| Notes for remarks by Tim J. Hearn, Chairman, president and chief executive officer, Imperial Oil Limited, to the Alberta Chamber of Resources Annual Meeting
| | Edmonton, AB | January 28, 2005
| Good afternoon, ladies and gentlemen.
It's a pleasure to be here today and an honour to have been invited to address the annual meeting of the Alberta Chamber of Resources. I am told this is the first time an Imperial Oil representative has addressed your annual meeting.
As you know, Imperial has been active in Alberta since the earliest years of the last century. We were here for the first Turner Valley "oil boom" in 1914, and Alberta has been the hub of our upstream operations ever since.
It's also interesting to note that 2005 is the 70th anniversary of the Chamber, the 100th anniversary of the province of Alberta and the 125th anniversary of Imperial's founding in 1880. With all these milestones in 2005, I guess it's only fitting that Imperial finally "got it right" by moving to Alberta this year. We have all shared in the remarkable growth of the province, its resource industries and its oil and gas industry in particular.
I specifically want to recognize the Chamber's recent work on oil sands strategies and technology, and on aboriginal programs. This work has set new standards for thoughtful approaches to important issues in natural resource development. It will be invaluable as we move forward into the future.
However, it is the future that I really want to talk about today -- specifically, the future of Alberta as a source of energy for Canada, North America and, in a broad sense, the world. Where do we stand today? What is the outlook for the future? And what is required in order to move ahead?
I will begin with the observation that now is a very exciting time to be involved in Canada's and Alberta's oil and gas industry. We face both major opportunities and daunting challenges -- opposite sides of the same coin. Decisions that we face now, both in the private sector and by governments, will directly affect our economic growth and prosperity for decades to come.
In expanding on that theme, it's helpful to stand back and survey the global perspective.
Energy is an integral and vital part of modern life. Without reliable and affordable energy, we literally could not live as we do today. Our homes, schools, factories, offices, hospitals, farms all consume and rely on energy. It powers our economic activity, and as individuals we rely on it every day for the basic necessities and conveniences of life. When you think about it, there is no other business like energy that is as fundamental to our basic ability to survive and operate as a modern society. (We were recently reminded of that in August 2003 when the power went down in Ontario and the N.E. U.S.)
It is also a proven reality that population and economic growth, along with improving standards of living, lead directly to increased energy consumption. The ratio can be moderated by improvements in energy efficiency, but you cannot have a growing population, expansion of economic activity and rising standards of living without using more energy. Specifically, each unit of GDP growth results in a two-thirds increase in energy consumption.
Crude oil and natural gas supply over 60 percent of the world's energy use, including virtually all of its transportation fuels. In addition, petroleum provides the feedstock for thousands of petrochemical products that are fundamentally embedded in our daily way of life. They include clothing, food packaging, medical products, building supplies and vital components for countless consumer products, from automobiles and household appliances to telephones and computers -- and of course one of the most important consumer products of all, golf balls.
Each year, Imperial looks closely at the world economic and energy picture, to examine the basic fundamentals as well as account for emerging trends and challenges. The few slides I'm going to display illustrate our view of the global energy picture over the next thirty years.
Slide 1 - Population Growth by 2030
First, the world's population of about 6.3 billion people today, will increase by about one percent a year to about 8 billion, or by about 25 percent. More than 90 percent of that growth will take place in the developing world, notably China, India and developing Asia.
Slide 2 - World GDP Growth by 2030
Global Gross Domestic Product is projected to grow by about 2.8 percent a year on average. This is not very different from the trend over the last quarter-century of about 2.9 percent a year. But, again, growth will be much stronger in China, India and developing Asia. The GDP of China, for example, will grow almost five-fold. The North American economy, our current supply area, will double in size.
Slide 3 - World Energy Demand - Total
Global demand for all forms of energy will grow by about 1.7 percent a year, or about 40 percent by 2030. That is an increase of more than a hundred million oil-equivalent barrels a day from today's level, to around 325 million oil-equivalent barrels a day. North American energy consumption will increase by about 25 percent, from 56 million oil-equivalent barrels a day to about 70 million.
I should note that this outlook assumes significant improvements in energy efficiency. In fact, without these improvements, global energy demand by 2030 would be more than a hundred million oil-equivalent barrels a day higher.
