find the most efficient solutions.

In all these ways, our present decisions on technology development and commercialization will help us meet the needs of our growing planet, while allowing us to leave a smaller and smaller footprint on the earth.

Our present decisions will also allow us to better serve those who have yet to enjoy the fruits of economic development. "The test of our progress," Franklin Roosevelt once said, "is not whether we add more to the abundance of those who have much; it is whether we provide enough for those have too little."

Soon, technology will enable us to deliver work, education and basic light even to the emerging economies of the world. And it holds the potential to free the world's poor to move beyond the tyranny of mere survival, to actually moving forward. To actually participating in the global marketplace.

For most of the 20th century, the view of progress was adapting our environment to meet our needs.

Thanks to the diversity of examples on display this week, we can approach the 21st century by adapting our progress to meet the needs of a changing world.

Updated: July 2000