 I want to say thank you all for being here. And I want to especially say thanks to John Watson for joining us today. My name's John Hamery. I'm the president at CSIS. And just my role is ornamental this morning. My wife laughs at that, too. Just think this morning of one thing that you did that did not require energy. It's hard to come up with one. I mean, my alarm went off at 5.20. Took electricity to do that. The treadmill, electricity, the hot water to shower, that was courtesy of natural gas. My car got down here. There isn't a thing that I've done today that hasn't required energy. Think of a foundation for a society, a modern society, a modern economy that is more fundamental than energy. And yet we as a country don't think of it that way. We don't really have an energy policy in America. We've got ag policy, which gives us ethanol. We've got labor policy that gives us coal mines. We've got tax policy that gives us windmills. We've got all kinds of policies that give us energy, but we don't have an energy strategy for America. The other thing I think is typical and unique in this country is that we have decided we're going to put energy policy in both the public and the private sector. We don't have a state oil company. My dear friends at Stott Oil, they get to decide what we're going to do in Norway. But what do we do in America? We've decided we're going to put this in the private sector. And that means that the private sector plays both a responsibility for solid energy policy, but then we also need to be listening to that private sector for its insights. And that's what this series is about. So we've asked leaders like John Watson to join us today for a conversation about the most fundamental part of our economy, and that's the foundation of energy. It's going to be a far-ranging, wide-ranging conversation. All of you are going to be a part of it. I believe that we're going to take questions on cards. That's so that we can make this the most efficient so that we get quality of learning out of this rather than fireworks. But I think we're going to have an interesting day. And I look forward to it. Frank, why don't you take over from here? John, say thank you. I'd like to thank you for coming. Glad to have you. Glad to be here. Thank you, John. So let me join John in thanking John Watson to be with us today. John's a veteran of the energy industry. It's 33 years now. Hard to believe, yes. You're still a young man. But the fact that the role of CEO for Chevron at this point, especially at this point in time, has to be just a phenomenal thing. When you go back and look at all the things that happened in the last decade, certainly, but even the last five years, this new energy renaissance, Fukushima, tidal oil, shale gas, our climate objectives, what we've done with tax policy, this just has to be a wonderful opportunity, not without challenges, but from your perspective as the CEO of a large multinational corporation. What does that mean? What does it mean to the company? What does it mean to the country? What does it mean for the world? I think John said it very well. It is a privilege, an honor, and some responsibility to be the backbone of the world's economy. And if you think about what's happened over the last 150 years, we've seen the greatest advancement in living standard that we've ever seen on this planet. And that's been facilitated largely by affordable energy. And so light, heat, mobility, industry, all the things that we value, all the things that John talked about as we were getting started, are the things that give us the quality of life that we have today. And countries around the world are aspiring to what we have. There are a billion people that have all those good things. There are perhaps five or six billion people that don't. And that's the challenge going forward, is that all the peoples of the world want to have an improved standard of living. And in order to have that, they're going to need affordable energy. And so I think that's our job. That's our responsibility. And when we speak of energy policy, I typically think about three things. One is, how do we produce affordable energy? How do we address legitimate security issues around those energy supplies? And then we have environmental objectives. But I always look at it through the lens of affordable energy, because that's what governments around the world have to deliver to their people. So in terms of just taking it back to the IOC role, there's a number of things that US companies, the benefits that we provide for the world, and it could be technology, it could be best practices. So in addition to delivering energy for the billion and a half people that don't have it or the global population, how difficult is that? And what are the benefits for multinationals? What special role do you have in that regard? I think the role of multinationals in general, not just in our industry, but throughout American business is not all that well understood. If you look at the financial statements for the top 20 industrial companies, more than half of their business is overseas. For Chevron, 75% of our earnings are generated outside the United States. But half our employees are here in the United States. And those types of percentages are very similar. Companies that are based in the US, multinationals, still are largely US-driven. That's where their intellectual property is housed. That's where their home offices, where product development work often takes place. And multinationals, I think, are one of the great advantages that this country has. If I think about how challenging it is to impose our will militarily these days around the world, when I think about how challenging it is to win all the arguments at the bully pulpit, the one vehicle for instilling American values overseas, transparency, adherence to rule of law, sound environmental practices, really it is American companies that have that. Now we also do philanthropy and have a number of social practices that are very good. And I think that's part of the role that we have as we develop energy supplies. We get brought in because of the technology we bring, but we also brought in for all those other reasons. And I think that's not a story that we tell well enough to the American people. So let me take it on a personal level now. So you came up the financial side, but you've also done EMP. When you look at the opportunity pool that's available to companies now and the shifting landscape that Dan so popular talking about, how do you choose and pick whether it's an LNG project overseas or it's shale gas development in the United States or it's downstream infrastructure so that you get this delivery build out so that you can have a market for your product? Well, the