Remarks by Jeff Appleton December 3, 2012 PNG Mining and Petroleum Investment Conference, Sydney Australia

[Slide 1] Good Afternoon. Thank you for that warm welcome. As Senior Vice President for LNG Marketing, I had the fortunate opportunity to lead the Papua New Guinea LNG marketing team that secured the sale agreements with our four buyers to underpin the project investment. I have fond memories of travelling with Prime Minister ONeill, then a Minister, to China and Japan to meet with Government Officials and the buyers management to give them confidence in our new LNG project from a new LNG supplying nation. Ive been part of the Papua New Guinea LNG Project team for many years now, but this is my first time speaking at this conference. It is indeed an honour to be with such a tremendous group of government and industry members from across the mining and petroleum sectors. From what I understand, the number of people attending this conference continues to grow from year to year, and this is a reflection of the enormous interest in PNG and the vast potential of this countrys resources.

When I first joined the PNG LNG marketing team, ours was the only LNG project on the horizon in Papua New Guinea. Now, you cant pick up a newspaper without reading about other LNG projects being considered for development in PNG. It really is a very exciting time to be part of this industry. Straight up after me is Decie Autin, the Project Executive for the PNG LNG Project, so I wont be providing an update on the Project. Ill leave that to her. What I wanted to talk about today is the outlook for the gas market on an international stage. Given our location, I will focus on the Asia Pacific region, but within the global context. The data I will be referencing in my presentation is from our annual Energy Outlook report. For those not familiar, each year, ExxonMobil conducts a detailed analysis of the worlds energy needs, the results of which form the basis of our investment strategies. We share these findings in our Outlook for Energy. The Outlook is a comprehensive and detailed analysis, built upon a combination of public and proprietary data from more than 100 countries. We look into the future in the case of this year, weve looked as far ahead as 2040.

If you find graphs and numbers entertaining, then feel free to read more about our projections at www.exxonmobil.com. As I have reviewed our Energy Outlook, I want to point out the strong potential natural gas has afforded our industry. It has truly transformed the global energy landscape. This transformation has occurred so quickly that we need to take a step back and recognise all of the economic and environmental achievements associated with natural gas. In the U.S., gas has been replacing coal in power generation, which has been a significant factor in CO2 emissions being the lowest they have been in 20 years. This is truly extraordinary because, even with recent economic struggles, the U.S. economy is 60 percent larger than it was two decades ago, and its primary energy consumption is roughly 14 percent higher. [Slide 2] Global Markets Evolve So lets get started by considering where weve been on this evolutionary global market journey. Only by clearly understanding the past, can we chart a productive path to the future. So, here is where we were, as a global gas market, just twelve years ago.

Unconventional gas was largely viewed as uneconomica niche supply at best. Global LNG trade totaled about 107 MTA, with the Asia Pacific LNG supply at around 73 MTA. The so-called global marketplace was really a series of regional markets with limited liquidity. [Slide 3] Fast forward ten years to 2010. Unconventional gas dramatically changes the energy landscape by reaching almost 10 percent of global supply. ExxonMobil increased our focus on U.S. unconventional supply during this time. Today, ExxonMobil is the largest producer of natural gas in the U.S. Seeds Of The Future It is instructive to pause a moment to reflect on the U.S. experience because natural gas didnt always generate this much enthusiasm. In fact, an honest read of American history suggests just the opposite. In the early days, natural gas represented a waste productburned off in columns of flame resembling the Olympic torch along the Texas plains. According to energy author Daniel Yergin, in his epic book The Prize, natural gas was considered a useless, inconvenient by-product of oil production and thus burned offsince there was nothing else to
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do with it. Natural gas was the orphan of the oil industry. But President Franklin D. Roosevelt took an active interest in natural gas in the 1940sa time when it was still a vastly underutilized resource. In 1942, he wrote to his Secretary of the Interior Harold L. Ickes, I wish you would get some of your people to look into the possibility of using natural gas.1 They did. And much has changed since then. Yergin writes: On a global basis, coal had provided twothirds of world energy in 1949. By 1971, oil, along with natural gas, provided two-thirds of world energy. 2 [Slide 4] Lets peek into that future. Fossil fuels will likely continue to meet most of the world's energy needs over the next 30 years because no other energy sources match their availability, versatility and flexibility. Natural gas, in particular, provides affordability, reliability and efficiency, as well as environmental benefits. These combined attributes make gas a winning, long-term proposition for the future. Right now, the world uses roughly 15 Billion BTUs of energy every secondand that energy appetite is
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The Prize p 379 The Prize p 546

