Poutanne May 2018
"Transition" is a seemingly ever-present concept impacting not only the energy sector but also the world in general. But for Total Chairman and CEO Patrick Pouyanné, the word is not one of his favorites.
"I know it's good for newspapers. I am not sure it is a good word for the world of energy," Pouyanné said. "In fact, you have the evolution of technologies in our world because energy is fundamental, so we invent new technologies to achieve a goal. It is to provide energy to more people and to provide it in an affordable way — in a cheap way, in fact — and also to provide it in a clean way."
The two objectives of affordability and climate sustainability must be compatible, "which is not so obvious, you know?" Pouyanné continued, citing as an example the continued strength of the coal industry, even as renewables and cleaner forms of energy claim their own market share.
"Transition can take a long time," Pouyanné said, adding Total must prepare for the future, but prepare for it "at the right pace — not too quickly."
Even as Total continues to strengthen its presence in oil, Pouyanné said his company fully recognizes the emergence of gas and renewables as dominant power sources of the future.
"We are an oil and gas company," he said, discussing the state of global oil at CERAWeek by IHS Markit, held recently in Houston, with Dr. Daniel Yergin, vice chairman of IHS Markit and chairman of CERAWeek.
Pouyanné said it is inevitable Total will eventually become a gas and oil company — in that inverted word order — within 20 years, "since it seems gas is a little more acceptable than oil."
"But we will be more gas, for sure," he said, "because the gas market is developing around the world. It is preparing for the future."
Pouyanné said he and Total also recognize some countries have a marked interest in purchasing electricity derived from renewables.
"We have got to be involved in electricity," Pouyanné continued. "When we want to sell more gas to a country like Myanmar or Vietnam, they don't want gas. They want electricity. So we are naturally driven to go to more electricity. And you can also provide electricity from renewables."
"We try in that part of the business to develop step-by-step to try to find a profitable way but avoid becoming a utility," Pouyanné said, adding Total will not become a utility in terms of profitability. "We try to find a way to be involved with the new energies in various ways. We have renewable assets, including a battery business. We have to potentially benefit from alternative energies."
Responding to Dr. Yergin's question about what Pouyanné has learned as an owner from Total's engagement of a battery company, Pouyanné admitted the enterprise, "like the solar business," is a complex matter.
"It is not an easy one," he said. "I can tell you we do not consider battery technology as the best technology to develop quickly. It is quite unstable. The next technology will be solid state, which is a different challenge."
"This world is moving very quickly; we have to keep that in mind," he said, noting China "could be a real accelerator" of new technologies and new energies. "We have a large market, so that's why we also need to work with China, like in the solar business, and to find ways to cooperate rather than to fight.
A new addition to the family
Nonetheless, it appears Pouyanné is embracing transition in a very personal way: He recently purchased an electric car — albeit, for his wife — "just to test it," he insisted.
"You know that I am a strange guy," Pouyanné remarked, laughing. "I have done more (to promote clean air) than Ben Van Beaurden," referring to the CEO of Royal Dutch Shell, whom Pouyanné noted has a hybrid car. "I know that it is a little odd for the owner of an oil and gas company (to have an electric car), but people love to speak about consumer experience, so I wanted to have the consumer experience."
"To be honest, it's a car," he said, describing this unexpected addition to his family's garage. "It's a car. It is a little, silent car."
Despite the car's diminutive size, renting the battery for the car makes it an expensive car, Pouyanné added.
"You do not save money," he said. "In fact, when I have to rent a battery, I'm spending more money, actually, to run my battery than to put gas in the tank of my car. And with the electric vehicle charging, it takes a little time."
But "that's all OK," because he appreciates gaining the customer experience, he reiterated.
Pouyanné, who lives in the suburbs of Paris, is convinced many drivers, especially those who live in large cities, will transition to electric cars in 10 or 15 years "because of air quality."
"There is a demand for (better) air quality in our large cities, so we will face that," he said. "We have to adapt ourselves."
Regardless of the coming shift to electric cars, Pouyanné said in terms of oil consumption and oil demand, what is important to consider is the total number of kilometers accumulated by the vehicle being driven.
"A small car in my city does not drive a lot of kilometers per year," he said. "So even if there is a shift, we could develop some business around this shift."
Pouyanné remains convinced trucks and planes that transport goods will continue to be fueled by oil as electric and hybrid cars claim their share of the market.
"We know there is a long history for oil in front of us, even if these other technologies are developing very quickly," he said.
Size matters, but never say never
The energy business is still in the "infancy stage" of trading LNG, Pouyanné said, as he considers the gas market more global, more commoditized and more flexible.
"And in this global market, I think that size will matter," he said. "The number of points of production like we have in Total will be in the United States, Russia and in Australia as well. Many points of production and many points of customers and gas terminals will help us with our optimization. So I think the move to acquire LNG for Total is paving the way, really, to put in this global gas strategy for the company."
Though Pouyanné referred to Total's interests in the U.S., Dr. Yergin noted Total has no position in the Permian Basin.
"You cannot be everywhere," Pouyanné responded. "Let me be clear; it is a question of allocation of capital. We have learned from this low cycle that you cannot do everything," though many people describe Total as a global company.
"No, we are not a global company," Pouyanné insisted. "We can't be everywhere."
Pouyanné said Total has learned in the past 10 years that each time the company attempts "to fill the gap," even though it has the financial capacity to acquire assets in a new technology — like oil sands in Canada, coal bed methane from Australia or even shale gas in the U.S. — "we were not able to add value for our investors."
"For a company like Total, it is not just a matter of taking the bucks to produce 50,000 barrels per day. It makes no sense," Pouyanné said. "When we think to the future areas of investment for Total, I need to target 200,000 or 300,000 barrels per day if I am a serious player. I don't think it is the best allocation of capital."
Pouyanné emphasized Total's mission is "to provide energy in a way we add value," stressing Total's strength is found in the Middle East, Africa, the North Sea, in deepwater and LNG.
These locations are what Pouyanné describes as Total's "five key strengths."
"I prefer to spend my money and the money of the company on these five strengths in these five areas," he said. "We move in Brazil because of deepwater. We will move in Mexico, if we can, because of deepwater."
There is logic to this system, Pouyanné said. "I strongly believe that for investors, playing to our strengths has much more sense to create value than just trying to fill the gaps," he said, adding he has "nothing against the big tiers of the Permian" and he thinks it's "an incredible area for the lucky guys" who have position there.
"Having said that, never say never," Pouyanné said ironically, regarding potential investment in the Permian. "We look to the opportunities when and where. But it is not a priority, and we have plenty of ideas we have demonstrated over the last year."
Acquiring Maersk
One of those premier ideas that came to fruition in early March was Total's acquisition of Maersk Oil, which allows Total "to reinforce its existing leading positions in the U.K. and in Norway, as well as to enter Denmark," the company announced in March. With an output of 500,000 barrels of oil equivalent per day by 2020, the Maersk Oil acquisition propels Total to the position of the second-largest operator in the North Sea.
Pouyanné explained this "major acquisition" is a success for Total on many levels. "First, it illustrates our strategy to build on our strengths and grow our presence in Total's core areas, like the North Sea, to strengthen our leadership there," he said. "Second, it brings high-quality and low-breakeven assets, enhancing our worldwide portfolio."
Finally, Pouyanné concluded, the "strong overlap" between Maersk Oil and Total's assets "will generate more than $400 million of synergies per year."
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