irony of the energy business today is we have never had a longer queue of opportunities. There are so many opportunities, shale, deep water, arctic, conventional opportunities, sour gas, all sorts of heavy oil, challenged resources. And that's right in our sweet spot. We are good at technology, at the hard things, at developments that are on the cutting edge. We make our choices based fundamentally on the rocks and where we're going to produce and the quality of the resource. But we also base it on whether we can do it affordably, whether we can do it and be profitable and how much competition is there, how easy is it to be done. And so we think we bring a unique set of characteristics that host governments often value. I can pick countries like Liberia where President Sirleaf had a number of choices of companies she could have asked in. But she waited for us. And she wanted us because in her words, she said, I want a company that I can trust. I think there were a total of four petroleum engineers in Liberia at the time. And so she said, Mr. Watson, I want a company I can trust. And I thought that was high praise for us, but I don't think it's atypical because we've been asked into better part of 10 countries just in the last few years alone because of all the good practices that we bring, including transparency. Well, and you've been on the forefront of this licensed operate momentum. When you start looking at that, we've always viewed that shale gas development and tide oil, we can manage the below ground. It's the above ground issues, right? So population density, what you do with water, how you deal with emissions. But Chevron has taken a real lead in that. I think there have been some learnings. You know, we're not perfect. And we're working to get better every day. And I think the industry is also what's clear. And I think really the Macondo incident, the Gulf of Mexico was perhaps the turning point is public expectations are very high. And there's no reason they shouldn't be high. The industry has gotten better. We actually do have fewer spills. We actually are getting better at what we do. But we have to keep moving the bar. One of the things that we've done recently is we formed the Center for Sustainable Shale Development in the Marcellus Shale in this country. And there are already good state regulations in place. There are federal regulations that are in place. But we and a couple of other companies and some NGOs and others got together and put in place the center, which will have 15 performance standards that companies can be certified against through third party auditors. I don't believe any company will be certified today, but everyone is moving toward those performance standards. And it's controversial in some quarters, both in the environmental movement and in my industry. But we think it's the right thing to do. These are standards that we're aspiring toward. And we think that it's good for the industry to be moving the bar to meet the legitimate concerns. It's evolving and progressive. It's not just stop at this point and now you're done. And there are some communities in the United States that are used to having their own gas business. But there are others in Pennsylvania that are not. And so we have to be sensitive to what their concerns are. There are some risks out there. Some risks have been overstated. But we have to address them either way. And I think that's what we do when we engage with the communities and we put in place these sorts of entities that can give confidence to the local communities. It's no different there than it is in Central Europe. We're going through these exact same issues there where you have to engage with communities. And there are homeowners and ranchers and others that have real concerns. So you have to, you can say we're safe. You can say we fracked a million wells where this is safe. You can say that all you want, but they want to be assured. So let me take you back to the industry piece. There's a lot of companies now that have chosen to spin off different assets. And Chevron's always been one that talked about integration and the value of a strong integrated company. Can you discuss that a bit? Sure. There have always been different segments to our business from operating service stations through exploration-only companies. And then there have been some that have been fully integrated throughout that chain. Chevron has remained an integrated company where we are putting most of our money into the exploration and production business, producing oil and gas out of the ground. But we have felt that there's real value in having integrated operations. What's happening today in our business is the resources that we're developing are more challenged, if you will. They require more processing at the field level. And so the line is very blurred between a refinery and, say, an upgrade when you're producing heavy oil or the facilities that it takes to process the sour stream that's coming out of the oil and gas in Kazakhstan. If you went to Kazakhstan to our Tingyi's operation and you saw the producing facilities, it would look a lot like a refinery to you. And so the LNG plants that we're putting in place, those look a lot like big processing facilities. And so the line is very blurred. And so whether you're an integrated company or not, you are going to have these big facilities and the expertise that's drawn fundamentally from the refining side of the business. And so we're in both businesses today. Yeah. Actually, one of the big projects that we're working on here, and Dave should be smiling in the back of the room, is this infrastructure idea. So while people have moved from the peak oil to energy independence tomorrow, there's a lot that has to happen in between in terms of investment and matching crude quality, not just volume, with refinery configurations. We've got natural gas, liquids, and oil as a continuum. But now fractionators, pipelines, rail. There's a whole host of things that have to go in between. Well, the opportunity in the US, we tend to put it in terms of natural gas or oil. But you're exactly right. We're producing oil, gas, natural gas, liquids in many different locations. And we need pipeline infrastructure. And we need, and if we're going to take full advantage of it, we're going to need to operate and permit petrochemical plants. And so when I think about the energy renaissance that's taking place in this country, my concern and what I advocate is, let's celebrate that. But let's be sure that we put in place the policies that will enable that to happen. And so I'll give you three examples of that. One, tax policy. We can talk about that if you like. But tax policy has to support this. Access, 85% of our