Rex Tillerson has been portrayed as a kinder, gentler CEO. But he shares his predecessor's doubts on the viability of alternative energy
President Bush says the nation is addicted to oil. Detroit is rolling out hybrid vehicles. Across the Midwest, farmers are tilling soil to build ethanol plants. But the head of the world's largest energy company isn't jumping on the green bandwagon. "I'm not an expert on biofuels," says Rex Tillerson, the chairman and chief executive of Exxon Mobil (XOM). "I'm not an expert in biofuels. I'm not an expert in farming. I don't have much technology to add to moonshine."
Tillerson's comments on Feb. 13 came as part of the opening address at CERAWeek, the annual energy conference sponsored by Cambridge Energy Research Associates, a division of consulting firm IHS (IHS). Since the demise of a conference sponsored by the now-defunct accounting firm Arthur Andersen seven years ago, CERAWeek has become the leading confab for energy industry movers and shakers. A record 2,000 attendees packed conference rooms at Houston's Westin Galleria Hotel, turning the city into a kind of Davos on the bayou. The event, which runs through Feb. 15, also features speeches by Energy Secretary Samuel Bodman and Toyota Motor (TM) North America chief Jim Press.
A Skeptical CEO
It's Tillerson's remarks that are likely to fuel the most attention. Tillerson, a tall Texan with a baritone voice just this side of John Wayne's, is a long time Exxon exec who took over from the legendary Lee Raymond a little more than a year ago. While Raymond's prickly demeanor and critical comments about global warming studies made Exxon unpopular with many activists, Tillerson has been portrayed as a kinder, gentler CEO. Yet Tillerson made it clear that he shares his predecessor's skepticism about the contribution of fossil fuels to global warming and the opportunity that lies in alternative energy technologies. "We need to remain realistic about the role they can play," he said. "We're not just going to grow crops and solve our energy problems."
At a press conference after his address, Tillerson was asked about the report released two weeks ago in Paris by the United Nations Intergovernmental Panel on Climate Change, a consortium of scientists that concluded burning fossil fuels was causing global warming. He said he hadn't read the report, but as he understood it, there is still plenty of uncertainty about what the best course of action is. "There's clearly a change in the climate," Tillerson said. "It's getting warmer. How that all interrelates with industrial activity is not 100% clear."
Tillerson indicated that he thinks it's best to avoid piecemeal policies such as caps on carbon emissions or windfall profits taxes that could harm the economy or impede oil production down the road. "It may make people feel better, feel like they're doing something," he said.
In his address at the conference, he said, "Many policymakers think in increments of two, four, or six years, based on election cycles. In contrast, those of us in the energy industry think in increments of two, four, or six decades, based on timelines to gain access to new acreage, explore for, discover, and bring to production the next sources of supply. This is an important point, because acting impulsively in setting energy policy with the expectation of immediate results will likely have negative consequences that will be felt for decades to come. We must therefore inform the public and policymakers about the long time-frames that define our industry" (see BusinessWeek.com, 2/14/07, "Rex Tillerson: CERAWeek Opening Address").
To prove his point, Tillerson gave the example of Sakhalin-1, a massive oil and natural gas development in Russia that he helped develop as he climbed the corporate ladder. The fields, he noted, were first discovered in the 1970s. It took three decades for the confluence of technology, prices, and political negotiations to bring the project, which started up in October, to the point where it is now producing 250,000 barrels of oil per day. "The problem is the public doesn't see our product as being a result of technological innovation like they do a cell phone or satellite TV" (see BusinessWeek.com, 5/15/06, "Sakhalin Island: Journey to Extreme Oil," and 5/15/06, "Uneasy Island Venture").
Focusing on Technology
Tillerson said he is trying to make Exxon greener. He said changes at company facilities around the world have helped cut Exxon's carbon dioxide emissions by 11 million tons, the equivalent of taking 2 million cars off the road. Tillerson said he's avoiding investing in ethanol plants, because barriers to entry are low, and the industry seems to have no trouble attracting money from venture capital firms and other investors. Instead, Exxon is working with climate-change researchers at Stanford University to come up with new, more complex forms of biofuels, including ethanol made from plants other than corn. There, Exxon can add value through technology breakthroughs, he said.
Asked at the press conference following his speech if he thought energy trading and the money pouring into commodity funds in recent years were having an impact on the price of oil, Tillerson said they were. "I'm always shocked when I hear pension funds are moving into commodities," he said. Tillerson said he figured the "risk premium" associated with trading added between $10 and $15 dollars to the price of a barrel, which should be more like $40 today.
Tillerson said Exxon has spent $210 billion since 1991 on exploring and developing oil fields around the world. That was more than the company earned during the period. In spite of today's high prices, he said the company was maintaining its discipline and making sure projects pencil out even at prices much lower than the present. "In times like these we make a lot of money," he said. "But these times don't last forever and in order to make it through the cycle we have to make sure the investments make sense."