“The media and the public often mistakenly see Silicon Valley as the sole developer and purveyor of game-changing technologies. But as recent years have proven, the energy sector is a hi-tech pioneer, constantly inventing, testing and improving technologies and techniques around the world,” says Rex Tillerson, chief executive of ExxonMobil, the world’s largest international oil and gas company.
“The media and the public often mistakenly see Silicon Valley as the sole developer and purveyor of game-changing technologies. But as recent years have proven, the energy sector is a hi-tech pioneer, constantly inventing, testing and improving technologies and techniques around the world,” says Rex Tillerson, chief executive of ExxonMobil, the world’s largest international oil and gas company.
He has got a strong point: thanks to technological breakthroughs, producers can now extract oil and gas from onshore shale formations, offshore deposits in the Arctic and other frontier areas. They are also now equipped to squeeze many more hydrocarbons out of mature fields that have been producing for years, even decades.
The US gas and oil shale booms have changed the global hydrocarbon markets dramatically in recent years. Oil prices crashed from over $100/bl in mid-2014 to below $30/bl at the start of this year because of abundant crude supply. Prices have recently recovered to above $50/bl, still only half the 2014 level.
The lower oil price environment has hit profits of energy companies, including ExxonMobil. Oil and gas firms have sharply reduced investment in new developments, leading to warnings from many top industry figures that the world might be facing a shortage of crude supply by the end of the decade. Total chief executive Patrick Pouyanne reiterated this week that the industry is not investing enough “to prepare the future supply”.
Tillerson, however, told the Oil and Money conference in London on 19 October that he does not share the view that “we are setting ourselves up for some kind of big [supply] collapse within the next three, four, five years”. But at the end of the day, ExxonMobil is famous for having views that differ from what many others in the industry think. For example, the company is the only large oil and gas firm not to have written down the value of its assets in the current lower oil price environment, while its peers have taken multi-billion impairments.
Tillerson started his conference speech by calling on the industry “to continue to expect the unexpected”. “Human curiosity and resourcefulness have often been the drivers behind taking something ordinary and turning it into something extraordinary,” he says.
He is, of course, referring first and foremost to the ability of ExxonMobil and other oil and gas companies to continue to extract hydrocarbons at a rate needed to meet most of the world’s energy demand. His company has been much less keen on investing in renewable energy sources, unlike Total or Norway’s Statoil.
This approach is somewhat supported by most energy scenarios available now. ExxonMobil's own annual energy outlook states that oil and natural gas are expected to make up nearly 60pc of global supplies by 2040, while nuclear and renewables will be approaching 25pc.
But while talking about expecting the unexpected, Tillerson does not seem to anticipate a technological breakthrough that would allow an alternative energy source – rather than hydrocarbons – to quickly reach scale and have a momentous impact on global energy demand, displacing oil and gas and proving the current energy outlooks wrong. Maybe it could happen in a similar style to how the US shale gas and oil booms have caught most conventional producers and energy analysts off guard. A recent report by Fitch Ratings noted the potentially disruptive impact of a breakthrough in battery technology. And some refiners are beginning to reposition themselves, recognising that motor fuel demand may wane.
So, is Tillerson right? Judging by the solid financial and operational performance of ExxonMobil, he and his team know what they are doing. But there have been occasions where things did not go according to plan, including its ill-timed purchase of US independent shale gas producer XTO in 2010 for $31bn plus debt.
So it does look like the industry has little choice but to continue to expect the unexpected.