Speeches

The New Energy Economy: Fuelling Growth and Prosperity

Good morning.

It is a pleasure to be here in Brisbane for what is a major event for our industry. Before I begin I would like to acknowledge The Federal Minister for Resources and Energy, the Honourable Martin Ferguson, Queensland Minister for Natural Resources, Mines and Energy, The Honourable Stephen Robertson, The Chairman of APPEA, Mr Eric Streitberg, distinguished guests, colleagues, friends, customers and partners … thank you all for being here.

Let me also extend my congratulations to APPEA as it celebrates 50 years representing our industry in Australia.

And Chevron Australia is proud to sponsor this morning’s session.

Now Queensland is famous for many, many things… most notably, its sunshine, the Great Barrier Reef, its people, its resources and its innovation. We also can’t forget bananas, pineapples, sugar cane and cane toads. I’m also proud to say that it’s the birth place of my eldest son – so my family has a personal connection to this State.

However in recent years there’s another industry that’s making its mark...and that’s the movie industry. This is highlighted by the fact that just down the freeway there’s Movie World – a popular destination for thousands of families and tourists.

So in keeping with this movie theme, I’d like to show you a short film about a project with a name from Greek mythology. And it’s NOT Clash of the Titans.

• Yes, you guessed it, the film is about our Gorgon Gas Project of which Chevron and its partners are very proud.
• But it’s a silent movie....so you’ll have to put up with my live voice over.

 

[Gorgon Fly-Through Video]

• These opening shots are of the sub-sea manifolds and pipelines that will be located at depths between 200 and 1200 metres below the surface.

• The gas will be piped up a steep underwater escarpment, a staggering 1 kilometre in height.
• The gas from the Gorgon and Jansz fields will then be piped to Barrow Island where the gas processing plant is located.
• The Gorgon footprint is the equivalent of only 1.3 percent of Barrow Island’s land mass – or about 300 hectares.
• The current scope is for three LNG processing trains – each with a capacity of 5 million tonnes per annum and a domestic gas plant that can deliver 300 terajoules of gas per day.
• Gorgon will involve the construction of a 2.1 kilometre marine jetty.
• This is where the LNG will be loaded on to carriers and shipped to overseas markets starting as early as 2014.

Now this film has not yet been nominated for any Oscars…but at Chevron Australia, we are not deterred. With so many Hollywood movies now being filmed in 3-D, we just couldn’t pass up an opportunity to be part of this trend. So if you visit Chevron’s booth in the exhibition hall, you can experience for the first time the fly-through of the Gorgon Project – in 3D.

Now … before you go to the booth … I’ll admit in advance … the video you will see is not going to be the next Avatar.

But I can say the making of Avatar and Gorgon is comparable in a few regards.

Both have budgets rivaling the largest projects ever in their respective industries … both employ state-of-the-art technology … involve years of development … and have the potential to touch millions of people.

And in their respective industries both are re-defining not only what is possible, but what is expected.

In the energy business, we push the limits of possibility every day. Because the world needs energy and wants it -- faster, more efficiently and now, more than ever: cleaner.

The World Needs all Forms of Energy

Despite the recent global downturn, the appetite for oil, natural gas and other energy sources is growing dramatically. Total world energy demand is expected to rise roughly 40 percent by the year 2030. [1]

And no-where is this demand more pronounced than in Asia … which is expected to account for 60 percent of the total growth in global energy demand through 2030.[2]

Demand for all forms of energy will continue to increase and all forms of energy will be needed.

But it’s the growing demand for cleaner fuels that has created a new energy economy that will underpin the growth and prosperity of Australia, the Asia Pacific Region and the world.

And that’s what I’d like to talk about today.

I’d like to share with you some thoughts about the evolving energy mix that is fuelling this new energy economy...

...the challenges we face in an ever-changing marketplace,

and the leading role Australian producers are set to play in providing -- as the conference theme proclaims – “Energy for Generations.”

The new energy economy is being driven by an old yet reliable economic model – supply and demand.

Let’s start with the demand side of the equation.

Growing Demand in Asia Pacific

As you can see, natural gas growth in Asia is expected to more than double from 2005 to 2030 … to over 30 trillion cubic feet per year.

China and India will be big players -- both countries will more than double their energy use over that period.

Increasingly, both household and industrial consumers prefer natural gas ... attracted by its price, [3] reliability and environmental benefits.

... and Governments and utilities like its relative fuel efficiency and lower greenhouse gas emissions intensity.

Natural gas offers the fastest and most efficient way to diversify and expand the energy portfolio to meet growing worldwide demand.

Since 1997...here in Australia ... natural gas consumption has increased 4 percent a year, compared with an average rate of 1 percent for coal and 1 percent for liquid fuels. [4]

This brings us to the other part of the equation driving the new energy economy … supply.

There is an abundance of natural gas on the planet.

Global natural gas proved reserves at the end of 2007 were estimated at well over 6,000 trillion cubic feet — equal to around 60 years of current global production.

