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TotalEnergies reaffirms gas as transition fuel, sees central energy security role amid Russia-Ukraine conflict
With rising energy prices amid the Russia-Ukraine crisis, TotalEnergies CEO Patrick Pouyanné said on 24 February that security of supply is emerging as a central theme for the industry—and his company's belief natural gas will play an essential role in the low-carbon transition is as firm as ever.
Russia, the world's largest gas exporter, launched military attacks on Ukraine after recognizing the independence of two breakaway regions of the neighboring country earlier this week.
European gas futures prices are spiking as events unfold. Russia supplies pipeline gas to Europe via Ukraine, and promised Western sanctions on Russia could increase the difficulty of trading Russian cargoes.
"In the past five years … it's an imperative to speak about climate [when] you speak about energy," Pouyanné told the International Energy Week conference. "But security of supply is just as fundamental as a topic [now]."
European gas prices hit record highs in late 2021 before a correction, and the International Energy Agency said the rally was linked to lower supplies from Russia, which is responsible for 40% of the EU's imports (pipeline gas and LNG combined).
While seeing gas as a necessary fuel in the energy transition, Pouyanné suggested Europe could do more in diversifying its supply sources and expanding LNG import capacity.
"We are a strong believer in gas as a transition fuel," he said, "[but] it will be better also to invest in difference accesses."
Europe has increased its seaborne LNG imports in recent months, with the US being the top supplier. The US Energy Information Administration reported that the US provided 26% of the EU-plus-UK imports of LNG in 2021, ahead of Qatar (24%) and Russia (20%). And US supplies have been soaring lately, as they increased from 3.4 billion cubic feet/day in November 2021 to 6.5 Bcf/d in January 2022.
If Russia's pipeline supplies of gas via Ukraine are cut off due to the conflict, IHS Markit analysts said European consumers will face higher prices rather than an actual supply shortage. However, if Russia stops all pipeline flows to Europe, the analysts said Europe will need to increase coal and nuclear power generation and draw down gas stocks because its current LNG import capacity is insufficient to cover such a shortfall.
The potential gas shortage demonstrates "Europe's deficit as an importer," said Pouyanné, adding that the region would do well to build some major import terminals.
With Russian President Vladimir Putin pledging continued gas supplies to the world earlier this week, Pouyanné said he is "convinced that the Russians do not want to use gas as a weapon."
TotalEnergies has large investments in upstream assets in Russia, including two LNG plants in the Arctic region. The French energy major also has a 19.4% stake in Novatek, the second-largest gas producer in Russia.
Pouyanné said his company's operations in Russia are unaffected by the ongoing war as yet, but he admitted the situation could change as Western sanctions and the human rights conditions in Ukraine evolve. TotalEnergies withdrew from Myanmar in January, nearly one year after a military coup.
Downplaying the possible impact of a disruption to TotalEnergies' operations in Russia, Pouyanné said: "We are a large company. Russia is, of course, important to us for business, but no single country is that important for us that we can't manage [without it]."
A transition fuel
The debate over gas in the energy transition has dragged on for years. Its supporters say gas should play a top role in the energy mix for at least another 20 years, citing its well-established supply chain and lower emissions of pollutants versus oil and coal. Others are worried about methane leakage and believe renewables would be a much better investment in most cases.
With a target of net-zero Scope 1, 2, and 3 emissions by 2050, TotalEnergies plans to reduce the absolute lifecycle emissions from its energy suppliers to Europe—its main market—by at least 35% by 2030 versus 2015 levels.
For this goal, the company has pledged to develop 100 GW of renewable power generation capacity by 2030 on the back of $60 billion in investments.
For 2022-2025, TotalEnergies has an investment program that amounts to $13 billion to $15 billion per year. Half of the spending will be allocated to its existing businesses, dominated by oil; 25% will be devoted to new energies, mainly renewables and electricity; the rest will be generally on LNG.
"TotalEnergies has been, in my opinion, the most balanced international oil company between traditional hydrocarbons and low-carbon technology investment," IHS Markit Associate Director Christopher Elsner said. "They have invested the most from an earlier time in clean energy assets … as well as stating that they do not think that short-term oil and gas prices would be low and being fairly honest with investors about the need to invest in oil and gas supply."
With European policymakers planning to shift away from Russian gas, Elsner suggested TotalEnergies could put more financial resources into renewables and hydrogen.
"This [European plan] really means an accelerated transition away from gas generally, which is the real way to diversify away from Russia conclusively," he said. "With Europe being the central market for TotalEnergies' future business model, at least within the context of the European market, it would make sense to accelerate investment in those energy sources that would supplant gas in Europe."
As for its global ambitions, TotalEnergies wants to achieve a sales mix of 30% oil, 50% gas, 15% renewable electricity, and 5% biomass and hydrogen by 2030.
The company's renewables and electricity division achieved an adjusted EBITDA of $1.4 billion last year, roughly 3% of the group total, according to its annual results.
TotalEnergies had a gross capacity portfolio of 43 GW of renewable power generation at the end of 2021, including 10.3 GW already installed, 6.5 GW under construction, and 26.2 GW in development. This compared with 28.6 GW at the end of 2020.
Looking forward, the company plans to allocate $3.5 billion in net investments to the division this year and have more than 16 GW of renewable gross capacity in operation by the end of 2022.
Pouyanné said the company is keen for further renewable expansion in the UK, which has the world's second-largest installed offshore wind capacity.
TotalEnergies has a 51% stake in the 1.1-GW Seagreen 1 wind farm off the Scottish coastal region of Angus, which is due to be fully operational by early 2023.
Last year, the company and Macquarie's Green investment Group won the right to develop a 1.5-GW wind farm off Humberside on the east coast of England. The two firms and wind farm developer RIDG earlier this year secured leasing rights for developing a 2-GW project in waters off the Orkney Islands at the northern tip of Scotland.
Having operated in North Sea oil and gas fields for decades, TotalEnergies is able to leverage on local expertise and government support for the wind projects, according to Pouyanné.
"We have some competence. We also have some supply chains," he said. "It's just the beginning of a long journey."
Last October, TotalEnergies opened a training center in Aberdeen for the renewables industry. The company's oil and gas staffers will be retrained to work in offshore wind farms.
With the growing focus on environmental, governance, and social criteria in UK society and elsewhere, Pouyanné said such an educational facility will enable TotalEnergies to attract more young and female workers in the future.
Elsewhere, Pouyanné said TotalEnergies is also seeing Africa as a growth market, with affiliates operating solar projects in Egypt, Uganda, South Africa, and Burkina Faso.
As Africa's largest hydrocarbons producer, TotalEnergies has been able to tap into its local knowledge when developing renewable projects, according to Pouyanné. But the company also encounters difficulties as there are many rural areas across the continent lacking grid infrastructure.
"When you produce electricity there, it is local," he said.
With years of limited investment amid political instability and high commercial risks, wind and solar power expansion in Africa has been slow. According to the International Renewable Energy Agency, solar accounted for 4.4% of Africa's total installed capacity at the end of 2020, or 10.4 GW. Wind capacity reached 6.5 GW.
Pouyanné promised to find some "imaginative schemes" in Africa to develop low-carbon energy like the one it formulated in Iraq. In September, the company and the Iraqi government signed an agreement to develop a 1-GW solar project as part of a wider energy package that covers oil and gas supplies.
"We are also to work together with the [African] governments in order to be able to put in the right framework," Pouyanné said. "For me, Africa is of course part of the future."
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