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2018 Energy & Carbon Summary Positioning for a Lower-Carbon Energy Future
1 Letter from the Chairman 2 Summary at-a-glance 3 Highlights from our Outlook for Energy 6 Considering 2°C scenarios 10 Potential proved reserves and resources impacts considering 2°C scenarios 13 Positioning for a lower-carbon energy future 16 ExxonMobil is part of the solution 21 Investment planning 22 Managing risks to meet energy demand 24 Disclosures 24 Footnotes COVER PHOTO: ExxonMobil has established an enhanced management program to reduce methane emissions. Further details can be found on page 17. Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans, are forward-looking statements. Actual future results or conditions, including demand growth and energy source mix; the impact of new technologies; production rates and reserve growth; efficiency gains and cost savings; emission reductions; and results of investments could differ materially due to, for example, changes in the supply in and demand for crude oil, natural gas, and petroleum and petrochemical products and resulting price impacts; the outcome of exploration and development projects; the outcome of research projects and ability to scale new technologies on a cost-effective basis; changes in law or government policy, including environmental regulations and international treaties; the actions of competitors and customers; changes in the rates of population growth and economic development; unexpected technological developments; general economic conditions, including the occurrence and duration of economic recessions; unforeseen technical difficulties; and other factors discussed in this report and in Item 1A of ExxonMobil’s most recent Form 10-K. Third-party scenarios discussed in this report reflect the modeling assumptions and outputs of their respective authors, not ExxonMobil. References to “resources”, “resource base,” and similar terms include quantities of oil and gas that are not yet classified as proved reserves under SEC definitions but that we believe will ultimately be produced. For additional information see the “Frequently Used Terms” on the Investors page of our website at exxonmobil.com. References to “oil” and “gas” include crude, natural gas liquids, bitumen, synthetic oil, and natural gas. Prior years’ data have been reclassified in certain cases to conform to the 2016 presentation basis. The term “project” as used in this publication can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.
Letter from the Chairman Providing affordable energy to support prosperity future. Our partnership with FuelCell Energy, Inc. has while reducing environmental impacts – including potential to dramatically lower the cost of carbon capture. the risks of climate change – is our industry’s Additionally, we are developing technology to lower the dual challenge. energy intensity of industrial processes. We are at the forefront in developing all these exciting Ensuring ExxonMobil does our part to address this technologies, many of which could play big roles in a challenge is a priority of mine. We are working hard lower-carbon future. I’m a firm believer in the power of across our businesses to find effective solutions that technology to solve hard problems, and to improve and meet the needs of society. transform lives. In the near term, we are improving our own operations. Policy has a place here, too. We’ve been vocal in Our drive to operate more efficiently also reduces our support of a carbon tax, and recently joined the emissions and environmental impacts. pro-carbon-tax Climate Leadership Council. We also Our chemical businesses manufacture products that support the Paris Agreement. improve the sustainability of our customers’ products ExxonMobil is positioned to remain the energy industry and reduce associated emissions. leader, now and in the future. We are also helping to lower emissions in today’s power The report you are reading looks into a lower-carbon sector by facilitating the switch to cleaner-burning future. It provides a perspective on what such a future natural gas. might mean for our business. For the longer term, more technological solutions are As one of the world’s premier technology companies, needed. The global energy system is massive. The world we are well positioned to succeed in a changing world. needs solutions that can scale. ExxonMobil has been a Over the past 135 years, our company has evolved and leader in researching and developing potential energy adapted to a variety of environments and conditions. and environmental game changers. I’m excited about the We will continue to build long-term value for our progress we’re making. shareholders and stakeholders. We are committed Our algae biofuel program holds great promise. The to successfully addressing the dual challenge. world will need liquid transportation fuels for road, sea, and air. We are conducting fundamental science in pursuit of needed breakthroughs. We are also a leader in carbon capture and storage (CCS) Darren Woods, Chairman and CEO research. The world will need much more CCS in the 1
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Summary at-a-glance Our annual Outlook for Energy incorporates recent Relative to our Outlook, a theoretical 2°C pathway Our businesses are well positioned for the continuing developments in economic conditions, policy, and would generally lower the world’s demand for total evolution of the energy system. technology. energy, oil, natural gas and coal, but increase nuclear, bioenergy, and non-bio renewables. Near-term actions, consistent with society’s energy The Outlook anticipates global energy needs will rise requirements and environmental objectives, include: about 25 percent over the period to 2040, led by Signposts in the energy system will provide important Expanding the supply of cleaner-burning natural gas non-OECD countries. While the mix shifts toward lower- indicators on whether society is moving toward a carbon-intensive fuels, the world will need to pursue all 2°C pathway Transitioning our manufacturing facilities to higher- value distillates, lubricants, and chemical feedstock economic energy sources. Even under a 2°C pathway, significant investment will Worldwide electricity from solar and wind will be required in oil and natural gas capacity, as well as Mitigating emissions from our own facilities through increase about 400 percent other energy sources energy efficiency and reduced flaring, venting, and fugitive emissions Natural gas will expand its role, led by growth for Production from our proved reserves and investment electricity generation in our resources continue to be needed to meet Developing consumer products that help others reduce their emissions, such as premium lubricants, Growth in oil demand will be driven by commercial global requirements lightweight plastics, and special tire liners transportation and the chemical industry, while more electric cars and efficiency improvements in Engaging on climate policy to address the risks of conventional cars will likely lead to a peak in liquid Our company has a climate change at the lowest cost to society fuels demand for the light-duty vehicle fleet Importantly, on a longer-term horizon, we are pursuing Efficiency gains and growing use of less-carbon- proven record of successfully technologies to enhance existing operations and develop alternative energies with a lower carbon intensity, intensive energy sources will contribute to a nearly responding to changes in including: 45 percent decline in the carbon intensity of global GDP society’s needs. With Researching breakthroughs that make CCS technology This year’s Outlook also includes sensitivities to provide more economic for power generation and industrial greater perspective on the energy landscape. For long-standing investments applications example, greater penetration of electric vehicles (EV) in technology, we are well Developing process intensification technologies to and/or wind/solar deployment beyond our base Outlook reduce energy requirements of manufacturing facilities assumptions could slow the growth in oil and natural positioned to meet the Progressing advanced biofuels for commercial gas demand, respectively. demands of an evolving transportation and petrochemicals energy system. 2
Highlights from our Outlook for Energy The Outlook for Energy is ExxonMobil’s global view of Energy efficiency improvements will help curb the The dual challenge is to energy demand and supply through 2040. Importantly, growth in global energy demand to about 25 percent it provides an annual update to reflect recent energy over the period to 2040, roughly equivalent to adding provide affordable energy trends and developments, notably in technology and another North America and Latin America to the policy. We use the Outlook to help inform our long- world’s current energy demand. Emerging markets in to support prosperity term business strategies and investment plans. non-OECD nations will account for essentially all energy while reducing demand growth, led by the expanding economies in the Energy supports rising prosperity Asia Pacific region, such as China and India. environmental impacts. A significant energy transition is under way, and many Providing reliable, affordable energy to support factors will shape the world’s energy future. By 2040, prosperity and enhance living standards is coupled with mix will contribute to a nearly 45 percent decline in the world population is expected to reach 9.2 billion people, the need to do so in ways that reduce potential impacts carbon intensity of global GDP. Progress on energy and up from 7.4 billion today. Over that same period, global on the environment, including the risks of climate climate objectives requires practical approaches that will GDP will likely double. Billions of people are expected to change. As the world’s economy nearly doubles by contribute to both while providing high economic value join the global middle class. 2040, energy efficiency gains and a shift in the energy for society. Global efficiency limits demand growth Oil and gas: Largest global energy sources in the future Energy mix shifts globally to lower-carbon fuels OECD(1) China India Other Asia Pacific Rest of world 2016 2040 (percent of primary energy) (quadrillion BTUs or Quads) non-OECD (quadrillion BTUs or Quads) 100 1,200 250 Other renewables Wind/Solar Demand without efficiency gains 0.7% Average annual growth rate: 0.9% 80 Nuclear 1,000 200 Energy 1.3% 800 savings Natural gas 60 150 –0.1% Hydro/geothermal 1.4% 600 Wind/solar/biofuels 5.3% 40 100 Oil 400 Biomass 0.2% 50 20 200 Nuclear 2.3% Coal 0 0 0 2000 2010 2020 2030 2040 Oil Gas Coal Non-fossil 2016 2040 3
