TotalEnergies 'mobilizing' to diversify Europe's gas supplies as Q2 earnings surge

TotalEnergies is hoping to boost its sources of European natural gas and produce more LNG in the coming months, the French energy major said July 28, after soaring gas prices and record-high refining margins sent its second-quarter earnings to an all-time high.

Reporting its second-quarter earnings, TotalEnergies said it expects production to be stable compared with the second quarter due to the contribution of new projects, notably with the production ramp-up of Mero 1 and the entry into Sepia and Atapu projects in Brazil.

TotalEnergies reported oil and gas production at 2.74 million b/d of oil equivalent in Q2, stable on the year as higher OPEC+ production quotas and lower maintenance offset lower output from Libya and Nigeria and natural field declines.

Looking ahead, the company said it is "mobilizing its human and financial resources to contribute to the diversification of Europe's gas supply by maximizing the use of its LNG regasification capacity."

TotalEnergies said it expects gas prices to remain high, particularly in Europe where gas indices exceeded $50/Mbtu in early July for winter 2022-23 futures contracts due to fears of a shutdown in pipeline exports from Russia to Europe.

"Russia's invasion of Ukraine continued to impact energy markets in the second quarter," CEO Patrick Pouyanne said in a statement.

During the first half of 2022, its LNG sales rose to more than 25 million mt, with 60% in Europe, while the company's refineries raised their utilization rate to nearly 90%.

TotalEnergies said it expects its average LNG selling price should be more than $15/Mbtu in Q3. However, it cautioned that its LNG operations will be also affected by the outage of the Freeport LNG plant in the same quarter. Freeport, the US' second-biggest LNG export plant, is expected to be fully offline until September with only partial operation through year-end after a fire incident in early June.

Refining margins boost

TotalEnergies' average refining margin more than tripled to a record high in Q2 as Europe's biggest refiner benefitted from a strong post-COVID recovery in fuel demand outstripping available refining capacity.

TotalEnergies' "variable cost margin" for its European refineries averaged $145.7/mt, or about $19.9/b, in Q2, compared with $46.3/mt in the previous quarter and $10.20/mt in the year-earlier period, it said in a July 15 trading statement.

Refinery throughputs rose by 47% on the year in the second quarter due to the recovery in demand, particularly in Europe and the US, as well as the restart of its Donges refinery in France and its Leuna refinery in Germany. It said it plans to maintain a high utilization rate in its refining business in Q3.

TotalEnergies' Q2 adjusted net income rose to $9.8 billion from $3.46 billion a year earlier, beating consensus analyst estimates of $9.7 billion for the period. The company booked a charge of $3.5 billion related to the potential impact of international sanctions on the value of its stake in Russian gas producer Novatek.

With nearly $8 billion in investments recorded at end-June, TotalEnergies anticipates net investments of around $16 billion in 2022, 25% of which will be in renewables and electricity.