continental shelf is off-limits to development. The increases in production that we're seeing this country are happening on private lands, not so much on public lands. And then we need to be sure that the EPA and the actions that they take are supportive of all of these developments. I do have concerns about some of the actions that are being taken by the EPA. It happens in the basement somewhere. But the cost-benefit analysis needs to be very real and thoughtfully done to be sure that the regulations that are put in place won't have unintended consequences. OK. Well, so actually, you've moved right into the energy policy realm. I might differ a little bit with John if he's still here. But the notion that the triangle, the economic foreign policy environmental piece we actually used in one of the NPC studies, now that's become the landmark or the template for people measuring policy effectiveness. And it's really kind of a trade-off issue, right? So at a time of great change, a lot of people have different views of energy policy. But the optimum energy policy doesn't fit with the optimum environmental policy or the optimum foreign policy. And it's all trade-off. So what's your kind of wish list? You mentioned taxation and access. What else is out there? Well, I said when people think about policy, we think about affordability, we think about security, and we think about environmental objectives. Unfortunately, when we talk about energy, we tend to do it in a stovepipe fashion. We'll do it one of the above. I love renewables, for example. The largest renewables producer amongst major oil companies. But it has to be affordable. And so we have to be sure where we have mandates or very significant subsidies that we're putting in place, are those ultimately going to deliver affordable energy that we'll compete? In an era of very precious resources in terms of government spending, where is the right place to put our money? And sometimes we'll view these in isolation. A controversial area that gets a lot of discussion is greenhouse gas emissions. And that's a hard subject. It's a global issue. And we could talk about that a little bit. But we have to be sure that the policies we put in place do more than just make us feel better. Actually, that's what's happening in Europe. There's a facade of what Germany's energy policy looks like and what it really is. Well, Germany has put in place very strong subsidies for renewables. And now they see that power costs are three times what they are in the United States. And it's OK if you want to put these policies in place. But we need to tell, in our case, the American people what the cost is going to be and be transparent about it. I think Germany is finding out that this is very expensive and it's tough for industry and it's tough for their consumers. And now they're rethinking some of it. It's not that renewables are bad. But all these have to be affordable. And it's more difficult even in the United States now because if you've got a situation where demand is continually growing, OK, where demand was continually growing, nuclear and renewables could slot in. But with flatter, declining demand, it's almost a one-for-one competition. Well, I like competition. And I'm happy to face competition. I think what we're seeing in the US, some of those unintended consequences, you could think about the renewable fuel standard. For example, biofuels in the United States. Right now we have this interesting circumstance where to meet the federal requirements under the renewable fuel standard, more biofuels need to be blended in. And we've hit what's called the blend wall in this country where engine manufacturers won't certify gasoline with more than 10% ethanol in it. But we're required to blend more than 10%. So what would you do if you were me? Would you sell a product that engine manufacturers won't certify? I'm not going to do that. Others aren't going to do that. The alternative will be to export that product. So what will happen to prices? They'll rise. So the EPA has indicated that you can now sell up to 15% ethanol. But the engine manufacturers haven't certified it, except for 5% of vehicles. So this is an example where unintended consequences of policy can have negative effects on consumers. And this will come to a head at some point. But it's one of those issues that we deal with every day. Well, it'll come to head rather soon, because I think the blend wall, 900,000 barrels a day and an 8.7 million barrel a day demand cycle means you're going to be in excess of 10%. Well, Chevron is long rins. And so we're just going to watch this happen. We're just going to watch this happen. Excellent. So let me remind you, if you've got questions, you want to write down. We've got people in the back of the room that will pick them up and bring them forward. And then we can have this more of a participatory discussion. One of the things I did want to talk to you about, and this will diverge just a little bit, but there's a lot of things that Chevron does in the technology space and the social development space that's beyond traditional oil and gas. And I know you're very proud of it, but it's one of those stories that doesn't get told often. So we'll spend a bit of time. We do spend a lot of time on technology. I have my former Chief Technology Officer in the audience, so I should probably let him come up and talk a little bit about that. But we do spend a great deal of time on technology, first in our conventional business, because we've been able to drill in places we never thought we could before. We're able to see under salt. We never thought we could before. We're able to drill deeper than we ever have before. The whole hydraulic fracturing business has been facilitated by directional drilling and fracturing technology. So in our conventional business, we've made a great deal of progress. But we also have invested considerably over the last few years to try to find an affordable way to do biofuels, for example. Now, we haven't cracked the code yet, but we've been trying to find which feedstocks will work at scale and which conversion technology will work, and how do you put those together with a supply chain that will produce a profitable product. And it's interesting, the mandates that have been put in place both in California and federally assumed a certain rate of progress. And it's proven to be more difficult, not just for us, but for others. And there are a couple examples that I'll give you. People talk about the potential of, say, algae-based biofuels. Great, lots of research. But to meet the renewable fuel standard for biofuels using algae-based biofuels would require a settling pond the size of Lake Erie. And so the scope and scale, I mean, 40% of