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Highlights from our Outlook for Energy, continued Global energy mix is shifting Electrification and gradual decarbonization continue Highlight: Outlook for Energy projections as significant global trends. Renewables and nuclear see strong growth, contributing nearly 40 percent of Global energy needs rise about 25 percent, incremental energy supplies to meet demand growth. 25% led by non-OECD nations (e.g., China, India) Natural gas grows the most of any energy type, reaching a quarter of all demand. Oil will continue to play an increase Despite efficiency gains, global energy demand will likely increase nearly 25 percent important role in the world’s energy mix, as commercial by 2040. Nearly all growth will occur in non-OECD countries as prosperity expands. transportation (e.g., trucking, aviation, marine) and chemicals sectors lead demand growth. Demand for electricity nearly Testing uncertainty doubles in non-OECD nations Demand for liquid fuels is projected to grow by about Natural gas use is likely to increase more than any 20 percent through the Outlook period, even as liquids other energy source, with about half of its growth demand from light-duty transportation peaks and attributed to electricity generation. Electricity from Oil plays a leading role in declines during this period with more-efficient vehicles. solar and wind increases about 400 percent. mobility and modern products Sensitivities help assess potential impacts to light-duty Oil will continue to play a leading role in the liquids demand using alternate assumptions around world’s energy mix, with growing demand driven electric vehicle penetration, changes in fuel efficiency, by commercial transportation and the chemical or broader mobility trends. As an example, for every x2 industry. additional 100 million electric vehicles on the road in 2040, liquids demand could fall by approximately 1.2 million barrels per day. Energy efficiency gathers Predicting the energy future is Investment needs momentum worldwide challenging, given uncertainty on Significant investments will be needed to meet global Since 2000, global energy policies and technologies demand for oil and natural gas. The International intensity has improved Meeting the dual challenge of Energy Agency, in its New Policies Scenario, estimates by about 1 percent per year; mitigating the risks of climate cumulative oil and natural gas investment may reach from 2016 to 2040, change while boosting standards approximately $21 trillion between 2017 and 2040. this rate will of living will require additional approximately double. technology advances. 4
Sensitivities included in our Outlook projections We use sensitivities to provide greater perspective on how changes to our base Outlook assumptions could affect the energy landscape. The charts below depict potential impacts to demand related to fuel economy and EV penetration, full EV penetration in light-duty vehicles, and potential changes affecting natural gas demand for electricity generation. Further discussion on sensitivities can be found in the Outlook for Energy. Liquids – Light-duty demand sensitivities Liquids – Full EV demand sensitivity Natural gas – Electricity demand sensitivities (million oil-equivalent barrels per day) (million oil-equivalent barrels per day) (billion cubic feet per day) Up to ~30% replacement 140 Average new car fuel economy of ~45 mpg 120 Liquids demand sensitivity 250 of nuclear or ~15% in 2040 (~50 mpg base assumption) replacement of coal Light-duty with natural gas 120 transportation Demand for 100 natural gas Up to ~50% increase in 200 for electricity wind/solar penetration 100 generation Total liquids demand ~500 million electric vehicles (~160 million base assumption) 80 Commercial 80 transportation 150 60 60 100 Average new car fuel economy of ~45 mpg 40 Chemicals 40 in 2040 (~50 mpg base assumption) Light-duty liquids demand Other 50 20 20 industrial ~500 million electric vehicles Power (~160 million base assumption) generation/ 0 0 residential/ 0 2000 2010 2020 2030 2040 2000 2010 2020 2030 2040 commercial 2040 Shaded ranges are indicative of potential shifts Sensitivity assumes the global light-duty vehicle Accelerated deployment of solar and wind in global demand relative to base Outlook fleet is 100-percent electric by 2040, requiring all globally due to swifter cost declines and/or new light-duty vehicle sales to be electric by 2025 more generous policies could reduce natural Liquids demand could fall about 1.2 million gas demand relative to base Outlook barrels per day for every additional 100 million Battery manufacturing capacity for electric cars electric vehicles on the road in 2040 would need to increase by more than 50 times Stiffer public sentiment against nuclear or coal from existing levels by 2025 and/or a shift toward more technology-neutral Trends in fuel economy gains lower than the carbon abatement policies could increase Outlook basis could add more than 2 million Total liquids demand in 2040 could be similar to natural gas demand for base load electricity barrels per day of liquids demand by 2040 levels seen in 2013 5
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Considering 2C scenarios The annual Outlook for Energy represents These nationally determined contributions (NDCs)(2) When considering the aim to achieve a 2C future, it ExxonMobil’s updated view of the most likely provide important signals on government intentions should be recognized that due to the complexity and future for the global energy system and forms the related to the general direction and pace of policy scale of the world’s energy system and its interaction foundation of the company’s strategic decisions, initiatives to address climate risks. It is worth noting with societal aspirations, no single pathway to 2C can business plans, and investments. However, many that the Paris Agreement indicates that “the estimated be reasonably predicted. However, it is generally uncertainties exist concerning the future of energy aggregate greenhouse gas emission levels in 2025 and recognized that pathways to 2C depend on multiple demand and supply, including potential actions that 2030 resulting from the intended nationally determined variables, the most impactful of which are: society may take to address the risks of climate contributions do not fall within the least-cost 2C change. The following analysis is intended to provide scenarios.”(3) Population a perspective on hypothetical 2°C scenarios. Economic growth While the current NDCs do not appear to achieve a Energy intensity of the economy 2°C scenario, the Paris Agreement is a positive step in Greenhouse gas (GHG) intensity of the energy system Since 1992, when nations around the world established addressing the risks of climate change. the United Nations Framework Convention on Climate Change, an international effort has been under way to understand and address the risks of climate change. World energy-related COÆ¥ emissions related to energy intensity This chart shows global energy intensity After more than two decades of international effort, and COÆ¥ emissions intensity (left axis) and CO2 emissions intensity (bottom axis). in December 2015, nations convened in Paris and (kBTU of energy used per dollar of global GDP) drafted an agreement that for the first time signals that 10 18 1980 From 1980 to 2015, there have been large Improving billion tonnes COÆ¥ gains in efficiency, though energy-related both developed and developing nations will strive to energy CO2 emissions rose from 18 billion to undertake action on climate change. across efficiency the 8 2040 hypothetical 2C 33 billion tonnes. The blue circle shown performance levels (4) economy 2015 for 2040 indicates these emissions are The ultimate aim of the Paris Agreement is to 33 billion tonnes COÆ¥ projected to be about 36 billion tonnes “strengthen the global response to the threat of climate 6 2018 Outlook for Energy even with significant gains in efficiency change by: Holding the increase in global average and CO2 emissions intensity. temperatures to well below 2C above pre-industrial 36 2040 billion tonnes COÆ¥ To be on a 450 ppm, or hypothetical 4 levels.” As part of the Paris Agreement, signatories have 2C pathway, the performance in 2040 committed to: likely needs to be significantly closer to 2 exceeded the purple line, implying faster gains in “prepare, communicate, and maintain successive efficiency and/or faster reductions in nationally determined contributions that it intends CO2 emissions per unit of energy. This to achieve.” 0 10020 30 40 50 60 would increase the chance of reaching (tonne COÆ¥ per billion BTU of global energy) a 2C pathway, with further gains “communicate nationally determined contributions Reducing COÆ¥ emissions intensity of energy use required between 2040 and 2100. every five years.” 6
