the outlook for refining and chemicals

As the ExxonMobil Management Committee’s newest member, Senior Vice President Mike Dolan has stewardship responsibilities for a wide range of businesses and departments as well as in several countries. Key among them are ExxonMobil Refining & Supply Company and ExxonMobil Chemical Company. In this interview, Dolan highlights issues impacting the refining and chemical businesses.

What key challenges are facing ExxonMobil and the global refining industry?

Challenges are nothing new to the refining business – we have been working for decades to provide reliable, affordable energy to consumers around the world.

The primary challenge facing the industry is economically meeting the growing demand for energy. And, it’s not just that demand is increasing, but the product needs are changing as well. Gasoline demand in mature markets such as North America, Japan and Europe is decreasing, while global demand for diesel is strong. What this means for refiners is that we need to find ways of using our equipment and supply systems to meet the shifting demand as efficiently as possible.

At the same time, the crude we use to make our products is changing as new supplies enter the market. We continue to find innovative ways to refine these often difficult-to-process crudes to maximize our raw material flexibility.

The industry is also facing ongoing changes to product-quality specifications. New regulations often require major capital investments that ultimately increase the cost of producing fuels. Our challenge is to develop and implement economic ways to meet the new requirements more efficiently than our competition.

What are the implications of these trends?

The refining industry will need to adjust in order to meet both demand growth in Asia and the shifting demand in mature markets. At the same time, refiners must make significant capital investments in many markets to produce lower-emissions fuels. Add to this the expectation that refining margins will return to historically lower levels, and this could mean some refiners may have to make some tough economic decisions. However, given our competitive strengths, we expect not only to survive, but to do well.

How is ExxonMobil prepared for this highly competitive environment?

ExxonMobil has been in the refining business for a long time. One of our great strengths is that our approach to the business has not changed, regardless of industry conditions.

The clearest example is our consistent focus on operational excellence. Our organization works hard to continuously improve all aspects of our operations to keep our refineries running safely, reliably and at peak efficiency.

Technology also plays a critical role in our competitive position, and we’ve demonstrated a consistent commitment to research and development. We can deploy our own internally developed technology when new challenges arise, and this is a capability that many of our competitors simply don’t have. New technologies have allowed us to diversify the kinds of crude we can use, optimize the yields of higher-value products and improve the energy efficiency of our refineries and chemical plants.

ExxonMobil Refining has also continued to invest in projects – not only to meet new regulatory requirements, but also to lower operating costs and enhance yields and capacity. Our extensive capital project management experience allows us to implement these projects more efficiently than others.

Of course, none of this would be possible without our exceptionally talented work force. Our people create a real and sustainable source of competitive advantage.

Please share your perspectives regarding higher gasoline prices and their impact on consumers.

No one likes spending $70 or more to fill up his or her car. Through our own personal experiences and through those of our family members and friends, we understand that people are struggling to fit these additional costs into family budgets.

Demand has grown along with the economic progress of many developing countries, especially in Asia. Progress is good, but it has contributed to the tightening of fuel supplies. While we have no control over the markets, ExxonMobil can do its part to address this problem by adding more supply. To do this, we need greater access to more prospective areas around the world, including acreage off the U.S. East, West and Gulf coasts.

ExxonMobil has the industry-leading technology to develop resources to their fullest potential and at the lowest cost. We also have technology that is superior to what was available 30 to 40 years ago for developing these resources with utmost care for the environment. If allowed greater access, we could over time help bring supply and demand into better balance so that consumers could see an impact at the pump.

What are the primary challenges facing ExxonMobil’s chemical business and how is the company responding?

There are three areas where we spend a lot of our research dollars in constant pursuit of improvements – advantaged feedstocks, process efficiency and product differentiation. All three areas present challenges, but the most important is feedstock. You are always looking for opportunities to increase production with lower-cost feeds. Successfully doing that will generate the most economic return.

One area where we have done a great job is the integration of our world-scale refineries (sources of feedstock) and our world-scale chemical plants (users of feedstock) and determining how to upgrade each hydrocarbon molecule to obtain the highest value. No one does it better. We can take refinery streams that other companies may be unable to use and convert them into higher-value chemical products.

We have done a great job at maximizing the use of refinery streams through new technology and molecule management. But, how do you get more advantaged feedstocks, especially in the growing Asian market, which is not feedstock rich? We think the answer may lie in developing new technology to generate feedstocks from lighter hydrocarbons, such as natural gas, to very heavy materials such as crude oil and even perhaps from coal. That continues to be a major focus in our research program.

What message would you like to leave with shareholders regarding the future of ExxonMobil’s chemical business?

ExxonMobil Chemical is one of the most profitable chemical companies in the world. Our return on capital employed is currently more than 10 percent higher than that of our closest competitor.

We have experienced some very good margins, but the business is cyclical, and margins go up and down. We have gotten to where we are today because we have a long-term strategy and have stayed true to that strategy, making smart decisions decade after decade. Our chemical employees understand that they owe their success to the whole line of people who over the past 40 years or so came to work and did the right things every day. That is a heritage we all take seriously.

For many of the projects and initiatives we undertake today, we really won’t see the full benefit for five, 10 or even 15 years. But I think it is important to all of our people and to our shareholders that we are contributing to the long-term success just like those who came before us.