our corn crop now is going just to provide 10% of the gasoline pool in this country. So the scope and scale and difficulties of finding the right crops, putting in place a system that will generate significant volumes that will be material and affordable are really hard. And so that's why I talk about renewables that can be produced profitably and at scale. We do have a geothermal business. Hydropower has been popular around the world for many years. Renewables have their place, and they will grow. But if you look around the world, right now, they're roughly $500 billion a year in demand subsidies. Price subsidies, they're being given to consumers because affordable energy is so important. So what makes us think that consumers around the world and governments around the world are going to want to push unaffordable energy into their system? I don't advocate those demand subsidies. In fact, it's one of the areas that, from a policy point of view, the US can help around the world. But that just tells you the challenge. We have to find solutions that are affordable. And I think that's part of the reason that Secretary Chu had a study done for him last year, Frank, that I know you're very familiar with. And it talked about a better thing to do with the precious monies that we have that we're investing in new fuels technology to really focus on advanced stage, early stage research, pre-commercial research, to see if we can make step changes in advanced materials, biofuels, and things of that sort so that we can produce affordable alternatives to hydrocarbons. John and I were in Saudi Arabia at the beginning of this year. And one of the questions, so the reality of the tide oil and shale gas phenomenon in the United States, given where they were five or six years ago when we were asking the Saudis to increase their production and what that meant for global markets. But the other side of that was that what's the policy going forward? Because there's a number of other countries that look to be on the verge of also increasing supply. So US policy with respect to Iraq or Iran in terms of an accommodation or post Shabbat as Venezuela, what that looks like. So when you assess prospects around the globe, so now there's a very real possibility. You talked about the rock. You look at the rocks first, right? So you make sure that the geology has the resources that you need. And then you look at geopolitical risk and commercial risk and economic risk. But the portfolios now have to be changing as well. And even though you have this broad expanse of prospects that you can deal with, there's a pecking order of where you go. So for you all to decide to go into Russia, but maybe not into Iraq, how does that work through the executive committee and evaluation? I don't know if I can give you all our secrets. No secrets in terms of the business model. No, the truth is there's plenty of resource out there, actually. I've said if every government were like Singapore, oil would be about $30 or $40. And so there is no shortage of resource in the world. There's a shortage of. Which has changed from a decade ago. Oh, it is. And it's not just shale resources, it's elsewhere. But you have to have a lot of things in place. You have to have the right commercial terms. You have to have the right physical security environment. You have to have the right community environment. You need a lot of things for those to come together. So we consider all of those when thinking about where we want to operate. And we're willing to take, we're willing to balance those risks. In some cases, you have low geologic risk and a little bit higher political risk. But we know that we've been very good at developing the kinds of relationships that are needed to be successful. It's routine for us to be in a country 50, 75, 100 years. And what we've learned over time is if you're sensitive to what the host government wants. I mean, I can give you an example. West Africa and Angolan, Nigeria, 85% to 90% of our employees are Angolans and Nigerian nationals. It's very important. They want local content. So we develop local suppliers. They want us to be engaged with communities. So we've been very strong in, particularly in areas of health and education in those countries. And we try to be responsive to all the things that the government asks for. And the day you wake up in a country and you're taking more than they feel you're giving, whether it's in taxes and development and developing local industries, that's when you know you're going to be challenged. But they also must pose problems in some emerging economies. Because it's perceived to be the deep pockets you get in to be building infrastructure and running facilities, whether it's hospitals or insurance networks, that typically oil companies don't like to do long term. Well, one of the things we've learned over time is that the best thing for us to do is to partner when we come in. Instead of coming in and dictating, well, we're going to build a hospital, we try to engage with local communities first, but also with organizations like USAID and other NGOs. And we focus greatly on capacity building. We have found in the past that if you just build a hospital and leave it, it's not sustainable. So you have to have staff at that institution. And so in the partnerships that we've formed through the Niger Delta Partnership Initiative, for example, we do focus on the capacity side of it, not just the construction side. So this one comes from the day traders in the room. So we talked about not diving down into specifics, but one of the, so Chevron's plans in the Arctic and with global LNG, what does Australia look like? Well, that's a broad question. I'll say that we operate in Arctic and Arctic-like conditions, but the LNG projects that we have, as the question indicates, the biggest ones that we have are in Australia. We have two projects there, the Gorgon and Wheatstone project. And to put those in perspective for the group, the combined spend for these two projects by us and our partners is $85 billion. We've got about $45 billion of that. So that's a lot of money, even in our family. That's real money. That we're investing. And I think that's one of the challenges in the LNG business is that it is a big capital business and companies like Chevron and others aren't going to make those kinds of commitments without contracts ahead. So a lot is said about the dynamics of the LNG market today, but fundamentally, with all the resources that is out there, putting together a successful project requires many things to go right. You have to have alignment with the host government, you have to have alignment with customers and partners, and you have to be willing to put those big investments in, knowing