It is generally accepted that population and world of a global population that may have doubled, and a The chart (below left) illustrates potential CO2 emission economies will continue to grow and that measures world economy that may be five times as large. trajectories under EMF27 full-technology scenarios (8) to address the risks of climate change should targeting a 2°C pathway (Assessed 2°C Scenarios) According to the International Energy Agency (IEA), accommodate these factors. The levers that therefore relative to our 2018 Outlook, and baseline pathways setting upon a “well below” 2°C pathway implies remain for society are: (1) to reduce the energy intensity (Assessed Baseline Scenarios) with essentially no policy adoption of “comprehensive, systematic, immediate, of world economies via further efficiency, and (2) to evolution beyond those that existed in 2010. reduce the GHG (CO2 equivalent) emissions intensity and ubiquitous implementation of strict energy and of the world’s energy system. material efficiency measures.” (5) Because there are Our 2018 Outlook incorporates significant efficiency multiple potential options for energy efficiency and gains and changes in the energy mix, resulting in The chart on the previous page illustrates 2040 decarbonization, there are also numerous theoretical a projected CO2 emissions trajectory that resides hypothetical “2°C performance levels.” This purple line paths to a 2°C outcome. Given limited global resources between the pathways illustrated by the baseline and reflects hypothetical combinations of global energy and the wide range of global societal priorities,(6) such as 2°C scenarios. The emissions trajectory of our Outlook intensity and CO2 emission intensity levels that, if poverty, education, health, security, affordable energy, closely approximates in shape the intermediate RCP 4.5 reached in 2040, would likely indicate the world was on a and climate change, approaches to address these issues fossil fuel CO2 emissions profile of the IPCC through 2°C pathway. Transitioning towards a 2°C performance will need to be as economically efficient as possible. 2040, but is slightly under it in magnitude. Although level would imply that global emissions have peaked and Inefficient approaches to address the risks of climate our Outlook does not extend to 2100 and we do are steadily declining to near 1980 levels by 2040, in spite change can divert resources and detract from society’s not estimate global temperatures under our Outlook ability to address other important priorities. Due to the process, the IPCC projects its intermediate RCP 4.5 unprecedented change that would be needed in the emissions profile would result in an average global Global energy-related COÆ¥ emissions (9) global energy system to achieve a 2°C outcome, we temperature increase of approximately 2.4°C by 2100 (billion tonnes) believe that only those scenarios that employ the full from the pre-industrial age.(10) complement of technology options are likely to provide 125 The Assessed 2°C Scenarios, as shown on the following the most economically efficient paths. page, produce a variety of views on the potential impacts 100 Considerable work has been done in the scientific on global energy demand in total and by specific types Assessed Baseline community to explore energy transformation pathways. of energy. 75 Scenarios A recent multi-model study coordinated by the Energy Modeling Forum 27 (EMF27)(7) at Stanford University The scenarios also show a range of possible growth rates 50 for each type of energy. We have taken the average of the brought together many energy-economic models to 2018 Outlook for Energy Assessed 2°C Scenarios’ growth rates in order to consider 25 assess technology and policy pathways associated with various climate stabilization targets (e.g., 450, 550 ppm potential impacts on energy demand for this report.(11) 0 CO2 equivalent or CO2e), partially in support of the Fifth Assessed 2°C Scenarios Assessment Report of the Intergovernmental Panel –25 2005 2020 2040 2060 2080 2100 on Climate Change (IPCC). 7
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Considering 2°C scenarios, continued Based on this scenario analysis, primary energy demand on The projected growth rates for renewable energies and Oil and natural gas remain a worldwide basis is projected to increase about 0.5 percent nuclear are generally quite strong averaging between per year on average from 2010 to 2040. Expected changes 4 and 4.5 percent per year for non-bioenergy (e.g., hydro, important sources, even in in demand vary by model and energy type (lower charts): wind, solar) and bioenergy, and about 3 percent per year for nuclear models with the lowest level Oil demand is projected on average to decline by about 0.4 percent per year All energy sources remain important across all the of energy demand. Assessed 2°C Scenarios, though the mix of energy Natural gas demand is expected on average and technology shifts over time. Oil and natural to increase about 0.9 percent per year gas remain important sources, even in models with Low-side energy growth rates for the Assessed 2°C The outlook for coal is the most negative, with the lowest level of energy demand. Oil demand is Scenarios were also considered. The low-side for each diverse projections showing an average decline of projected to decline modestly on average, and much energy source sees oil dropping 1.7 percent per year, about 2.4 percent per year, or about a 50 percent more slowly than its natural rate of decline from natural gas dropping 0.8 percent per year, and coal decline by 2040 existing producing fields. Natural gas demand grows dropping 10.2 percent per year through 2040. This is on average due to its many advantages, including compared with high-side growth rates for bioenergy, lower greenhouse gas emissions. nuclear, and non-bio renewables of 14.1, 4.8, and 6.3 percent per year, respectively. 2040 global demand by energy type by model in the Assessed 2°C Scenarios Ranges of predicted changes in global demand in Assessed 2°C Scenarios Oil Oil Gas Gas Coal Coal Nuclear Bioenergy Bioenergy Non-bio renewables with CCS with CCS with CCS with CCS 13 models Average AIM (average annual growth rate in percent, 2010–2040) BET 15 ENV-Linkages GCAM 10 IMACLIM IMAGE 5 MERGE MESSAGE 0 Phoenix REMIND –5 WITCH –10 POLES TIAM –15 0 100 200 300 400 500 600 700 800 Primary Oil Natural Coal Non-bio Bio- Nuclear (exajoules) energy gas renewables energy 8
Signposts for the evolving energy landscape Changes in the relative cost of new technology when Up close: Indicators for a 2C pathway compared against existing or alternative energy sources The continued evolution of the energy system will provide important indicators on whether society is moving may indicate shifts in the global energy mix. Utilizing toward a 2°C scenario. The following would demonstrate progress toward that objective by 2040 compared to 2010: Company and external sources, we monitor a variety of Renewables, nuclear, and fossil fuels with CCS rise Low-carbon power generation (including CCS) indicators that may serve as signposts for potential shifts in from 10% to 40% of primary energy demand (12) grows from 33% to 80% of total supply (15) the energy landscape, such as: 1/3 4/5 New NDCs and significant policy initiatives, such as 2010 1 out of 10 carbon pricing Increased electrification of energy system Increasing penetration of renewables with technology 2040 4 out of 10 developments that reduce costs and increase reliability of energy storage Total electrification Oil demand falls (14) 2010 2040 of energy demand (13) Development of scalable alternative energies such as Global electricity generation shifts (16) biofuels that don’t compete with fresh water or food, Non-bioenergy CCS leading to displacement of gasoline and distillate in the ~20% ~30% renewables utilization 10% increases from increases fuels market less than 20% to ~20% to ~35% Advances in CCS technology to lower cost 2010 to 2040 Bioenergy Nuclear Announcements for planned capacity expansion of increases increases Down 20% to 5% from ~15% multiple technologies, as well as the associated financing 2010 2040 2016 to 2040 to ~20% that support these expansions Summary of demand growth rates Average of the Energy efficiency gains exceeding historical trends Assessed (17) Outlook ExxonMobil for Energy 2018 2010-2016 Actual Mean annual demand growth rate 2010-2040 2°C Scenarios Consumer acceptance and preferences Energy demand –² 0.5% –² 0.9% –² 1.2% Oil –¼ (0.4)% –² 0.8% –² 1.3% Natural gas –² 0.9% –² 1.4% –² 1.6% Further details and discussion of Assessed 2°C Scenarios Coal –¼ (2.4)% 0.0% –² 0.1% can be found in the special section of the Outlook for Nuclear –² 3.0% –² 1.6% –¼ (1.0)% Energy – “Pursuing a 2C pathway.” Bioenergy –² 4.3% –² 0.7% –² 1.9% Non-bio renewables –² 4.5% –² 3.7% –² 5.8% 9