growing! By 2040, global energy demand is anticipated to be about 30 percent higher than it was in 2010. Natural gas marketsonce regional in natureare slowly globalising. [Slide 5] Drivers Of The Shift So whats driving all of this? Population growth and economic growth, as measured by GDP. [Slide 6] Right now there are more than 7 billion people on the planet. In thirty years, that is expected to grow by a quarter to nearly 9 billion people while economic progress, as measured by GDP, doubles. Billions of people will join the quest to improve the quality of their lives and achieve new levels of prosperity. [Slide 7] In short, growth drives demandboth population growth and economic growth. This real impact of the oil and gas industry is too often overlooked. Through the creation of jobs, business opportunities, community programs and investment, ours is an industry which reduces poverty, increases living standards and provides a better quality of life for billions of people around the world. [Slide 8]
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As individuals pursue these improvements, global energy demand is anticipated to increase about 30 percent over the next thirty years. This new demand will be most acute in places like India, pictured here, or Africa. [Slide 9] Fossil fuels will play the critical role in fueling the future with help from renewables. The truth is we will need all the energy we can get to meet coming demand. [Slide 10] The use of natural gas is expected to grow fastest, with demand anticipated to be up by more than 60 percent by 2040. In fact, natural gas is projected to surpass coal as the favoured fuel for power generation. This has important environmental implications because natural gas has 60% fewer emissions. In China in particular, we expect to see its electricity generation source shift slightly away from coal to natural gas by 2025. By 2040, natural gas is anticipated to account for 10 percent of Chinas electricity generation fuels; coal will likely account for more than 50 percent. [Slide 11] Supply and Demand
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Lets drill down deeper into the global gas supply. We have roughly 250 years worth of natural gas at current demand, according to the International Energy Agency. [Slide 12] Here, you get a sense of where that gas is known to bewith the Asia-Pacific region the fourth largest resource holder. [Slide 13] Fifty-four percent of the total global gas resources are unconventional resources. Unlocking this unconventional resource is very important particularly when we consider global gas demand concentrated in Asia. Im sure many people here have heard about unconventional gas even though its not something that we need to consider here in PNG with the gas fields that we have. For those who dont know, unconventional refers to gas that is produced from shale and other rock formations. Drillers can horizontally steer the drill bit through the shale rock formation. Then a technique called hydraulic fracturing creates a fracture in the rock kept open by water and sand. This open fracture produces a highway for the gas molecules to flow through the rock into the pipe for production. [Slide 14]
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Hydraulic fracturing unlocked more than 15-thousand shale wells in North America between 2008 and 2011. By safely and responsibly combining hydraulic fracturing and horizontal drilling, technology is once again lighting a path to progress. [Slide 15] Not surprisingly, the Energy Information Agencys estimate of U.S. unconventional gas production jumped almost seventy percent over the time period. [Slide 16] During that same time period, the rest of the world drilled fewer than 100 shale wells. Clearly, everyone is watching the unconventional gas story with great interest. [Slide 17] Looking a little closer to home, Australia is certainly making moves in this area. The country has overcome challenges to drill more than 1,000 Coal Seam Gas wells between 2008 and 2011 with anticipation of many more to come in the next twenty years. Unconventional gas is certainly a huge resource for ExxonMobil, and an area that we continue to invest in around the world. [Slide 18] Now that we have taken a look at supply, lets shift to a focus on demand. Looking ahead to 2040, we project
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that the Asia-Pacific region will account for twentynine percent of total worldwide gas demand while we see demand in the U.S. and Europe flat to down slightly as those regions make gains in energy efficiency. On the Asia-Pacific panel, notice the growing orange wedge. That is the growing influence of Liquefied Natural Gas over time. [Slide 19] As a global leader throughout the LNG value chain, we believe that natural gas has a significant and growing role to play in meeting future global energy demand. Which, by virtue, means that Papua New Guinea has an important role to play. Our projection is that LNG growth will continue with PNG supplying just over 10 MTA of global supply by 2025. [Slide 20] Now lets look at the demand side of the equation in more detail. [Slide 21] Clearly, a global market is emerging with the AsiaPacific region poised to become the largest global gas market. You can see the Asia-Pacific demand, represented in green, placing a larger call on global supply. [Slide 22]
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In fact, its a market that is expected to demand approximately thirty percent of total gas demand three decades from nowas you can see in this pie chart. Im sure this doesnt surprise you. The four customers for PNG LNG all come from the Asia Pacific region China, Japan and Taiwan. PNG is uniquely located to continue to meet the demand from this growing region. [Slide 23] Worldwide gas-fired power generation will likely grow significantly over this same time period. Our projections are that in three decades, power-gen demand will be eighty-seven percent higher than 2010 levelsand represent nearly half of total gas demand. [Slide 24] You might ask: Why the switch of fuel types? What is the case for gas? [Slide 25] Natural gas is cleaner-burning, affordable and abundant. These attributes make it a particularly attractive fuel choice for power generation. Natural gas power generation plants are based on proven technology, can be built quickly, and are already cost effective. With today's improved turbine technology, natural gas power generation can provide a significant source of
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flexibility and reliability to a power grid responding to rapid changes. [Slide 26] That brings me to my third and final big point today: The future is never certain, but smart policies are needed that encourage development, provide access to reserves and encourage domestic market reform. When governments and industry work together to encourage long-term thinking, uphold the rule of law and recognise the sanctity of contracts they provide a fair, stable framework of law, taxation, and regulation which promotes free trade and encourages transparent international partnerships. Only with the right regulatory framework will PNG and other countries in the region capture their share of natural gas demand growth, creating opportunities for the people of Papua New Guinea. [Slide 27] The Evolution of the Global Gas Market requires a relentless pursuit of new resources, access to those resources and the markets for them. [Slide 28] Im excited about the continuing innovation going on not just at ExxonMobil, but within the industry as a whole throughout the world.
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And natural gasonce considered a waste product is seen today as a reliable, abundant, affordable and cleaner-burning energy choice. I want to sincerely thank you for the opportunity to share these thoughts with you this morning/afternoon and I want to express my appreciation for your time and attention. [Slide 29 close]

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