that the benefits will be realized over the next 30 or 40 years. And you have to have confidence in the government in the area where you're operating in order to make those kinds of investments. Well, this is so that the above ground piece is whether it's competitive producing sector or service company sector, steel infrastructure, fiscal terms, right? And that takes a while to evolve and develop. So even though these prospects are there, that also delays the... Well, there have been some studies done of how long it takes to actually put an LNG project together and the history has been it's 15 to 20 years, actually. Gorgon was discovered in 1980. Now, it's high in CO2, which is being stored in the ground. It's one of the unique aspects of that project. But it takes longer than people think to put these types of projects together for the reasons we describe. And supply will eventually be fairly well balanced with demand, not all the projects that are put forward will go. And so I think that's the healthy tension that exists between customers, mostly in Asia, and prospective producers. It's in the producer's interest to talk about the project they've got. Customers talk about all the opportunities. And there's this bargaining that goes on before projects ultimately go to final investment decision. And typically, what takes a project to final investment decision are reliable contracts that allow the producer to earn a fair return. Well, we were speaking upstairs before John came down and just the thought about, and the LNG side, that if you lined up all the applications that are there, no one expects 38 BCF to be exported out of the United States just because of the competitive impacts where other resources are around the world. And then when you do regas or liquefaction, transportation, and build these facilities, the prices change. So the market is pretty dynamic. Well, it is. One of the things I've been encouraged by with the administration is that they have supported the export of natural gas. One of the things the US has always stood for is free trade. And I think it's important, people watch what we do. If we're perceived as hoarding resource in some way, it sets a very poor example for other countries. So when we should act in a manner that's consistent with free trade principles, and I've been pleased that a couple of projects have been permitted, and I hope more will be. And I'll say we're not a part of any of them either. We have an interest in a Canadian project. But it's the right thing from a policy point of view. We did a gas study that we released a couple of months ago and Senator Johnston was here and made the comment about, we like to be a free trade country when we were importing them. That wouldn't it be a nice idea if we have the resources that we continue that trend? He's more articulate than I am. EIA yesterday put out a report on global shale development and listed a number of countries based on USGS and some limited drilling that's out there. And this is very early in the process, but they identified China and Algeria, Argentina. From your perspective, are there specific areas that you've already identified as the next areas that you're really seriously looking at? There are some shales that we know a lot about. For example, in the United States and Western Canada, we know a lot about them because we've had conventional oil and gas operations in the same area and we've drilled through them. So we know the quality of the shale. We know a lot about them. What's the organic content? What's their porosity, permeability, all those good things. But if you look at shales that are around the world, in some cases there's little or no infrastructure. There hasn't been drilling. All we know is these are big blocks of shale and a lot of drilling and evaluation will be needed. And so I would say these shales are prospective, but it will take a lot of time. In our case, where we've emphasized our interests, the Marcellus shale, some of the shales in West Texas, the DuVernay and Canada, we're negotiating a transaction in Argentina, which is an oil-prone area and we've taken on leases in Central Europe. I would say on that spectrum that Central Europe is the most exploration-like because there isn't a lot, there hasn't been a lot of natural gas produced there, and of course the ones in the Marcellus and in the U.S. are producing today. And there's population density issue. There are, depending upon where these resources are. Given the growth in gas, when you look at oil growth and others that turn this opportunity there, but the price disparity, how much do you see natural gas starting to penetrate either transportation or specialty markets like fuels? We're now using natural gas as a fuel, used to be a supplemental feedstock for refinery, now in some cases it's bypassing the refinery. So what do you see the prospect for growth on oil versus gas? Well, we do have this blessing of relatively low-priced natural gas and while we expect prices to rise a little bit because we actually have a surplus today, we do think it will be affordable and very competitive for a long time in this country. So it's a wonderful opportunity. The easy things for us to use the natural gas for our power generation. And it competes head-on with coal and I think we ought to let the market decide and natural gas likely will take share over time. And so I think that's a good thing. In the transportation fleet, it's a little more complicated. There's infrastructure that's required. There already are natural gas vehicles out there. You need centralized fueling facilities. And so to me, the next logical step is in corridors, trucking corridors, where you can have a limited number of sites, heavily trafficked areas. And gradually over time, I think a higher percentage will go to natural gas vehicles, perhaps first in trucking and then with other types of centralized fleets. And I think that's a good opportunity. Whether it will make inroads into the personal transportation business, I think that will be a little bit slower just because the build-out of infrastructure than some of the personal character of these. What about marine? Well, I guess people are talking about that. I think it's possible. But again, you have to build out the infrastructure. As a native Californian, what are your views on whether California will develop the Monterey and its resources? Well, California has been an oil producing state for a long time. People think California is being pretty green and I'd have to say it is. But we also produce a lot of oil in Southern California. It's a good business for Chevron and the Monterey Shale has been a source rock for a lot of that production. And I think there are different opinions today about