ENERGY FOR TOMORROW - TODAY'S CHALLENGE

ExxonMobil operates in nearly 200 countries and territories around the world and every year a team of energy planners, in cooperation with our many business groups, develop an "Economic and Energy Outlook" as part of our regular planning process.



Settlement of enormous challenges in energy sphere

Let me begin with a summary of the key points.

First, energy is critical to economic growth. As we look out over the next twenty years this is particularly true of the developing parts of the world. We expect 80% of energy demand growth over the next 20 years will be in developing countries.

Developing reliable, affordable energy supplies to meet growing demand will be an enormous challenge. To do this with increasingly higher levels of environmental care makes the challenge even greater.

Oil and gas will continue to be the primary sources of energy through 2020 and probably well beyond. Adequate oil and gas resources exist to meet demand through at least the middle of the century. The greater challenge will be in gaining timely access to resources to allow supplies to be developed consistent with rising demand.

Renewable energy sources, particularly wind and solar energy will be the fastest growing forms of energy but will contribute only about 10% to total energy for decades.

With our operations in nearly every country around the world, leading-edge technology, financial strength and management expertise, ExxonMobil is well positioned to meet the growing energy challenges.

The Caspian region will continue to be a key area for Exxon Mobil Corporation, and we remain committed to playing a significant role in developing the Caspian's oil and gas resources.

The most important driver of energy demand is economic growth. While there are many variables we consider in developing our outlook for energy, none is more critical than the assumptions we make regarding economic growth. It is known that as incomes rise, so does energy use. This relationship is consistent across different geographies, geo-political systems and time.

Graph (1) summarizes our view of world energy demand through 2020. While this data is from ExxonMobil's Energy Outlook, the conclusions are very similar to those of most experts, including the International Energy Agency. Let me spend a few minutes describing what I consider to be the most significant energy trends over the next two decades.

First, total energy demand will grow about 40% and reach a level of about 300 million barrels a day or 15 billion tons a year by 2020. This is an enormous number to contemplate. Oil and Gas together make up about 60% of demand today and will maintain a similar share through the outlook period.

Second, 80% of energy demand growth will be in the developing world.

Third, natural gas will contribute an increasingly greater share to total energy. To meet this growth, the market for natural gas will become more global.

Fourth, coal will continue to grow, primarily from demand for power in China and India, where indigenous, affordable supplies exist. Coal use is also expected to grow in the US. In yellow is the contribution of all other energy sources.

Despite considerable public focus and attention, we expect non-fossil fuels to grow at a slower pace in the next 20 years. The reasons are explained in the graph (2).

Of the non-fossil fuels, our outlooks assume a significant slowing in the growth of nuclear power. This results not only from a lack of new construction in the US but also reflects a withdrawal from nuclear in places like Germany and the UK. Recent safety concerns with facilities in Japan will also likely slow growth.

The red area of the graph (2), labeled biomass, represents mostly wood and dung but has a small contribution from industrial and municipal solid waste. The rate of growth will slow as developing countries use modern fuels in greater quantity.

At the top of the graph (2) is the contribution from wind and solar energy. As it is small and hard to see we have magnified this trend on the graph (3).

We are projecting very strong growth in both wind and solar. We believe these high levels of growth can only be supported with the continuation of government subsidies.

A very important conclusion is that even with double-digit growth, wind and solar will contribute only about 0.5% of total energy by 2020.

As a company we continue to focus on the oil and gas portion of this demand graph (1), which accounts for the significant segment of demand. We believe this is the best fit with our capabilities, experience and size and also the area where we can make the greatest contribution to the needs of our customers and shareholders.

ExxonMobil is the world's largest non-government producer of oil and gas in the world. Our upstream working interests cover 25 countries (the largest of these are the US, UK, Canada, Norway, the Netherlands, Nigeria and Malaysia). We produce more than 4.2 million barrels a day or 200 million tons a year of oil-equivalent from 2,200 fields through more than 63,700 wellbores.

Drilling is used in exploration, development and project start-up, as well as managing reservoir decline. This illustration (Pic.1) gives you an indication of our global drilling activity.For the last ten years our explorers have discovered oil and gas reserves exceeding what we produced each year.

In 2003 our additions to worldwide proved oil & gas reserves totaled 1.7 billion oil-equivalent barrels or 230 million tons. This replaced 105% of production (including property sales). At present with 22 billion barrels or 3 billion tons of proved oil and gas reserves at year end our reserve life at current production is nearly 14 years.

The role of the Caspian

By 2015, the Caspian oil exports could exceed 4 million barrels per day or 200 million tons a year. Over the past few years, ExxonMobil affiliates have made significant investments in the Caspian, which helped secure us an interest in two world class producing oil fields (Pic.2): Tengiz in Kazakhstan and Azeri-Chirag-Guneshli in Azerbaijan as well as an interest in the recent Kashagan discovery.

We also hold a significant exploration portfolio. Offshore Azerbaijan, for example, we operate Zafar Mashal and Nakhchivan structures and hold interest in the Alov block.

Other ExxonMobil investments have played an important role in expanding the region's infrastructure. We participated in the construction of the Qurtulush jack-up rig and the Heydar Aliyev semi-submersible rig. The Heydar Aliyev rig (Foto. 1) is the most modern in the Caspian Sea with an ability to operate in water depths of up to one kilometer and to drill depths of more than 9 kilometers.

We are currently drilling an important exploration well on the Zafar Mashal structure using the new "Heydar Aliyev" rig. This has been a challenging drilling operation and our team of experienced drilling specialists is working together with SOCAR experts to overcome the challenges that we face. ExxonMobil also has an 8% participating interest in the Azeri-Chirag-Guneshli project.

Overall, ExxonMobil has invested more than $US1.5 billion to-date on various petroleum activities in Azerbaijan, including two ExxonMobil-operated exploration wells, ACG field development, seismic surveys, environmental impact assessments, and tax payments.

ExxonMobil views the Caspian region as a key area for our business, and we look forward to continuing our partnership with the governments, state oil companies and others in the industry toward the successful implementation of our projects.

(The article based on the presentation of Drew Goodbread, General Manager, Exxon Azerbaijan Operating Company LLC at the annual exhibition - conference "Caspian Oil & Gas - 2004").