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Potential proved reserves and resources impacts considering 2°C scenarios Over the coming decades, oil and natural gas will continue to play a critical role in meeting the world’s Up close: Significant investment still needed in 2C scenarios energy demand, even considering the Assessed 2°C Considering the 2C Scenarios Average, global oil demand would be projected to decline from 95 million barrels Scenarios discussed in the previous section. The per day in 2016 to about 78 million barrels per day in 2040. Using the lowest oil demand growth rate among the following analysis is intended to address the potential Assessed 2C Scenarios, oil demand would still be 53 million barrels per day in 2040, as seen in the chart below.(22) However, absent future investment, world oil production to meet demand would be expected to decrease from impacts to the company’s proved reserves(18) and 95 million barrels per day in 2016 to about 17 million barrels per day in 2040. This decrease would result from resources(19) through 2040 and beyond, considering natural field decline as oil is produced. This natural field decline rate is forecasted to greatly exceed the decline rate the average of the Assessed 2°C Scenarios’ oil and in global oil demand even under the 2C Scenarios Average. natural gas growth rates (2°C Scenarios Average).(20) With the potential 2040 imbalance (absent future investment) the more than 90 percent of our proved reserves that are projected to be produced by 2040 are clearly supported by ample demand, and therefore face little risk related Proved Reserves and Producing Assets to the 2C Scenarios Average. At the end of 2016, ExxonMobil’s proved reserves Natural gas reserves face even less risk, as demand in 2040 is expected to increase under the 2C Scenarios totaled about 20 billion oil-equivalent barrels, of which Average, versus 2016 demand levels. approximately 53 percent were oil and 47 percent were Considering the IEA’s Sustainable Development Scenario (a 2°C scenario), the IEA estimates that almost $14 trillion natural gas. These proved reserves, which represent a of investment will be needed for oil and natural gas supply between 2017 and 2040.(23) diverse portfolio, are assessed annually and reported in our annual report on Form 10-K. A recent study concluded Global liquids supply estimates Global natural gas supply estimates that the main driver of intrinsic value of an integrated oil (million oil-equivalent barrels per day) (billion cubic feet per day) company’s upstream operations is its proved reserves.(21) 120 700 Based on currently anticipated production schedules, we estimate that by 2040, over 90 percent of our Existing 600 demand Highest 100 supplies Highest based year-end 2016 proved reserves will have been produced. 95 on demand Assessed based 2°C on Assessed Scenarios Considering that the 2°C Scenarios Average implies 2°C Scenarios 500 80 Demand significant use of oil and natural gas through the middle 78 based on Existing 445 based Demand on of the century, we believe these reserves face little risk. of Estimate Average 2°C Scenarios 400 supplies 2°C Scenarios 60 natural 370 Average decline For the less than 10 percent of our year-end 2016 proved of in absence demand Lowest based 300 Lowest further reserves that are projected to be produced beyond 40 investment 2°C on Assessed demand based Scenarios 200 on Assessed 2040, the reserves are generally associated with assets 2°C Scenarios where the majority of development costs have been 20 100 incurred before 2040. While these proved reserves may be subject to more stringent climate policies in 0 2016 2040 0 2016 2040 the future, we believe that investments could mitigate Excludes biofuels 10
Considering the 2°C Resources 2°C Scenarios Average, ExxonMobil still would need to At the end of 2016, ExxonMobil’s non-proved resources replenish approximately 35 billion oil-equivalent barrels of Scenarios Average, we believe totaled about 71 billion oil-equivalent barrels. The size proved reserves by 2040, assuming the company retains and diversity of ExxonMobil’s undeveloped resource its current share of global production over that time our reserves face little risk. base provide us with considerable flexibility to profitably period.(24) develop new supplies to meet future energy demand Considering the multiple factors that will influence and replenish our proved reserves. We also continue decisions to commercialize undeveloped resources, production-related emissions and associated costs. In to increase the quality of our resources through it is not possible to identify which specific assets ultimately addition, these assets have generally lower risk given the successful exploration drilling, acquisitions, and ongoing will be commercialized and produced. As we consider subsurface and operational knowledge that accumulates development planning and appraisal activities. the implied oil and natural gas demand to 2040 under the over many decades of production. Accordingly, we believe the production of these reserves will likely remain The underlying economics of commercializing and 2°C Scenarios Average, it is possible that some higher- economic even under the 2°C Scenarios Average. producing resources are dependent on a number of cost assets, which could be impacted by many factors factors that are assessed using a dynamic resource including future climate policy, may not be developed. For producing assets that do not currently meet the SEC’s development process, as highlighted further in the box We are confident however, that the size, diversity, and definition of proved reserves, we expect to continue on the following page. We seek to advance the best continued upgrading of our undeveloped resources, producing these assets through the end of their economic resource opportunities and monetize or exit lower along with technology developments, will enable the lives. We continue to enhance the long-term viability of potential assets. As indicated, the world will continue ongoing replenishment of our proved reserves under these assets through increased efficiency, cost reductions, to require significant investment in hydrocarbons, even a range of potential future demand scenarios for and the deployment of new technologies and processes. considering the Assessed 2°C Scenarios. Under the decades to come. Up close: Reducing costs using technology to compete Trillions of dollars of investment in oil and natural gas will be needed, even considering a 2°C scenario. By leveraging high-impact technologies from our world-class research organization, we can reduce costs and environmental impacts. This positions our Upstream portfolio to successfully compete. Recent examples showcasing our technical strength: Record-setting extended-reach wells in Sakhalin to significantly reduce drilling costs and environmental footprint Full-physics modeling and next-generation completion designs for unconventional developments to reduce drilling and improve recovery Advanced technologies to enhance our oil sands portfolio, such as use of specialty solvents to reduce the energy intensity of the development 11
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Potential reserves and resources impacts considering 2°C scenarios, continued We test our investments over a wide range of commodity price assumptions and market conditions. Up close: Dynamic resource development planning As we consider a third-party’s estimate of future prices This process considers a wide range of variables over time, including as appropriate: the extent and density of under its 2C pathway, we note that these fall within the the resource, development concepts, fiscal terms, regulatory requirements, proximity to existing infrastructure, range we use to test our investments.(25) Additionally, market conditions, enabling technologies, and policy developments, including climate policy. over our long history we have successfully competed We optimize our resource development plans in line with these variables and prioritize developments that are in periods where supply exceeds demand. In such a competitively advantaged in delivering long-term shareholder value. Decisions can range from developing the business environment, the lowest cost of supply will resource (which eventually moves to proved reserves), monetizing the resource by selling to others, or exiting be advantaged. ExxonMobil’s long-standing focus on the acreage. efficiency and continuous improvement will help ensure With a very large resource base, this process can take decades as technologies are discovered, market conditions we compete successfully. change, and competition evolves. Two recent examples illustrate this: Lastly, a portion of our resources represent unconventional Hebron The Hebron project in Eastern Canada was commissioned and produced its first oil in December 2017. However, the field was originally discovered in 1980. liquids assets in the United States. These assets have shorter development cycles than other capital-intensive East Natuna In contrast, we relinquished East Natuna in Indonesia, which was originally awarded in 1980. In this case, the global growth of more competitive sources of supply offsets advances in technology, resulting resources, which we believe make this class of assets in less attractive returns. resilient under the 2C Scenarios Average. Natural gas assets form another portion of our resources. The 2C Scenarios Average anticipates abundant demand growth of this cleaner-burning fuel in the future, Dynamic resource development planning making these assets resilient under the 2C Scenarios Monetize Average. Our remaining undeveloped liquids resources, Value maximization in some cases, may not be attractive investments considering the 2C Scenarios Average, assuming no Resource Development planning Development decision Develop advances in technology, processes, or designs. However, the carrying value of these undeveloped liquids resources is less than 5 percent of ExxonMobil’s total carrying Reoptimize Exit acreage value of property, plant and equipment as of September 30, 2017.(26) Resource definition Fiscal terms Environmental impact analysis Market development Development concept and cost Regulatory requirements Infrastructure availability Enabling technology 12