whether the Monterey Shale will be as prolific as some of the other shales. You can get into some of the technical arguments around how fractured it is, how much oil may have moved and migrated from those shales. But I think the easy answer is to let the industry find out how much is there. Well, and Governor Brown seems to be in favor of increasing production. Well, the governor on this subject I think has been very, very constructive. I think he understands that the oil and gas business can make a real contribution to the state. And I think he of course will want good standards as everyone will. But again, we've been fracking wells there a long time and the oil industry is actually not new in Southern California. So I think if the industry responds reasonably to the concerns that might be raised, we'll have a good opportunity to see how much the Monterey Shale can contribute. There's a question here on seismicity and I know Dr. Don Paul is here as well and we've been working on a project with them in the University of Southern California on seismic events. There was a concern, in fact, when we started looking at the shale gas revolution that it was almost like whack-a-mole where there was drill fluids or water use and seismicity came up. Most of the cases of seismicity, I think all the cases of seismicity have been related to re-injection. Well, induced seismicity, as they call it, more simply, does the shale operations cause earthquakes? Oil drilling activity and water injection activities have known for, it's for a long time can cause small scale seismic events. I don't think that's a new issue. So I think some care needs to be taken in how we approach this. But I've seen no evidence that it's in any way material. And so the issues that have come up, for example, in Ohio, were around water injection wells and where you choose to inject water, produce water, not around the shale operations themselves. And as we recycle all the water, that issue simply goes away. So it's an area for study, an area for concern, but I'm not aware of any material risk to this. When you're talking about 1.0 events on the rector scale, things like that sort of, California has hundreds of those every day. So I don't want to dismiss the issue, but I think it's been studied actually for a long time in our industry. Well, and now that we have at least diagnostic tests that we run on old injection wells and just see if there was any seismic activity. So reduce the pressure, reduce the volume and take care of that. You need to be thoughtful about where you're injecting water into the ground, near faults. So these are showstoppers. Big data. So when we get to the point where, these are pretty far ranging. So thank you for putting over this. But the notion that now that we can map the subsurface geologically, we also have a better sense of the hydrology. A lot of the state is going to states and one of the sub questions here is state versus federal regulation. What do we do with all the stated to get a better picture? It seems to be more complex and more complete, but it's a mosaic and it's just a lot of ability to, it takes a lot of ability to absorb it and figure out what the policy ought to be. Well, I'm not quite the context for the question, but I will tell you our industry and I think every company today, there's no shortage of data that's generated. We get lots of data. The challenge is to turn it into information and capture it and use it. And so that's where we're focusing our energies. For example, on an offshore drilling rig, we have disconnected and information systems from the different service companies. If we can capture all that information, bring it into a central repository onshore, we can do a better job of monitoring offshore wells. And for example, we're doing that. And so capturing and using data intelligently, capturing compressor characteristics. We have a centralized system for capturing all the data on how compressors are performing and having experts on compressors evaluate that data so that you can do predictive, you can predict those and do maintenance in advance of that. Those are the kinds of things we can do with harnessing all the data that our systems generate today. So to me, the applications are many and those are just a couple. Price sensitivity. We've seen on the gas side that in some ways the industry was a victim of its own success. A lot of natural gas brought the price down until you get the demand pulled to get it there. If we're actually looking at a lot of oil supply, when you start putting extra oil on the market, the good news is that OPEC spare capacity should go up and so you ought to take away some of the volatility. But there's also people that are projecting now a substantial drop in oil prices. And then at what level are some of the new fines and prospects economic? We do fundamental work around supply and demand for both oil and natural gas. And I'll tell you, gas is a lot harder. So I'll stick with oil for the moment, but we take a proprietary view of what's likely to happen. So first we have an understanding from the resource side and then we layer on politics and what we know about activity in a given country. For example, we operate in many of the countries that produce a lot of oil. And so we have a view of when projects are likely to take place. So we're able to get a pretty good handle on oil supply and we've been reasonably successful in predicting that. One notable exception, we've been a little light on the prediction of how much oil would come from the U.S. and the shale operations. But even in that context, you're talking about 86 million barrels a day of oil that's produced, 90 million that are consumed including processing gains and biofuels. So 86 million barrels a day. Tight resources today, shale oil is about two, a little over two, it's gonna go to over four. So if you put that into, and that's gonna take 10 years or more. So if you put that into context, it's manageable. We don't believe there's as much surplus capacity in the world as it gets talked about. In our view, the only real surplus capacity is in Saudi Arabia. And if you think about a decline curve in our business and what happens if prices drop and the supply response, it tends to be self-correcting. That doesn't mean you couldn't see temporary conditions, doesn't mean you couldn't see a drop in prices. But our view is that that decline curve is relentless. And even though demand only grows at about 1% a year, people think of it as a low-growth business. The growth isn't 1%, the growth is 1% plus replacing the decline. And you need new resources all the time. Think of it as just a treadmill. And you're going uphill on that treadmill. And you're always having to pedal a little