“We think that fundamentally this energy transition will mean a higher price of energy,” Patrick Pouyanné said in a wide-ranging interview, in which he defended his group’s two-pronged strategy to invest in renewable power, while still pursuing new oil and gas projects decried by climate activists, including in untapped countries such as Namibia. Policymakers and campaigners were naive, he argued, to think it would be possible to shrink oil and gas production before sufficient renewable energy is available to take its place, given continued growth in global energy demand.
“The pace of transition will not be the same everywhere,” he said. “We cannot ask African countries just to avoid to develop the resources because we have developed their resources for our own comfort for 20 years.” Since rising to the top of TotalEnergies in 2014, Pouyanné’s strategy and messaging have been among the most consistent in the industry. While European rivals BP and Shell have vacillated over how to invest in the energy transition and how quickly to withdraw from oil and gas, Pouyanné has remained steadfast in his commitment to fossil fuel production, while still spending more than competitors on renewable energy projects in more recent years.
The result is a comparatively simple strategy based on three pillars — oil, gas and integrated power — to which investors have generally responded positively. Returns to shareholders at Total have beaten rivals since Pouyanné took over almost a decade ago.
“I need to continue to be strong in oil and gas . . . people are first buying your shares because of that,” he said. Out of $16.8bn in capital spending in 2023, approximately two-thirds were spent on oil and gas and one-third on the group’s “low-carbon” integrated power business. That level of investment is now plateauing from one year to the next rather than increasing, climate activists point out.
However, Pouyanné was also adamant that he was not investing in wind and solar projects just to reduce the company’s emissions. Unlike some in the oil and gas industry, he sees power as an increasingly profitable opportunity, particularly as he expects the energy transition to result in permanently elevated electricity prices. “I know that there is a theory which says renewables are cheaper, so it will be a lower price,” he said. “We don’t think so because a system where you [have] more renewable intermittency is less efficient . . . so we think it’s an interesting field to invest in.”
Pouyanné expects the integrated power division to become cash flow positive in 2028, when it will generate about $4bn, hopefully with a return on average capital employed of 12 per cent. That is equivalent to returns in the company’s oil business when crude is trading at $60 a barrel, the company says.
The integrated power business will continue to grow organically or through targeted project level deals, rather than through a big acquisition, Pouyanné said, adding that he thought most renewables companies were still overvalued, despite a sell-off in the past 12 months. “I don’t need Ørsted. What do they bring to me?” he said, referring to the world’s largest offshore wind developer whose share price has fallen more than 70 per cent since peaking in 2021 at the height of investor frenzy over environmentally friendly stocks. “This question could have been asked three years ago, but we have developed our own portfolio.”
The integrated power strategy has not been without setbacks. Last year it suspended a $4bn green hydrogen investment with India’s Adani after a short seller report accused the conglomerate of accounting fraud and stock market manipulation, which it strongly denied.
Pouyanné said he now considered the Adani “case over” and was doubling down on renewable energy ventures with the group, although the hydrogen project remained on the back burner as demand in this market was still tentative. Total’s traditional fossil fuel business will be vital to funding the growth of its electricity assets and maintaining returns in the meantime, Pouyanné argued.
“If you begin to say ‘because I’m investing in the transition, I need to lower my returns’ this will not work,” he said. Total returned $16.5bn to shareholders last year in dividends and share buybacks, representing 46 per cent of cash flow from operations.
The company plans to increase oil and gas output by a combined 2 to 3 per cent a year until 2030, a strategy that has alienated some investors but won over others. The number of US-based shareholders in the company has increased from less than 40 per cent to 47 per cent over the past two years, Pouyanné said.
BP, in contrast, has committed to cut oil and gas production by 25 per cent by 2030, compared with 2019 levels, although that is down from a previous target of 40 per cent after it pared back the ambition last year. Total’s UK rival played down takeover speculation following the abrupt departure of its chief executive Bernard Looney last year and a series of large mergers across the Atlantic.
Pouyanné in the interview dismissed the idea of a combination between his group and all or parts of BP. Such a scenario involving a partner such as Adnoc of Abu Dhabi, which some industry executives and bankers have floated, was “not a thought in my head”, he said. Adnoc has denied considering such a possibility. Pouyanné added that recent multibillion-dollar deals in the US had been driven by a desire for consolidation in the North American shale oil sector where the French group does not operate. “I don’t need to consolidate anything,” he said.
Much of Total’s additional oil and gas production will instead come from new projects in Uganda, Mozambique, Iraq, Papua and Brazil. These have made the group a lightning rod for criticism from climate campaigners and a target of political criticism at home. Pouyanné and the group face an inquiry this year launched by green politicians in the French Senate over its record on environmental goals.
But while many European and North American producers have pulled back from frontier markets, Pouyanné views a capacity to keep operating in such places as an advantage. The company, which was founded in Iraq in 1924, has a long history in the Middle East and merged with Africa-focused Elf in 2000. “My friends and my main competitors do not like to take the risk, so we take it,” Pouyanné said. “It’s balancing risk and reward. The condition for us to go into these countries . . . is to have better returns.”
In Namibia, for example, which does not have an existing oil and gas industry, Total has found promising hydrocarbon deposits offshore. “We are perfectly aware that any new oil and gas development could become an issue but the question for me is more what does Namibia want?” Pouyanné asked. “I don’t think it’s western NGOs who need to decide the future of Namibia.”
Pouyanné is an unabashed defender of what he presents as a pragmatic worldview, arguing that oil demand may peak before the end of this decade but will decline slowly enough after that new production will be required.
“There is a sort of divide today between the global south and the north on this perspective, which we have observed in Dubai as well, in the way the debate happened,” Pouyanné said, referring to the COP 28 climate talks in December.
In Iraq, where Total is involved in a $27bn series of gas, oil and solar projects, the government’s principal preoccupation is developing gas for domestic power generation and increased oil production will be used to pay for it, he said. “If we don’t engage with the global south where the emissions will come from — China, from India, from Brazil, from South Africa — if we don’t engage with them by bringing them energy, there is no way to find a solution to the climate,” he said.
In Europe, having significantly reduced dependence on Russian gas — a chunk of which is still provided by Total’s stake in the Yamal liquefied natural gas project led by Russia’s Novatek — leaders needed to keep diversifying sources of supply, Pouyanné warned. In particular, they should seek to protect long-term imports of LNG from the US, which is now its biggest supplier, he argued. Last month President Joe Biden imposed a temporary pause on new licences to export LNG to countries without a free trade agreement with Washington, which includes the EU. “The US says that they can help Europe with their security of supply,” Pouyanné said. “Let’s negotiate that agreement.”
(Financial Times, February 16, 2024)