Positioning for a lower-carbon energy future The global energy system has continued to evolve Taking near-term action ExxonMobil has considerable throughout ExxonMobil’s history due to growing As demonstrated by the Paris Agreement, governments demand and developments in technology and policy. have signaled an aspiration to move towards a lower- flexibility and optionality While the future is difficult to predict, we are well carbon energy system. We have already observed the positioned to respond to a range of future outcomes, beginnings of a shift, and are taking action to position for a wide range of future which will be driven largely by society’s needs. ourselves to help meet future global energy needs. energy scenarios. For example, we are: Our annual Outlook for Energy process is a vital Expanding supply of cleaner-burning natural gas tool for understanding energy markets. It provides This will enable greater substitution of coal with Transitioning our manufacturing facilities We are valuable insights on energy supply and demand trends, natural gas in power generation. Natural gas can be retooling our refining capacity to shift from fuel oils and advancements in technology, and developments in up to 60-percent less carbon intensive than coal for light-duty vehicle gasoline to higher-value distillates policy. It also provides a forum to monitor lower-carbon power generation and is a significant component of (e.g., diesel, jet fuel), lubricants, and chemical feedstock. signposts that could signal shifts in efficiency and ExxonMobil’s portfolio and investment activities. This reflects projected trends in consumer products decarbonization trends toward 2C pathways. and policy, such as growing EV penetration, increasing With the ongoing changes in the energy system, requirements for heavy-duty transportation fuels, higher ExxonMobil has continuously evolved its portfolio, ExxonMobil cogeneration performance lubricants, and increasing demand for capabilities, and flexibility to respond. This flexibility is capacity is enough to power chemical products that provide sustainability benefits. due in large part to our: Mitigating emissions from our own facilities/ Portfolio diversity, including integrated upstream, 2.5 million operations Our prime focus is on energy efficiency downstream and chemicals businesses and reducing flaring, venting, and fugitive emissions. Long-standing research and development program homes in the United States ExxonMobil also extensively employs cogeneration in assessing a wide spectrum of energy alternatives its operations to increase energy efficiency and reduce Disciplined operating and investment capabilities net emissions while reducing the need to import power. Financial strength and access to capital Currently, our global gross capacity for cogeneration is 5.3 gigawatts, enough to meet the annual electricity As we look to the future, we remain confident that these needs of 2.5 million U.S. homes. proven capabilities will enable our businesses to adjust to society’s needs, including those that may result from evolving technology and policy. Our cogeneration plant at our Beaumont, Texas, refinery can produce about 500 megawatts of electricity, which not only powers refining operations, but also supplements the local power grid. 13
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Positioning for a lower- carbon energy future, continued Developing consumer products that help others reduce their emissions ExxonMobil has one of the largest chemical companies in the world. Leveraging proprietary technologies, we produce an array of materials that bring both energy efficiency and sustainability benefits to consumers. Engaging on climate policy We continue to encourage policy that addresses the risks of climate change at the lowest cost to society. We are actively engaged in evaluating potential renewable alternatives, including solar, bioenergy, and wind. Our focus is on contributing in areas where we can help make a difference in line with our technical capabilities. Our research and development program includes opportunities that could make renewable technologies more competitive. We also support the deployment of renewables as a supplier of synthetic lubricants to wind turbines around the world. The natural gas that we produce can also serve as an energy backstop to address intermittency issues associated with these energy sources. We continue to actively monitor developments in this area through our research activities and our annual Outlook process, advancing opportunities that appear to hold promise. Preparing for the long term We believe society will continue moving towards a lower-carbon energy system, and we are committed to longer-term solutions through our ongoing research and development program. We have collaborations with The Shute Creek Gas Plant in Wyoming. CCS will be an important long-term technology to reduce emissions. more than 80 academic institutions around the globe to progress an array of technologies that have the potential 14
Our research and development reduce energy requirements of manufacturing facilities by fundamentally changing processes that require 80+ academic program includes opportunities significant heat and pressure. institutions that could make renewable Commercial transportation Large-scale commercial collaborate with ExxonMobil transportation requirements by road, sea, and air will on research technologies more competitive. continue to require fuels with high energy density. Advanced biofuels offer potential to meet these energy requirements while reducing emissions and minimizing In many regards, a lower-carbon scenario may just to be scalable, reliable, and commercially viable. We are the impact on land, fresh water, and food supplies. Our accelerate the trend of the past two decades. focused on fundamental research to discover or enhance research programs are focused on algae and conversion ExxonMobil’s Downstream business is well positioned energy solutions for the future. of agricultural waste to liquid fuels. These technologies to compete in this environment as one of the lowest- could provide renewable, lower-emission fuels that cost producers, as illustrated in the chart below. Power generation One of the attributes of a lower- utilize existing refining processes and infrastructure. carbon future is the increased electrification of society. With our diverse portfolio and demonstrated We have several areas of research that support capabilities, ExxonMobil can be successful in a this trend, including greater utilization of CCS and Preparing for the potential of shifting demand wide range of future energy scenarios. developments in energy storage technology. ExxonMobil We also recognize that society’s choices on lower- is a leader in existing CCS, participating in more than carbon energies may impact demand for some products one-fifth of the world’s CCS capacity. we produce. For those sectors of our business that might ExxonMobil Downstream’s competitive advantage Refinery unit cash operating expenses(27)(28)(29) see a decrease in demand, rationalization of industry Industrial/Petrochemicals As economic development capacity could occur. Capacity rationalization has been a (indexed) progresses, energy demand for industry and the need key dimension of our industry for decades. For example, 150 for petrochemicals will continue to grow. Here again, over the past twenty years, the global refining sector has Industry average(30) we expect CCS will be an important technology to been overbuilt, leading to industry rationalization. During 140 reduce emissions. Biofuels, as an alternative source of this period, our Downstream business has strengthened energy or as feedstock, is another significant opportunity being investigated. We are also researching ways to its competitive position by divesting smaller, less- 130 competitive facilities and redeploying resources and capital to our larger, more efficient sites that are ExxonMobil(31) 120 integrated with chemical and lubricant manufacturing. of the world’s CCS This constant highgrading of our portfolio has positioned capacity involves ExxonMobil’s Downstream to be one of the most cost- 110 ~22% ExxonMobil competitive in industry, and positioned to address a wide variety of future scenarios. 100 2006 2008 2010 2012 2014 2016 15
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y ExxonMobil is part of the solution Mitigating emissions in our operations We are committed to providing affordable As we seek to produce oil and natural gas to meet In the near term, we are working to increase energy energy to support human progress while growing global energy demand, we are committed efficiency while reducing flaring, venting, and fugitive advancing effective solutions to address the risks to mitigating greenhouse gas emissions within emissions in our operations. We are also deploying of climate change. That’s why we are working to our operations. proven technologies such as cogeneration and CCS, be part of the solution. Our climate change risk where technically and economically feasible. Longer management strategy consists of four pillars: term, we are conducting and supporting research to ExxonMobil has a robust set of processes to improve efficiency and mitigate emissions. These processes develop breakthrough technologies. Mitigating emissions in our operations include, where appropriate, setting tailored objectives Developing scalable technology solutions at the business, site, and equipment levels, and then ExxonMobil remains a leader in CCS technology. Our capacity is among the industry’s largest, with a working Providing solutions for our customers stewarding progress toward meeting those objectives. We believe this rigorous bottom-up approach is interest in more than one-fifth of the world’s CCS Engaging on climate change policy capacity. In 2016, we captured 6.3 million tonnes of CO2 the most-effective approach to drive efficiency improvements and reduce greenhouse gas emissions. for storage, equivalent to switching electricity generated Continuing to use this approach will yield further for about 500,000 U.S. homes to solar from coal. improvements in all sectors of our business. Up close: Investments in lower-emission energy solutions Greenhouse gas emissions avoided Since 2000, ExxonMobil has spent more than (net equity, COÆ¥-equivalent emissions, $8 billion to develop and deploy higher-efficiency cumulative since 2011, millions of metric tons) and lower-emission energy solutions across our Mitigating emissions Developing scalable 0 operations, many of which generate an economic in our operations technology solutions Energy efficiency return. These include: 10 and cogeneration $4 billion at our Upstream facilities on emission Flare/vent reduction reduction efforts, including energy efficiency and 20 flare mitigation 30 $2 billion at our refining and chemical facilities COÆ¥ captured that reduce greenhouse gas emissions Providing solutions Engaging on 40 for storage for our customers climate change policy $2 billion in support of Upstream and 50 Downstream cogeneration facilities to more efficiently produce electricity and reduce 60 greenhouse gas emissions 2011 2012 2013 2014 2015 2016 16
