ExxonMobil's Longwell: Technology key to meeting future oil, gas supply needs

June 7, 2002
ExxonMobil Executive Vice-Pres. Harry Longwell
"Contrary to some widely held beliefs, discovered volumes, over a long period of time, have not been closely related to price fluctuations. They have been driven more by the evolution of technology and geopolitical developments that improve access."

Mike Sumrow
Drilling Editor

ExxonMobil Corp. estimates that demand for oil will increase by 2%/year and for natural gas by 3%/year through 2010.

The petroleum industry will have to add 80 million boe/d of supply by 2010 to meet that projected demand, at a cost of $1 trillion. This projected outlay, averaging $100 billion/year, is substantially more than the industry is spending today.

That is the view of Harry J. Longwell, ExxonMobil Corp. director and executive vice-president, who gave the keynote address at the Offshore Technology Conference last month.

While demand increases, however, production from existing sources will decline. One half of the oil and gas volume needed to meet the expected 160 million boe/d demand in 2010 is not on production today. This represents the challenge facing producers, according to Longwell.

Hydrocarbons essential
He said that the projection reflects hydrocarbon energy's comparatively low cost, ease of use, and flexibility to enhance the lives of people through its multiple applications.

Longwell said, "Perhaps most important, however, is the fact that oil and gas consumption is essential to sustaining economic growth in the industrialized world and is key to progress in nations still working their way toward prosperity."

He pointed out that his company's forecast assumes significant energy efficiency improvement over time and noted that demand growth would be even greater without the improvement.

Longwell also stressed that he expects much of the projected growth to occur in developing countries that still have very low energy use per capita.

Oil demand, discovery
Oil demand growth remained essentially flat during the first 50 years of the 20th century. It accelerated rapidly after World War II, however, fueling unprecedented economic growth. Oil demand stalled temporarily in the late 1970s, during the second oil crisis, but resumed its upward trend by the mid-1980s, according to Longwell.

He added that large discoveries in the Middle East, Russia, and on Alaska's North Slope were responsible for most of the significant oil volume discoveries that began in the 1920s and continued through the 1980s.

Longwell said, "In recent decades, new discoveries in Africa and parts of the former Soviet Union, coupled with the ongoing increases in [the Organization of Petroleum Exporting Countries'] production and vigorous exploration and production in other parts of the world, have led to increased supplies."

He said that resource additions, however, have lagged demand since the early 1980s. But he also noted, in citing a graphed projection of supply and demand since 1900, that the size of the area under the discovery curve is still over twice that of the area under the demand curve.

Natural gas
The demand outlook for natural gas follows a trend similar to that for oil demand. Recently, natural gas demand has risen at a slightly faster rate than that for oil, driven by its rapid growth as a fuel for clean and efficient power generation, said Longwell.

He added that much of the current gas productioncomes from major discoveries in Russia, the Middle East, the Netherlands, and Indonesia that the industry made during 1960-80.

A slight increase in gas resources has occurred in recent years, which Longwell attributed to access to areas previously off-limits to industry and to technology advances that have enabled the industry to economically drill in challenging operating environments.

Oil and gas prices
Longwell compared the graphed curves for oil and gas demand and discovered volumes with that for oil prices in nominal dollars.

He said, "You'll note an interesting phenomenon: Most of our discoveries were made in a much lower price environment than today, and cycles of discovery show little correlation with price over the long term. In recent times, however, the connection has grown a bit closer.

"What this tells us is that, contrary to some widely held beliefs, discovered volumes, over a long period of time, have not been closely related to price fluctuations. They have been driven more by the evolution of technology and geopolitical developments that improve access.

"This isn't to say that price doesn't matter, but technology and geopolitics will likely be the most important factors in our future as well."

Commenting on the business challenge that the industry faces, Longwell said, "In the recent past, we have seen increasing demand for oil and gas [and] generally decreasing discovery volumes, all during a period of a fluctuating but generally higher average price."

He pointed out that the oil and gas industry now has a business model that combines technology, political relationships, experienced personnel, environmental protection, and economics in the high-risk pursuit of a vital but yet a very finite commodity.

He said, "Success in the future will require the continued adaptation of this business model to unforeseen challenges."

The future
Longwell said that while it appears to be clear that oil and gas demand would continue to increase, being the leading energy sources for some time to come, price would be a question mark.

Price could grow substantially or not at all, and there is no way to predict or control it. He added that, whatever the case, companies must keep production costs low, while developing new technology. These are things the industry can control.

Longwell pointed out that trends show oil and gas reserves are getting harder to find. The industry has made significant recent discoveries, but at increasingly greater depths on land, in deeper water offshore, and at substantially greater distances from consuming markets.

Continuing exploration success will require further improvements in technology, Longwell contends, citing technology that directly detects and distinguishes the presence of hydrocarbons as an example.

He said that environmental fears, such as those over access to federal lands in Alaska's Arctic National Wildlife Refuge, and concerns over potential climate change have led to demands for greater control of energy use and could impede the industry's ability to produce adequate amounts of energy.

Longwell pointed out that maintaining constructive relationships among producing countries, consuming nations, and energy companies is not as controllable as technology. The industry has established an excellent record, however, with energy development creating mutual benefits, making good things happen in developing nations.

He said, "In other words, in my view none of the potential challenges we face is likely to become so serious as to threaten world supplies for an extended period.

"My confidence in this opinion is based largely on the success we in the industry have had, over many decades, in rising to the occasion and finding a way to solve problems."