The New North American Energy Paradigm: Reshaping the Future
Speaker: Rex W. Tillerson, Chairman and CEO, Exxon Mobil Corporation
Presider: Alan S. Murray, Deputy Managing Editor and Executive Editor, Online, Wall Street Journal
ALAN MURRAY: Thank you. I want to welcome everyone to today's CFR meeting, which is part of the CEO Speaker Series. I also want to remind you to completely turn off -- not just put on vibrate, but completely turn off your cellphones. And I can see that there's a bunch of avid tweeters in this audience. I'm sorry, you're not going to be able tweet today. Also remind you that this session is an on-the-record -- on-the-record session.
Our guest this morning really needs no introduction. Rex Tillerson is the CEO of Exxon Mobil, the largest publicly traded oil company in the world. He's been in that position for six years. He was responsible for the big move into natural gas, the $30 billion acquisition of XTO Energy in 2009. In his new book, "Private Empire," Steve Coll refers to Exxon Mobil as a corporate state within the American state, with its own intricate web of international relations and, in a sense, its own foreign policy. So I think it's particularly fitting that Rex Tillerson is speaking to this group at the Council on Foreign Relations today.
He will speak for 15 minutes, then he and I will have a conversation up here for about 10 minutes or so, and then we'll open it up to your questions.
Mr. Tillerson. (Applause.)
REX TILLERSON: Thank you, Alan. And, Richard, thank you for the invitation to speak and address this group this morning. I spoke to this group -- I guess it's now been about five years ago, 2007. I was looking back and at that time talked about U.S. energy security, talked a little bit about, you know, how I thought our nation could strengthen trade in energy supplies through broader engagement, through education of the public on the importance of energy and how it affects their daily lives.
So here we are five years later. And you go back to 2007 -- now, these issues are still important today, obviously, but when I last had the opportunity to speak, a lot of things have happened since then. You know, oil prices from 2007, on the strength of a very robust global economy and a very robust emerging China, many of you will recall, ramped up to near $150 a barrel. Then we had the financial -- U.S. financial collapse. Oil prices collapsed all the way down to $40 a barrel....MOREOn global warming:
QUESTIONER: Hi, I'm David Fenton (ph).
Mr. Tillerson, I want to talk about science and risk, and I agree with you that's the way we must proceed. So, as you know, it's a basic fact of physics that CO2 traps heat, and too much CO2 will mean it will get too hot, and we will face enormous risks as a result of this not only to our way of life, but to the world economy. It will be devastating: The seas will rise, the coastlines will be unstable for generations, the price of food will go crazy. This is what we face, and we all know it.
Now -- so my question for you is since we all know this knowledge, we're a little in denial of it. You know, if we burn all these reserves you've talked about, you can kiss future generations good-bye. And maybe we'll find a solution to take it out of the air. But, as you know, we don't have one. So what are you going to do about this? We need your help to do something about this.
TILLERSON: Well, let me -- let me say that we have studied that issue and continue to study it as well. We are and have been long-time participants in the IPCC panels. We author many of the IPCC subcommittee papers, and we peer-review most of them. So we are very current on the science, our understanding of the science, and importantly -- and this is where I'm going to take exception to something you said -- the competency of the models to predict the future. We've been working with a very good team at MIT now for more than 20 years on this area of modeling the climate, which, since obviously it's an area of great interest to you, you know and have to know the competencies of the models are not particularly good.
Now you can plug in assumptions on many elements of the climate system that we cannot model -- and you know what they all are. We cannot model aerosols; we cannot model clouds, which are big, big factors in how the CO2 concentrations in the atmosphere affect temperatures at surface level. The models we need -- and we are putting a lot of money supporting people and continuing to work on these models, try and become more competent with the models. But our ability to predict, with any accuracy, what the future's going to be is really pretty limited.
So our approach is we do look at the range of the outcomes and try and understand the consequences of that, and clearly there's going to be an impact. So I'm not disputing that increasing CO2 emissions in the atmosphere is going to have an impact. It'll have a warming impact. The -- how large it is is what is very hard for anyone to predict. And depending on how large it is, then projects how dire the consequences are.