Up close: Taking actions to reduce methane emissions ExxonMobil and its subsidiary XTO have established Planned events such a methane management program that exceeds as liquid unloading applicable regulations. The program prioritizes actions will be managed to at the highest-volume production and midstream sites reduce the release of and includes efforts to develop and deploy new, more- methane emissions to efficient technologies to detect and reduce facility the atmosphere. Liquid emissions. Most aspects of the program are voluntary. unloading removes liquid that has collected in Reporting Our efforts are discussed in ExxonMobil’s equipment tubing and annual Corporate Citizenship Report, as well as other prevents natural gas materials available on our website, where the company from flowing up through reports 10 years of performance data on overall the well. As part of our ExxonMobil methane emissions. In the United States program, field personnel in 2016, XTO reported 205,000 tonnes (5.1 million monitor and remain in close tonnes CO2e) of methane emissions. Specifically for proximity during the manual upstream operations, XTO-operated production unloading process to close emissions equate to about 410 methane tonnes all wellhead vents to the atmosphere. participated in studies conducted by the University of per million barrels of oil-equivalent production, an Texas and the Environmental Defense Fund. This study emissions rate of 0.36 percent. XTO accounts for more Training ExxonMobil is currently developing an quantified methane leakage rates in the United States than two-thirds of ExxonMobil’s methane emissions. enhanced training program to complement these from upstream gas production activities at 0.4 percent efforts. High-bleed pneumatic phase-out Over the next of the total gas produced. three years, we are voluntarily switching out more Improved facility designs We continue evaluating ExxonMobil remains active in ongoing methane than 1,000 high-bleed pneumatic devices for lower- opportunities to upgrade facilities to reduce emissions. research, including participation in a methane or no-bleed devices that can significantly reduce This includes research in collaboration with equipment measurement reconciliation study with the emissions. manufacturers to develop state-of-the-art, low-cost, Department of Energy’s National Renewable Energy minimum-emissions equipment. Leak detection and repair We have implemented Laboratory, and in supporting research currently an enhanced leak detection and repair program Research As part of the company’s efforts to better under way at Harvard University, the University that prioritizes our largest-volume sites and greatest understand the magnitude and characteristics of oil and of Texas at Austin Energy Institute, and Stanford opportunities for emission reductions. gas industry-related methane emissions, ExxonMobil University’s Natural Gas Initiative. 17
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Developing scalable technology solutions As society pursues policies to lower greenhouse Recognizing the challenges associated with most potential to be economically feasible and scalable. gas emissions, technological advancements will be existing low-GHG emissions energy technologies, ExxonMobil is pioneering scientific research to instrumental in providing the global economy with particularly in delivering the necessary economy, scale, discover innovative approaches to enhance existing the energy it needs. and reliability, we are conducting fundamental research – and develop next-generation – energy sources. aimed at developing energy solutions that have the Up close: Advanced biofuels and CCS Advanced, or second-generation, Our broad portfolio of advanced We are conducting proprietary, Carbonate fuel cell technology could biofuels offer the possibility of achieving biofuels research also includes biofuels fundamental research to develop make CCS more affordable, easier significant GHG reductions while also derived from cellulosic biomass, which breakthrough CCS technologies, with to operate, and scalable for power minimizing the impact on land, fresh do not compete with food and fresh an aim to reduce the complexity and plants which, according to the U.S. water, and food supplies compared with water. cost of this important technology, while Environmental Protection Agency, are the first-generation biofuels. increasing its efficiency. single largest source of GHG emissions. ExxonMobil and Renewable Energy ExxonMobil and Synthetic Genomics Group (REG) recently announced that We are working with research institutes In 2016, FuelCell Energy, Inc. and recently announced a breakthrough in by utilizing REG’s patented fermentation like the Energy Research Centre of the ExxonMobil signed a joint agreement joint research into advanced biofuels technology, the companies’ joint Netherlands and leading universities that will allow scientists from both involving the modification of an algae research program has demonstrated like University of California, Berkeley companies to work collaboratively and strain that doubled its oil content the ability to convert sugars from a to develop materials and process further develop this emissions-saving without significantly inhibiting the variety of non-edible biomass sources configurations for scalable, affordable technology. We are progressing this strain’s growth. into biodiesel. carbon capture solutions. technology from the lab to a pilot plant. 18
Providing solutions that reduce greenhouse gas emissions for our customers Over the next few decades, population and income Meeting these demands will require not just more growth – and an unprecedented expansion of the global energy, but will also require energy to be used more middle class – are expected to create new demand for efficiently across all sectors. ExxonMobil is delivering energy and hydrocarbon-based products. solutions that enable our customers to reduce their emissions and improve their energy efficiency. Natural gas Advanced chemicals Lightweight packaging Up close: Lubricating wind power Natural gas emits up to 60-percent and lubricants ExxonMobil also produces ExxonMobil manufactures a number of products fewer GHGs than coal for power Demand for auto parts, housing lightweight plastic packaging from petroleum, including lubricants and greases generation. Natural gas is an ideal materials, electronics, and other materials for everything from food used in generators, gear boxes, and other parts of source of reliable power and can products made from plastics and to electronics. Lighter packaging wind turbines. supplement intermittent renewable other petrochemicals continues to means less transportation-related energy sources such as solar or grow. We produce weight-reducing energy use and GHGs. Plastic Our high-performance lubricants are used in more than 40,000 wind turbines worldwide. Our wind. ExxonMobil is the largest plastics, friction-reducing lubricants, packaging also helps extend the lubricants require less frequent replacement and natural gas producer in the U.S. and mileage-increasing tire liners that shelf life of fresh food by days or therefore reduce the volume of used oil that needs and is a leader in liquefied natural can significantly improve efficiency and even weeks, improving safety and to be disposed of or recycled. gas technology. lower emissions for consumers. reducing food waste. 19
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Engaging on climate change policy ExxonMobil believes the long-term objective of Supporting Paris effective policy should be to reduce the risks of climate ExxonMobil supports the Paris Agreement as an change at the lowest societal cost, in balance with important framework for addressing the risks of other priorities such as meeting increased demand climate change. for affordable energy and better addressing poverty, We welcomed the Paris Agreement when it was education, health, and security. announced in December 2015, and again when it came into effect in November 2016. We have reiterated our Climate change is a global issue that requires the support on several occasions in opinion pieces, blog collaboration of governments, companies, consumers posts, and letters. Up close: Climate Leadership Council and other stakeholders to create worldwide solutions. ExxonMobil is proud to be among the Founding We engage with stakeholders directly and through trade We encourage society to remain focused on pursuing Members of the Climate Leadership Council. Our associations around the world to encourage sound the most cost-effective greenhouse gas reduction support is anchored in a proposal put forth by policy solutions for addressing climate change risks. options, as well as policies that promote flexibility former U.S. Secretaries of State George P. Shultz Our scientists have participated since the inception and innovation. and James A. Baker, III. These statesmen argued for a carbon tax that calls for a gradually rising price on of the IPCC in 1988. carbon. The revenues generated by the plan would be returned to American energy consumers, and Attributes of sound policy not kept by government. Promote global participation They also called for the rollback of existing, less Let market prices drive the selection of solutions Public and efficient carbon regulations that would be made shareholders Ensure a uniform and predictable cost of superfluous by implementation of such a tax, and greenhouse gas emissions across the economy Academic border carbon adjustments to level the playing field institutions Policymakers Minimize complexity and administrative costs SOUND and promote American competitiveness. POLICY Maximize transparency This is an approach that is similar to the principles Provide flexibility for future adjustments to react ExxonMobil has espoused for nearly a decade. to developments in technology, climate science, Industry NGOs and policy 20