bit faster because of the declines that are inherent in some of the large reservoirs around the world. So we tend to be a little more optimistic over the long-term. Technology is an offsetting factor there. But it will take robust pricing in order to, for the industry to be able to afford the developments that are out there. And if there isn't a match, developments won't happen. The decline curve will take over. You'll get that balance with supply and demand. Gas is a bit of a different story. It's a more localized market in the United States. The shale opportunities in this country overwhelmed the existing supplies. Shale gas produces and comes out of the rock a little easier than liquids do. And we missed it and everybody else did too. And it's a blessing for American consumers. And I think we'll have this distance, this difference on an energy equivalent basis between gas and oil, we think for a long time. So just staying with the oil side, when you talk about depletion, that 5% depletion rate, that's 4 and 1 half million barrels a day per year. So project that to 2020. And that's just to keep you level. And then you have to build over and above that. So it is. It's a difficult thing. In our case, we talk about a decline rate of 3% to 4% a year. But that's after a quarter of our capital that's spent. So oil was actually declined on average maybe 15% a year. So we do a lot of infill drilling and other activity to reduce that decline to 3% or 4%. So in our case, we're spending $36 billion this year. 9 billion of that is on what I call background or small capital projects, just to hold that decline to 3% to 4%. And I don't think we're that different than other companies. So then to arrest that 3% or 4% and grow on top of that, you have to make very large investments in capital projects. And that's what we do. And if companies don't do that, then you get that decline curve taken over. And that's a bigger problem, obviously, for bigger companies to replace your reserves over here. It is a challenge. We produce a billion barrels a year of oil and gas combined. Now, we're fortunate. We have a good queue of projects out there. The growth profile that we're showing between now and 2017 is through the projects that are already under construction is about 5% a year. So it's a little uneven. It tends to be back-in-loaded. But the Gorgon and Wheatstone projects that I described, the offshore developments, Jack St. Maul, Bigfoot, these sorts of projects in the Gulf of Mexico, all are contributing to that. But as they say, they do cost money. When you talked about Gorgon, you talked about it being CO2-rich. So you're actually using CCS technology. Well, it's carbon storage is the way I would describe it. It's basically CO2 that's entrained in the natural gas that comes offshore. We're separating and then taking the CO2. And rather than venting it, as might have taken place in the past, it's being stored in a reservoir and not for underground. And we've worked very closely with the Australian government. It's really a fairly unique project. And it's costing Chevron and our partners a couple billion dollars to do it. So it's one of those examples of things that we're doing that may not get a lot of coverage. But it's something that we feel is the right thing to do because the CO2 percentage in the gas is an excess of 10%. And so it's important to not vent that CO2. When you start looking at the difference between, so the dilemma that strikes me for the administration has been welcome addition with oil and gas, but it perpetuates a fossil fuel future. So how do you balance getting to it or promote the idea of getting to a lower carbon economy and deal with greenhouse gas emissions? Well, at the same time that you get to the oil and gas. Well, we started at the outset talking about affordable energy. And if you take the premise that we want to sustain the standard of living that we have today and for countries around the world that aspire and want to realize our standard of living, you do need to put forth affordable solutions. And so the reality is that carbon emissions are going to rise because countries from my conversations with leaders around the world, their priority is to feed their people. Their priority is to give them light, heat, and mobility. And whatever your view of the science might be, most governments are going to act consistent with that priority, even if they have some concerns about greenhouse gas emissions. That is going to be the priority. So I think what the Western world, what the wealthy countries can do is focus on finding new ways to put more affordable solutions that are less carbon intensive into the hands of these people. Now, I will say there are some low-hanging fruit. There are some things that we can do. I talked about subsidies earlier that are not very productive. It promotes wasteful practices. Energy conservation is very significant. We have a for-profit energy efficiency business. There's a lot that can be done not just here, but around the world. We're actually very energy efficient in this country. Most of the world is not. And there's tremendous low-hanging fruit around energy efficiency. And then, of course, promoting the use of natural gas is something that I think can displace more carbon-intensive sources of fuel in the marketplace. And then advanced research into making our products more energy efficient and in delivering lower carbon products. But the idea that you can force something that's very expensive into the market, you may be able to do that in a limited way in wealthy nations. I don't think it's going to work very well in some of the emerging economies. And that's where the growth is looking to come. And that's where the growth is. Two-thirds of the economic growth over the next 20 years is coming from developing countries. If you look at a graph that any organization puts out, greenhouse gas emissions in the US and Western Europe are about flat over the next 20 years. But there's an explosion in growth in the developing world. And I think that's the issue that we're going to have to address. And just telling those people, you can't have affordable energy probably isn't going to work. Social up-eval as well. Well, there are social issues in countries. And I travel to them all the time. I know what their priorities are. Excellent. So one of the questions that comes up repeatedly. So what does the energy market look like? And what does Chevron look like in 2025? Well, in 2025, we have a pretty good idea of what we'll look like. Because the lead time on some of these projects are pretty long. And so Chevron today is about 30% natural gas, 70% oil. By that time, we'll be more like 40% natural gas, maybe a little more than that, and 60% oil. So we'll