Closer to home in Australia, our industry finds itself in an energy sweet spot – surrounded by natural gas resources on the door step of the world’s biggest and fastest growing market, the Asia Pacific region.

Australia has gas resources totaling 225 trillion cubic feet, including coal seam gas resources in Queensland and New South Wales, as well as natural gas resources in the Carnarvon, Browse and Bonaparte Basins off the North West coast of Australia.[5]

The key will be to get that gas … to markets that need it, including the Australian domestic gas market.

In a speech last month, the Premier of Western Australia the Honourable, Colin Barnett, noted that and I quote… “in every sense, the biggest game in town is the development of mega projects for the export of LNG.”

The Gorgon and Wheatstone Projects, both operated by Chevron, are two of those mega projects.

Gorgon Project: Making History for Australia

Gorgon is the largest of the two …It is estimated to have resources of 40 trillion cubic feet of natural gas, the equivalent of 6.7 billion barrels of oil.

That is almost 20 percent of Australia’s known gas resources, an enormous sum by any measure.

The Western Australian government estimates that exports from the Gorgon Project alone will account for 8 percent of world supply.[6]

Or to put it another way, Gorgon holds enough natural gas to power a city the size of Brisbane for more than 500 years.

Now that’s what I call, “Energy for Generations.”

Suffice it to say … natural gas is an important part of Chevron’s global portfolio. We have 150 trillion cubic feet of un-risked gas resources located around the world.

That's equivalent to nearly 30 billion barrels of oil. Roughly half of that is in the Asia-Pacific region.

As the largest resource holder in this country, Australian gas is the centerpiece of Chevron’s global growth.

These resources will be critical to the success of Chevron and the region ... because economies large and small need energy to grow.

Energy intersects with every aspect of our daily lives … and it holds the key to an improved quality of life for millions of people in developing countries.

Leading customers in Japan and Korea – the two largest importers of LNG in the world – have already signed long-term supply agreements with Chevron for Gorgon LNG.

In fact, 90 percent of Gorgon gas and 60 percent of Wheatstone gas has already been placed by Chevron with some of the best customers in the world.

That is, Gorgon and Wheatstone are on their way to being “sold out” and just like the latest movie blockbuster, there is a large audience out there lining up to buy tickets.

How do we ensure that these customers get the energy they’ll need in the future?

Large Investment Will be Required to Satisfy Global Energy Demand

A crucial element in meeting the demand of energy-hungry countries is investment.

The oil and gas sector is one of the most capital-intensive industries in the world – and we’ll need all the capital we can get.

Massive investment is required in the broader global energy system to satisfy growing demand – upwards of USD 26 trillion dollars over the next 20 years.[7]

Over that same period, a cumulative investment of more than 5 trillion dollars will be required to meet global demand for natural gas.

These are staggering figures ... being driven by population and world GDP growth.

Chevron and its partners in the region are familiar with the level of investment required in the new energy economy.

The Gorgon Project is the largest single resource project in Australia’s history … and represents Chevron’s largest ever development.

The initial investment in the LNG and domestic gas plants and upstream facilities for the Gorgon Project is AU 43 billion dollars.

The significance of Gorgon to the Australian economy was recently highlighted in the release of the 2010 Federal Budget, where Gorgon was attributed with having a direct impact on gross domestic product[8].

In fact, independent research estimates Gorgon’s boost to the economy will be A$64 billion net present value over the life of the project.

Furthermore, the budget recognized that once operational, Gorgon will also provide a longer-lasting contribution to the economy through higher export volumes and export incomes.

 

And what does this all mean for the country today?

 

To date, we have already awarded more than A$22 billion in contracts and we are on track to reach our target expenditure of A$20 billion in Australian goods and services, representing a massive investment into the local economy.

 

Wheatstone: Momentum Continues

Now emerging from Gorgon’s shadow is its younger – but not so smaller sibling, in the Wheatstone Project.

Another megaproject, with an investment expected to reach the tens of billions of dollars.

Wheatstone has a lot of similarities with Gorgon. It’s similar in scale; it’s geographically aligned; and has a sequential development phase – that is, it’s not far behind Gorgon.

Wheatstone is well into the Front End Engineering and Design phase and a Final Investment Decision is on track for 2011.

In October last year, we secured a joint venture agreement with Apache and Kuwait Foreign Petroleum Exploration Company, KUFPEC as natural gas suppliers at the Wheatstone hub. This agreement made Wheatstone the first LNG project in Australia to attract large volumes of third party supply gas.

It will consolidate infrastructure, provide economies of scale and make the project more desirable for customers, and provide benefits to Australia through employment, government revenue and local business opportunities.

This agreement really has been a win-win for all stakeholders.

We truly believe we have a competitive edge with the Gorgon and Wheatstone Projects, and that’s a reason why we are managing them as a portfolio.

This approach increases our purchasing power … provides consistency in resourcing and captures execution synergies.

Balancing Energy Needs with the Environment

Now, before I turn to some of the challenges that come with producing oil and gas in the 21^st Century, I would like to extend our appreciation to APPEA for recognising the Gorgon Project’s turtle research as an award winning program.