I would also point out that improving living standards in the developing world is not only inevitable -- it is also a moral and human imperative. Nearly two billion people today have no access to electricity, 2.5 billion are without proper sanitation, and one person in five lacks access to safe drinking water. These people have legitimate aspirations to a better life, and to fulfil their aspirations, they will need added energy.
Slide 4 - World Energy Sources
This chart shows where this needed energy must come from. Oil, natural gas and coal will continue to be the world's dominant sources of energy, at least through 2030 and most likely well beyond this period. Some may prefer that this would not be the case. However, this view is supported by respected and authoritative organizations such as the International Energy Agency, the Energy Information Administration of the U.S. Department of Energy and others.
I would state that all forms of energy will be required, including contributions from alternative sources such as hydro- and nuclear-generated electricity and biomass fuels. Wind and solar power will also see significant growth. But even with growth rates of ten percent a year -- which would likely require substantial government subsidies -- wind and solar power combined will still supply less than one percent of the world's energy by 2030. Given the sheer size of the increase in total demand, only hydrocarbon-based energy can be produced on the scale required to meet the world's essential energy needs.
Crude oil will remain the dominant source for transportation fuels. It has clear advantages of energy density, cost, availability, ease and safety of handling, and an existing infrastructure for production and distribution.
Overall, we project that global oil demand will increase by about 50 percent -- to about 120 million barrels a day by 2030, again mainly due to strong growth in the developing countries.
Slide 5 - Oil and Gas Supply
This chart shows projected oil and gas supplies to 2015, just ten years from now. With existing fields declining at about 5 percent a year, new supplies required to meet rising demand will reach nearly 100 million barrels a day. That is close to 80 percent of today's production levels. Put another way, it's about ten Saudi Arabia's.
Put yet another way, about one-half of the oil and gas that will be needed by 2015 will have to come from fields that are not currently on-stream. The International Energy Agency estimates that investments of some $US 200 billion a year will be needed to maintain supply-demand balance.
I want to quickly emphasize, however, that the resources required do exist. The world is not running out of oil and gas, as some say. Proved oil reserves represent over 40 years of supply at projected demand, and proved reserves of natural gas at 65 plus years of supply. Unproved resources are considerably higher. And estimates of the total conventional hydrocarbon resource base, including coal, run to nearly 150 years of projected demand. This can be extended significantly by non-conventional resources such as our Canadian oil sands, Venezuela's very heavy oil and U.S. oil shale.
Oil production continues to grow. Non-OPEC production grew by more than a million barrels a day last year, following an increase of more than 900 thousand barrels a day in 2003. We expect continued growth in new supplies from sources such as West Africa, the Caspian area of the former Soviet Union and other parts of the world, including Canada's oil sands.
Moreover, our industry has historically demonstrated both the capability and the determination to meet the challenge of constantly rising demand. During the twentieth century, energy use increased tenfold, and throughout that period there were constant claims that the world was running out of oil.
The fact that the world-wide industry has been able to meet burgeoning demand for reliable and affordable hydrocarbon energy is, in my view, a remarkable accomplishment. It reflects determination, discipline, a willingness to take risks and an ability to develop innovative technologies as and when required. Today, that has not changed. I believe we will meet the challenges of the new century, as we met the challenges of the last century.
Let me turn now to the implications of this outlook for Canada, and for Alberta in particular. As mentioned, we face both major opportunities and daunting challenges.
My fundamental message is that Canada, and especially Alberta, have a distinct and advantaged role to play in the unfolding scenario of world energy demand and supply. First, we are blessed with abundant resources of all forms of energy -- oil and gas, coal, hydro- and nuclear power generation, biomass and the potential for renewables such as wind and solar.
When it comes to oil and gas, Canada is the only G-7 country with the resource base to support significant growth in hydrocarbon production. We have the industrial capacity as well as the educated, skilled and experienced workforce to develop our resources efficiently. Except in the Far North, we have an efficient, reliable pipeline infrastructure already in place, providing producers with access to customers across the world's biggest continental market for oil and gas, Canada and the United States.
Those are advantages that many other countries wish they had, but don't. In addition, Canada's fiscal regime is sound, consistent and not prone to sudden, overnight changes in the regulatory framework. And last, but far from least, Canada represents a secure, politically stable and hospitable source of energy supplies -- security that is further strengthened by important multilateral arrangements such as NAFTA.
I want to show this next chart because it usually surprises people. It shows US imports of crude oil, natural gas and petroleum products in 2003. When asked who the principal supplier of these commodities to the US is, most people say Saudi Arabia, some say Mexico and some even say Venezuela.