be gasier, if you will, because of the LNG projects I described. I think we'll have more of our... We'll rephrase that one. Well, we'll probably have more projects that have a longer life to them. LNG projects go on a long time. Our project in Kazakhstan and elsewhere tend to go on for a long time. So we'll have a higher proportion of our projects, of our money in long, live projects over time. It's the nature of some of the resources that we're developing. I have other internal objectives that I have. I certainly hope we can continue to make the progress on things like process safety. I mean, we have the lowest injury rate in the industry. We had our lowest spill volume ever last year. But we're not at zero in some of these areas. We've made mistakes in our operations. And we're doing a lot of work to reduce the chances of those kinds of incidents going forward. Well, and it is inherently a risky business. And managing the risk is just really important. Well, you can't take risk to zero. But we can put in place steadily improve our practices and make sure we first understand what the risks are and then do everything we can to mitigate those risks. You've touched upon policy a couple of times now. One of the things that I think is missing, and there's several people in the audience that have either been in the government or aspired to be in the government, the business model and the collaboration with industry, how do you make that better? Collaboration with the government industry? Well, I spent a lot of time here. Thank you, Maria. In Washington. And I say that with a little bit tongue in cheek. But I do think that if you don't talk to people, you're not going to be very productive. And our approach is not to scream from the mountaintops on issues, but to try to collaborate on them. And so we engage in all kinds of studies with government agencies. I spend time privately, whether it's on the Hill or in the White House. And I never go in and say you should do this or you should do that. What I say is here will be the consequences and here are some alternatives that might give you the consequences you want on these issues. And so I think with that engagement, it works pretty well. I will say it sometimes is hard publicly to have all of those discussions. But we do so privately. And usually, I have a good audience. And it's not always me doing all the talking. A lot of times, I'm being asked questions and being asked my view. And I think the engagement has gotten better and better over time. It was always my sense that after Meccando, as catastrophic as it was in the death of 11 people, that it was actually an opportunity for industry and government to re-engage on the way you do your business. Because I thought that there was a lag, both in the technology and the understanding on the government side of what actually was put in place and the need for the industry to step up. And the industry did step up. I think the industry has. And that's why I made the comment I did on what we're doing in the Marcellus Shale. I think we have a Center for Offshore Safety that the API has worked closely with government on. And I actually think most of my peers know that we need to raise the bar out there. And we need to satisfy the concerns that the public has. Expectations are higher than they were. Expectations are higher. They're very high. And they're not going to get lower. But we need to get our story out. And give you an area where maybe we haven't gotten our story out as well. There's been a lot of controversy around pipelines. But pipelines are the safest way to move oil, gas, and products. They're anywhere from 25% to 30% times safer, depending on how you want it. They're obviously cheaper. And we've got 2 and 1 half million miles of pipeline in this country. And so the idea that we shouldn't have pipelines, that is the preferred way to move oil and gas. And pipeline safety has actually improved. There have been incidents. But if you look at the record over the last decade or two, pipeline safety has improved. And spill performance is better. But we need to get those views across. And we need to get alignment that that's the right way. Well, on the average, American isn't aware how extensive the pipeline system is. Well, that's right. There are pipelines everywhere. Now, the industry needs to do its part. In some cases, pipelines are aging. And we need to be sure of the diagnostics we have around corrosion and other events that were on top of those things. But by and large, it's still much safer than moving oil by rail or truck. So in terms of all the changes that have occurred and all the things you've seen in your career, how would you rate this period in time of optimism, unbridled optimism, cautious optimism, happy that you're still in the industry where you are, and prognosis for the future? Well, let's see. Over the last 12 years since the Chevron Texco merger, Chevron's generated $200 billion in wealth for our shareholders. So it's been a pretty good run for us. And I still think the good days and best days are ahead. And I know that there is a desire in some circles to see a diminished presence for the oil and gas business. But the reality is I think we do good things. We bring light, heat, mobility to people. And I think there's going to be a need for that for many years to come. And I think we can steadily improve our practices and make progress on environmental and other issues. But I think it's a good time to be in our business. And I think there are fewer companies like mine that can deliver the technology and the whole range of things that governments want as a part of their oil and gas business. So I think it's a good time. And that's reflected in the portfolio that we have, which is as deep. And we know what we're going to be doing 10 years from now, based on what we have in our portfolio today. So it's a good time to be in our business. And I'm just fortunate to be with a good company. And we're fortunate to have had you. So this notion of the more that we have these kinds of dialogue and, I would say, content rich discussions on what is actually going on, it raises the level of public discourse and education in this city, certainly. And helps the policy. And I would just look at my watch, and I can't believe an hour has already gone by. But there's a bunch more questions. And we'll certainly do this again, and if we have the opportunity. But I just want to thank you personally for allowing us, giving us the time to do this, and then making yourself available. Well, Frank, thanks. CSIS is a wonderful organization. John, thank you, wherever you're sitting. And thank you very much. And Frank, thank you for hosting us. Absolutely. Thank you, John. Thank you. OK. We have one.