As we have looked at the most recent studies coming -- and the IPCC reports, which we -- I've seen the drafts; I can't say too much because they're not out yet. But when you predict things like sea level rise, you get numbers all over the map. If you take a -- what I would call a reasonable scientific approach to that, we believe those consequences are manageable. They do require us to begin to exert -- or spend more policy effort on adaptation. What do you want to do if we think the future has sea level rising four inches, six inches? Where are the impacted areas, and what do you want to do to adapt to that?
And as human beings as a -- as a -- as a species, that's why we're all still here. We have spent our entire existence adapting, OK? So we will adapt to this. Changes to weather patterns that move crop production areas around -- we'll adapt to that. It's an engineering problem, and it has engineering solutions. And so I don't -- the fear factor that people want to throw out there to say we just have to stop this, I do not accept.
I do believe we have to -- we have to be efficient and we have to manage it, but we also need to look at the other side of the engineering solution, which is how are we going to adapt to it. And there are solutions. It's not a problem that we can't solve.
MURRAY: But let's stick with that for just a second. I mean, Exxon Mobil, before you became CEO, was very aggressive and overt in challenging and mounting a public relations campaign against the sorts of things that Mr. Fenton (sp) just managed. You changed that when you came in. But I guess the question I'd ask -- I was at my daughter's graduation last weekend, and the graduation speaker said that global warming is the great challenge of your generation. Do you agree with that? Would you agree that it's in -- at least one of the top five challenges of the generation, or do you personally think that it's been way overblown?
TILLERSON: No, I think it's -- I think it's a great challenge, but I think it's a question back to priorities. And I think, as I just described based on our understanding of the system and the models and the science and that there are engineering solutions to adapting, that we think it's solvable.
And I think there are much more pressing priorities that we as a -- as a human being race and society need to deal with. There are still hundreds of millions, billions of people living in abject poverty around the world. They need electricity. They need electricity they can count on, that they can afford. They need fuel to cook their food on that's not animal dung. There are more people's health being dramatically affected because they could -- they don't even have access to fossil fuels to burn. They'd love to burn fossil fuels because their quality of life would rise immeasurably, and their quality of health and the health of their children and their future would rise immeasurably. You'd save millions upon millions of lives by making fossil fuels more available to a lot of the part of the world that doesn't have it, and do it in the most efficient ways, using the most efficient technologies we have today....And on natural gas:
...MURRAY: So I was with the CFO of Siemens yesterday, who was basically lecturing a group of American businesspeople, saying you have an historic opportunity right now to rebuild the American economy on cheap natural gas. Do you agree with that?As they say, "The whole thing is worth a read".
TILLERSON: Well, generally I do. I'd maybe say that we have a historic opportunity to rejuvenate the American economy and rejuvenate and restore American manufacturing competitiveness because we now have long-term, secure, stable supplies of natural gas at some price. Cheap is a -- I mean cheap is in the eye of the beholder.
MURRAY: Relative, yeah.
TILLERSON: It will be supplied at whatever its cost to supply will be. And what I can tell you is the cost to supply is not $2.50. We are all losing our shirts today. You know, we're making no money. It's all in the red. And so right now, we're enjoying the overhang, which again, it's this -- we're not -- the system is so enormous, the price supply/demand signals are always slightly out of sync. They're always doing this -- (gesturing) -- you know. We just can't quite hit -- we can't hit a bull's-eye. Hopefully, we can hit the backboard. (Laughter.)
But today we're seeing these very low prices because the industry overshot when we had those $6, $7, $8, $9 prices, and we overdeveloped the supply, and now people are just -- they're getting by on cash in some cases. I can tell you it's negative earnings, by and large, and some people -- or it's negative on cash for them, depending on how efficient they may be. So today's price is not sustainable to deliver that energy security.
What -- you know, what the price is that's necessary to do that, the market will seek it and it will find it. It's not $9, I can tell you that. And so, clearly, in a global -- if you're thinking about what others are paying for natural gas and those that are importing LNG, liquefied natural gas, it will be substantially below the cost of that to maintain a secure supply....MORE