Slide 6 - US Petroleum Imports
The reality is that Canada supplied almost double that of the next largest energy trading partner for the US -- Saudi Arabia. Other countries such as Iraq and Russia are 'way down the list.
Clearly, our petroleum energy trading relationship with the US -- and indeed our across-the-board energy trading relationship -- is a vital engine of our economy and a major contributor to Canadian prosperity and living standards. And it is critical not only to Alberta, as our largest producing province, but to all Canadians, in all regions. The resources are owned by Alberta, but the wealth they generate underpins Canadian capability and prosperity across the country.
Let me briefly comment on what I believe needs to be done to enable us -- meaning Canada as a whole -- to meet the challenges and realize the opportunities that I have described.
In the oil sands of western Canada we have one of the largest undeveloped oil resources in the world -- 1.6 trillion barrels of bitumen in place, according to the Canadian Energy Research Institute. This represents about 40 percent of the estimated four trillion barrels of heavy oil and bitumen in place around the world.
How much of the resource might be technically and economically recoverable will depend on a host of factors. It's clear, however, that the fundamental challenge is to develop new supplies, from the oil sands and other potential resources, in a timely, more productive and cost-effective way, and in a more environmentally sound manner.
I want to stress that our environmental responsibilities must be given appropriate weight with the other objectives. I am convinced that we can have both economic growth, which requires increased energy consumption, and an improving environment. These are not mutually exclusive goals. In fact, there is strong historical evidence that economic growth leads to environmental improvements. The more prosperous a society, the more it can pay attention to environmental issues and invest in getting better.
The key to meeting these challenges is technology. Our best scientific minds need to be brought to bear on finding new and effective ways of developing our energy resources at acceptable costs and minimal environmental impact.
As one example, Imperial recently committed $10 million over five years to the University of Alberta for breakthrough research aimed at developing the oil sands in ways that are more economically viable and environmentally responsible. Similar initiatives have also been undertaken at other universities. This province is already the world's leading centre of oil sands technology and expertise. I'm sure it will be even more so in the future.
The other fundamental requirement for long-term success is a supportive public policy environment.
That begins with recognition by governments, both federal and provincial, that energy and energy development are not just important, but essential. Energy truly matters -- it is vital to our economy, our society and our way of life. Of course we must use it wisely, to ensure that every unit of energy consumed goes to a constructive purpose. But developing our energy resources is important for our country and clearly for Alberta. It's important not only to ensure the continuing supply of energy for our own use, but also to ensure continuing economic growth and prosperity for all citizens.
Canada is rich in energy resources, but they are higher-cost than the conventional resources available from international competitors. Our policy-makers need to recognize that developing them will require very large and long-range investments. That means regulatory and fiscal regimes must be expeditious, fair, competitive and encouraging to market-driven investments.
That is not to say that we do not have such an environment today. We do, especially here in Alberta. But there are still opportunities to rationalize and streamline our regulatory processes while maintaining the integrity of assessments, consultations and reviews. We need to do that wherever we can. We clearly need to improve the productivity of our economy in this country. Streamlining burdensome regulatory regimes has to be part of that process.
It's also critically important to ensure that Canadian producers continue to have access to world markets for oil and gas, as we do today. This is a global business, we compete globally for capital and other resources, and we should never lose sight of that reality.
Another consideration for governments is to recognize the needs of local communities for infrastructure that will keep pace with resource development. As roads, power lines, other facilities and services need to be in place for major development projects, the process for gaining regulatory approvals needs to be straightforward and expeditious.
To close these remarks, I want to emphasize that I believe we have an exciting future ahead -- for our industry, for Alberta and for Canada. Together, we are in the rare, and fortunate situation of having abundant natural resources for which a strong need exists today and will continue to exist in the future.
We have the resources, the capability to develop them, free access to markets, and the ability to attract the required investment capital. And here in Alberta we have a government that recognizes that we have a common overall objective. That is to maintain secure energy supply and generate prosperity through development of our abundant natural resources, while meeting our environmental responsibilities.
In my view, Alberta is a great place to be in the oil and gas business, and Imperial is pleased to further strengthen its long-term ties to this great province with the impending move of our headquarters to Calgary. It's going to be an important partnership for all of us, and our company looks forward to playing an integral part in our shared future.
Thank you.
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