Investment planning ExxonMobil is committed to disciplined investing in attractive opportunities across the business cycle. Projects are evaluated under a wide range of possible economic conditions and commodity prices and we seek to ensure projects are robust by applying prudent safety margins. We expect all projects to deliver competitive returns throughout the cycle. The company also stress tests its capital investments, which provides an added margin of safety against uncertainties, such as those related to technology, costs, geopolitics, availability of required materials, services, and labor. Stress testing provides us an opportunity to consider different economic outcomes in our planning and investment process, as appropriate. Up close: Considering future climate-related policies Our Outlook seeks to identify potential impacts of as well as targeted policy assessments to reflect Investment planning climate-related policies, which often target specific potential policies governments may employ related to sectors, by using various assumptions and tools managing the risks of climate change, which can, in Stress testing is a robust approach to evaluate a including application of a proxy cost of carbon to turn, impact future oil and gas demand. This is central range of economic outcomes: estimate potential impacts on consumer demands. to the development of the Outlook for Energy that is This approach assists us in assessing potential considered when evaluating ExxonMobil’s potential Tests investments across key economic variables energy demand over time in many sectors where projects. future policy actions are unclear or may involve Defines economic resiliency and key economic drivers a significantly broad suite of policy initiatives. ExxonMobil also evaluates the direct financial impact Captures insights to mitigate risk In other demand sectors, where the direction of existing and future greenhouse gas regulation of policies and related targets are clearer (e.g., on potential investments on a project-by-project Examples of economic variables (where appropriate): fuel economy standards), a more direct approach basis, as appropriate. This GHG cost examines those Regulatory and reflecting assessments of targeted policies is used, as existing and reasonably anticipated regulations that Fiscal terms Commodity prices environmental appropriate, and as an alternative to a proxy cost. may have an impact on the economics of the project Cost and Infrastructure schedule Geopolitical risks and logistics in question, as opposed to those policies that might Market Technology As such, the demand for energy projected in have an effect on global demand. considerations applications ExxonMobil’s Outlook utilizes a proxy cost of carbon 21
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Managing risks to meet energy demand Many things we do contain an element of risk, After construction of a facility, we monitor and Climate risk oversight whether technical, operational, environmental, or manage ongoing facility integrity; for example financial. Equipped with mature risk-management through periodic checks on key aspects of the ultimately is the responsibility systems, we identify the risks inherent in our structures. In addition, we regularly participate with businesses, look to understand implications, and major engineering societies and industry groups to of the Board of Directors. implement safeguards to eliminate or mitigate assess and update engineering standards. exposures. Once facilities are in operation, we maintain disaster preparedness, response, and business continuity Climate risk oversight Engineering resiliency plans. Detailed, well-practiced, and continuously ExxonMobil’s Board of Directors is responsible for ExxonMobil has long operated facilities in a wide improved emergency response plans tailored to risk oversight, including the risks of climate change. range of challenging physical environments around each facility help ExxonMobil prepare for unplanned The Board routinely reviews and considers this risk, the globe. Our long history of design, construction, events, including extreme weather. Regular including briefings on public policy, scientific and and operations provides us a solid foundation to emergency drills are practiced in partnership with technical research, as well as company and external address risks associated with different physical appropriate government agencies and community positions and actions in this area. Climate-related environments. The company is aware of the risks coalitions to help ensure readiness and minimize the matters are also considered by the Board throughout posed by weather and other natural elements, impacts of such events. the year in various other contexts, including reviews and actively designs its facilities and operations of the Outlook for Energy, the company’s safety, in consideration of this risk. ExxonMobil’s comprehensive approach and health and environmental performance, the annual established systems enable us to manage a wide corporate planning process, shareholder proposals, When considering physical environmental risks, we variety of possible outcomes. and regulatory filings such as the 10-K. evaluate the type and location of our current and planned facilities. As an example, offshore facilities could be impacted by changes in wave and wind intensity as well as by ice flow patterns, while onshore facilities could be vulnerable to sea level rise, changes Highlight: Incorporating risk management into executive compensation in storm surge, or geotechnical considerations. Compensation of senior executives is determined by a committee made up of entirely independent directors The compensation program incentivizes effective management of all operating and financial risks Our facilities are designed, constructed, and More than 60 percent of senior executive compensation is based on performance share awards that have operated to withstand a variety of extreme weather a restriction period that is 3 times longer than comparators. The size of individual awards is based on key and environmental conditions. We use historical performance metrics including safety and operations integrity, in which sustainability risks are incorporated. experience with additional safety factors to cover a The longer restriction periods of the stock program ensure that senior executives consider how decisions made range of uncertainties. today will affect shareholder value a decade later; these decisions comprehend the risks of climate change where appropriate. 22
The Chairman of the Board/Chief Executive Officer and other members of the Management Committee have responsibility for management of climate risk, including in business plans, performance, and public policy. The long-term nature of ExxonMobil’s compensation program requires consideration of the risks of climate change and other sustainability matters, as described more fully in the highlight box on the previous page. Public Issues and Contributions Committee The Board’s Public Issues and Contributions Committee assists the Board in providing oversight of the corporation’s safety, health, and environmental performance, including issues associated with climate risk. This committee reviews the effectiveness of the Corporation’s policies, programs, and practices on safety, health and the environment, and social responsibility. The committee receives reports relating to operating units’ safety and environmental activities and also visits operating sites to observe and comment on current operating practices. For example, in 2017, the committee and other Board members visited ExxonMobil’s research and development facilities in Clinton, New Jersey, to review our research programs, including advanced biofuels and carbon capture and storage. All members of the committee are independent within the meaning of the New York Stock Exchange listing standards. The committee’s charter is available on the Corporate Governance section of our website. ExxonMobil scientist and innovator inspects a reactor in our lab in Clinton, New Jersey. 23
