ExxonMobil Discusses the Future of the Global Energy Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--On December 11, 2012, ExxonMobil (NYSE:XOM) (Irving, Texas) held a 2013 Energy Outlook Conference call. William Colton, vice president of corporate strategic planning, began the conference call by emphasizing the importance of energy efficiency. If it were not for energy efficiency, "energy demand would be 500 quadrillion BTUs [British thermal units] higher or about three times of the expected growth to 2040." Colton explained. So clearly, energy efficiency is vital. Throughout the conference call, Colton talked about multiple aspects of the energy industry, including demand and supply.

Colton first discussed the world's total demand for energy. He explained that the demand is driven by four sectors: electricity generation, industrial, transportation and residential/commercial. He mentioned that electricity generation is the largest sector and that ExxonMobil expects to see it grow the most. "That's remarkable considering that a little over a century ago, electricity use was a novelty." He said. Today, however, electricity, which powers our Ipads, homes, laptops and offices, just to name a few, is considered a "basic necessity." Colton went on to say that this sector still has a lot of room to grow because there are about 1.3 billion people today that still don't have access to electricity at all.

After discussing electricity generation, Colton talked about industrial energy, which covers a broad range of activities. Some of these include: production of raw material, chemicals, plastics, agriculture and the manufacture of finished goods. "Surprisingly, the smallest sector is for our homes and other buildings, which are residential and commercial," Colton said.

Out of all the sectors, Colton described, the transportation sector as the "most familiar and prominent." He explained that the transportation sector has the biggest impact on oil demand, and this has happened because "nearly all of the world's transportation is powered by liquid fuels and mainly oil products," he stated. Although most people think of cars when they think of the transportation section, the commercial subsector is where the real growth lies. Total transportation demand has been increasing significantly, and the commercial subsector is actually driving most of this demand. The commercial subsector includes: heavy duty trucks, ships, trains and airplanes.

"Growth in commercial demand is driven by increases in economic activity," Colton said. "As the world increases output and international trade flows, all this production needs to be transported both globally and locally." He then said that a shirt you buy online could be made from cotton grown in Africa and textiles produced in Southeast Asia, and it will be delivered to you by a UPS truck in the U.S. In sum, heavy duty vehicle demand, which is the largest subsector, has been experiencing the most growth. And it "accounts for 40% of all transportation by 2040."

Although demand continues to grow for heavy duty vehicles, there is an unlikely trend occurring for cars, SUVs and small pickup trucks. Colton explained that demand for these types of vehicles has plateaued and even begun to decline. And this has occurred because personal vehicles have become much more fuel efficient, which has caused fuel demand to flatten out "even as global fleet doubles," he explained. "You have two major factors offsetting each other. Number of cars doubles but efficiency performance also doubles. It tends to flatten the demand."

Transportation Across the Globe

Transportation demand varies across different parts of the world. Currently, the Asia pacific has been seeing the strongest growth. This region remains "the largest consumer of heavy-duty energy and sees a significant increase in personal vehicle ownership." Colton said. He also mentioned that by 2015, transportation demand in the Asia Pacific is projected to exceed that of North America. On a country basis, however, the U.S. will stay the largest "transportation demand center," and China will come second.

The Four Sectors

Electricity generation, transportation, industrial and residential/commercial drive the word's energy demand. Electricity generation is the largest section, and ExxonMobil thinks it will continue to grow the most. According to Colton, "coal is likely to end up in 2040 about where it was in 2010," and this is because regions all over the world have sought out fuel that is less carbon intensive. Nuclear power is projected to grow significantly despite the fact that it is not always accepted by various regions. Solar, wind and biofuels, Colton explained, have been experiencing the fastest growth rates.

The Supply Side

Colton explained that the world still holds a significant amount of oil resources, and ExxonMobil projects that "less than half of the world's recoverable oil will have been produced" by 2040. Unconventional gas production is expected to grow significantly, and ExxonMobil project that it will take care of 75% of demand by 2040. Over the next 20 years, more than half the growth in unconventional gas will be in North America, and this factor moves the U.S. energy mix toward a lower carbon resource, Colton explained.

Interestingly, ExxonMobil thinks that North America will go from a net importer of all the energy sources (oil, gas, coal, nuclear and renewables) to a net exporter by the year 2025. Technology is allowing domestic energy to become safer and more reliable. And the increasing domestic supplies are giving new sources of economic opportunities for businesses that operate in North America.

Colton explained that the energy balance for the Asia Pacific region is a different story. In this region, oil demand will most likely grow at 60% over the long run, and domestic supplies are projected to decline. Oil imports are expected to hit 35 million barrels per day by 2040 in Asia Pacific. Gas demand in this region is expected to increase substantially. This demand is linked to the region's growing gross domestic product. Like the U.S., demand growth in Asia Pacific is driven by transportation. Electricity demand in Asia Pacific is also projected to grow significantly.

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