This research program, currently in its fourth year, is the largest of its kind in the world for this species. Its success can be attributed to the project’s adoption of a comprehensive volunteer recruitment campaign.

Understanding and managing biodiversity near our operations is vital to the successful ongoing custodianship of Barrow Island.

Going forward, the central challenge of the new energy economy is to balance the competing need of energy demand against the need to reduce environmental and social impacts.

In other words ... just as important as what we do to meet growing energy demand ... there also is an expectation of how we meet that demand.

I’ll offer two examples to illustrate my point. Both involve the Gorgon Project.

My first example deals with a challenge we all face today and will have to contend with over the rest of this century ... and that is how to meet increased energy demand and at the same time manage the challenge of greenhouse gases.

In the lead up to the final investment decision for the Gorgon Project, a key factor in obtaining project environmental approvals, was our plans for managing carbon dioxide that is naturally contained in the reservoir gas.

Reducing Greenhouse gases

This has resulted in the largest greenhouse gas storage project in the world.

The CO₂ injection project by itself could be considered a complex megaproject ... with a total investment of approximately AU 2 billion dollars.

Over the 40 year life of the project, approximately 120 million tons of CO₂ will be injected into a deep sandstone reservoir approximately 2.5 kilometres beneath Barrow Island.

This achievement will advance greenhouse gas storage technology … and positions Australia as a leader in helping to move the world toward a lower-carbon future.

My second example involves another important aspect of the Gorgon Project -- preserving the unique environment of Barrow Island.

Barrow Island – A World’s Best Practice

One of the primary concerns about conducting oil and gas operations at a location that has been a nature reserve for 100 years is making sure that non-native species don’t make it on to the island.

We are achieving this through our strict quarantine system which has three key elements: inspection, detection and control.

This process, designed by experts, is rigorous; for example we recently were able to detect and remove three tiny seeds found in a sealed bag filled with building materials.

Now as insignificant as this sounds, the detection and eradication of such items is important for protecting the biodiversity of Barrow Island...and clearly demonstrates that the system is working; it is rigorous; and it is world class.

I can assure you that we will continue to be vigilant on quarantine.

Our quarantine system is the most comprehensive of its kind in the world and the largest non-governmental quarantine initiative ever undertaken.

We are truly gratified that the Western Australian Environmental Protection Authority has recognized the system as a “world’s best practice.”

As I stated in my opening, the new energy economy will fuel growth and prosperity for Australia and the world.

The economic benefits of projects like Gorgon and Wheatstone will be game changing.

Fuelling Growth and Prosperity

For workers, it will mean jobs. During peak construction, the Gorgon and Wheatstone Projects together, will create an estimated 16,500 direct and indirect jobs.

For local businesses, the two projects will generate almost 50 billion dollars in expenditure on Australian goods and services.

And for Government: Gorgon and Wheatstone will bolster government coffers by more than $60 billion through various tax revenue streams.

These are opportunities and economic benefits on a scale never seen before in Australia.

Now while on the subject of revenue, there’s obviously been a lot of debate recently about the Federal Government’s proposed tax changes to the resource sector.

From Chevron’s perspective, we are still assessing the impact of the proposed changes on our business.

We welcome the Government’s decision to retain unchanged, the Petroleum Resource Rent Tax regime for existing offshore oil and gas projects including Gorgon, Wheatstone and the Browse development.

Chevron is in Australia for the long haul, and we are here to help develop Australia’s gas resources.

Chevron will continue to constructively work with many stakeholders, including actively engaging with government to deliver on its projects.

Noting that, long term energy projects require massive investments and they also need fiscal stability throughout their economic life…and complex projects, like Gorgon and Wheatstone, cannot be achieved without the cooperation and partnership of governments, at the State and Federal level.

Our Role in Australia’s Energy Future

I’d like to close with the role Australian producers are set to play in the new energy economy.

We have the fortunate confluence of abundant energy resources near enormously attractive and growing markets.

Our role is to bring these resources to market with a commitment to operational excellence – in other words; safely, reliably and responsibly.

... to pursue smart approaches that focus not just on what we do -- but how we do it.

This goes for established natural gas projects across Australia ... projects in development ...and the emerging coal seam gas projects here in the east.

For all of us ... the ability to partner ... with industry ... with state and federal government ...with our customers... with our partners...and with communities ... is absolutely paramount.

We need to build partnerships focused on win-win outcomes ... to find common ground through collaboration.

Going forward, it’s imperative for our industry to be good stewards – of the energy resources ... of capital ... the environment ... and our people, whose technical expertise is so very crucial to our success.

If we can do all of these things effectively, we can deliver the resources …

… that will fuel growth and prosperity for Australia, the Asia-Pacific and the world …

… and leave a truly lasting legacy for generations to come.

Finally, returning to the movie theme…while Avatar is pure fantasy…I’m pleased to say that our LNG projects, right here in Australia, are actually reality.

Thank you very much for your attention.

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[1] Energy Information Administration