E X X O NMOBIL 2 0 1 8 E N E R G Y & C A R B O N S U M M A R Y Disclosures ExxonMobil is committed to providing our shareholders with disclosures that impart meaningful insights about our business, including how we manage climate-related risks. This report, along with the rest of our comprehensive set of disclosures relating to climate risk follow the framework established by IPIECA, including IPIECA’s Climate Change Reporting Framework. IPIECA members represent a significant portion of the world’s oil and natural gas production, including state oil companies, and is the industry’s principal channel of communication with the United Nations. This broad, global membership enables a reporting framework that is tailored to the petroleum industry and better permits comparisons of member companies on a more consistent and standardized basis. There are numerous other reporting frameworks under various stages of development, including the framework proposed by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD). We continue monitoring developments regarding these other frameworks, including the TCFD recommendations, and believe our disclosures under the IPIECA framework substantially address many of the key disclosure aims of these other frameworks. Our financial reporting is in accordance with United States regulatory requirements and generally accepted accounting principles. Web links to our other various climate-related disclosures are highlighted below: Corporate Citizenship Report (http://corporate.exxonmobil.com/en/community/corporate-citizenship-report) Emissions Data (http://corporate.exxonmobil.com/en/community/corporate-citizenship-report/charts) Outlook for Energy (http://corporate.exxonmobil.com/en/energy/energy-outlook) Technology (http://corporate.exxonmobil.com/en/energy/research-and-development/innovating-energy-solutions/research-and-development-highlights) Enhanced Methane Emissions Reduction Program (http://xtoenergy.com/responsibility/current-issues/air/ xto-energy-methane-emissions-reduction-program) Climate Policy material (http://corporate.exxonmobil.com/en/current-issues/climate-policy) Current issues relating to energy and climate (https://energyfactor.exxonmobil.com/perspectives/managing-climate-risk/) ExxonMobil Energy Factor blogs (https://energyfactor.exxonmobil.com/) SEC Form 10-K (http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-finlanding) Existing policy frameworks (including the Paris NDCs), financial flows, and the availability of cost-effective technologies indicate that society is not currently on a 2C pathway. Should society choose to more aggressively pursue a 2C pathway, we will be positioned to contribute through our engagement on policy, development of needed technologies, improved operations, and customer solutions. Footnotes (1) OECD – Organisation for Economic Co-operation and Development. (2) Article 4 paragraph 2 of the Paris Agreement http://unfccc.int/files/home/application/pdf/paris_ agreement.pdf (3) Decision 1/CP.21 Section II.17 https://unfccc.int/ resource/docs/2015/cop21/eng/10a01.pdf (4) Based on average of Assessed 2C Scenarios’ CO2 emissions (~20 billion tonnes including energy and industrial processes), ExxonMobil GDP assumptions consistent with 2018 Outlook for Energy. (5) IEA, Perspectives for the Energy Transition, page 57. (6) Such as the 17 sustainable development goals adopted by the United Nations. http://www.un.org/ sustainabledevelopment/sustainable-development-goals/ (7) “EMF was established at Stanford in 1976 to bring together leading experts and decision makers from government, industry, universities, and other research organizations to study important energy and environmental issues. For each study, the Forum organizes a working group to develop the study design, analyze and compare each model’s results and discuss key conclusions.” https://emf.stanford.edu/about EMF is supported by grants from the U.S. Department of Energy, the U.S. Environmental Protection Agency as well as industry affiliates including ExxonMobil. https://emf.stanford.edu/industry-affiliates (8) To understand some of the characteristics of future transition pathways, we analyzed energy and emissions data from a range of EMF27 stabilization, policy and technology targets, primarily focusing on 450 and 550 stabilization targets, as well as no-policy cases that utilize a full suite of technologies. The suite of full technologies (FT) includes a range of options, including: energy efficiency, nuclear, carbon capture and storage (CCS), biofuels and non-bio renewables such as solar and wind. The EMF27 study considered other technology-limited scenarios, but a key finding was that the unavailability of carbon capture and storage and limited availability of bioenergy had a large impact on feasibility and cost. Given the potential advantages to society of utilizing all available technology options, we focused on capturing the results of different EMF27 models that ran 450-FT cases; we were able to 24
download data for 13 such scenarios, and utilized that data as provided for analysis purposes (most of the scenarios had projections extending from 2010 to 2100). Data downloaded from: https://secure.iiasa.ac.at/web-apps/ ene/AR5DB (9) EMF27 cases include CO2 emissions from energy and industrial process. (10) IPCC (2013) Climate Change 2013: The Physical Science Basis assessed in its Table SPM.2 that temperature increased from the period of 1850-1900 to the period 1986-2005 by 0.61°C, and that the mean CMIP5 model temperature projection of RCP 4.5 increased from the period 1986-2005 to the period 2081-2100 by an additional 1.8°C, giving a total increase of 2.4°C from the period of 1850-1900 to the period of 2081-2100. (11) The Assessed 2°C Scenarios produce a variety of views on the potential impacts on global energy demand in total and by specific types of energy, with a range of possible growth rates for each type of energy as illustrated in this report. Since it is impossible to know which elements, if any, of these models are correct, we used an average of all 13 scenarios to approximate growth rates for various energy types as a means to estimate trends to 2040 indicative of hypothetical 2°C pathways. (12) Based on the average of the Assessed 2°C Scenarios referenced in this report, the combination of renewables, nuclear and fossil fuels using CCS is estimated in these scenarios to increase significantly as a percentage of total primary energy demand, rising from approximately 10% in 2010 to roughly 40% in 2040. (13) Total electricity delivered as a percentage of total final energy demand increases from 18% to 28% on average across the 13 Assessed 2°C Scenarios referenced in this report. (14) Under the Assessed 2°C Scenarios, the average growth rate for oil demand is -0.36% from 2010 to 2040, which implies a decrease in absolute level of demand in 2040 by ~10% relative to 2010 levels, which is near 2000 levels. Oil demand has increased about 9% since 2010, hence it would require a demand decrease of ~20% to reach the same 2040 level relative to today’s demand. Trends toward a level close to 2000 would imply oil used in road transportation trends toward 30 Moebd, and oil used for aviation and marine trends toward 9 Moebd. (15) Electricity delivered from fossil fuels without CCS as a percentage of total electricity delivered decreases from 66% to 20% on average from 2010 to 2040 under the Assessed 2°C Scenarios. Share of electricity from non-bioenergy renewables (e.g. wind, solar, hydro) increases from less than 20% to ~35%. Share of electricity generation utilizing CCS increases to about 20%. Share of electricity from nuclear increases from ~15% to ~20% (implies double the level of nuclear capacity from 2016 to 900 GW). (16) Based on average global demand growth rates under Assessed 2°C Scenarios. (17) Based on average global demand growth rates under Assessed 2°C Scenarios. (18) For the purposes of this report, proved reserves are year-end 2016 proved oil and gas reserves for consolidated subsidiaries and equity companies as reported in the Corporation’s Annual Report on Form 10-K. Proved oil and gas reserves are determined in accordance with Securities and Exchange Commission (SEC) requirements. Proved reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible under existing economic and operating conditions and government regulations. Proved reserves are determined using the average of first-of-month oil and natural gas prices during the reporting year. (19) For the purposes of this disclosure, resources are total remaining estimated quantities of discovered quantities of oil and gas that are expected to be ultimately recoverable. The resource base includes proved reserves and quantities of oil and gas that are not yet classified as proved reserves. At year-end 2016, the total resource base totaled approximately 91 billion of oil-equivalent barrels including 20 billion oil-equivalent barrels of proved reserves. (20) To estimate global demand in 2040 for oil and natural gas, the average of the Assessed 2°C Scenarios’ growth rates for oil and natural gas covering the period 2010-2040 have been applied to standard baseline estimates of oil and natural gas demand in 2010. (21) IHS: Climate-Related Financial Risk and the Oil and Gas Sector, page 23. (22) The Assessed 2°C Scenarios growth rates imply a range in 2040 global oil demand from about 53 to 103 Moebd and for 2040 global natural gas demand from about 265 to 625 Bcfd. (23) IEA: World Energy Outlook 2017. (24) Hypothetical cumulative production determined by proportioning ExxonMobil’s 2016 average daily production (Form 10-K, page 8) and 2016 average daily global oil and gas production to estimated 2040 average daily production (assuming ExxonMobil’s current market share and 100% proved reserves replacement to maintain its proved reserves consistent with its production ratio at the end of 2016) and implied oil and gas demand from the 2°C Scenarios Average. Assumed linear decline of estimated average daily production through 2040. (25) IEA: Perspectives for the Energy Transition, page 56. Estimate for IEA crude oil and Natural gas and future prices for 2020, 2030, and 2040. (26) As used here “carrying value” is our property, plant and equipment (PPE) net of accumulated depreciation. ExxonMobil’s carrying value of property, plant and equipment as of September 30, 2017 was approximately $255 billion. The reference to “less than 5 percent of ExxonMobil’s total carrying value of property, plant and equipment” is calculated by taking the PPE carrying value of ExxonMobil’s resource base and subtracting from it the PPE carrying values of ExxonMobil’s proved reserves, its producing assets that do not currently meet the SEC’s definition of proved reserves, its unconventional liquids assets and its natural gas assets, and comparing this resulting value against ExxonMobil’s total PPE carrying value as of September 30, 2017. (27) Source: Solomon Associates. (28) Solomon Associates fuels and lubes refining data available for even years only (29) Constant foreign exchange rates and energy price. (30) 2016 industry data not available. ExxonMobil data estimated. (31) Assumed constant year-end 2016 portfolio.
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