Philippe Sauquet, president, gas, renewables and power at Total, spoke with Stuart Elliott about the company's energy transition strategy and trends in a number of sectors, from LNG to hydrogen.
France’s Total was the first mover among European oil and gas majors to announce its ambition to become a greener company, creating in 2016 a separate division for gas, renewables and power under the leadership of Philippe Sauquet.
Since then Total has made a number of high-profile acquisitions in this space and continues to drive an integrated strategy covering the whole value chain from LNG supplies, gas-for-power generation, renewable energy production, including in offshore wind, and direct sales to end-users.
Philippe Sauquet joined S&P Global Platts on June 10 for an in-depth chat about Total’s strategy, its ambitions to grow the business, and challenges facing the sector given low energy prices and the impact of the COVID-19 crisis.
Philippe Sauquet, president, gas, renewables and power, Total
Tell us about Total’s push into lower-carbon fuels
Total started four years ago a journey to emerge from an oil and gas company to an energy company. And more than that, a responsible energy company.
So we started to speed up our development of what we call low carbon energy, which includes, for us, gas as being the obvious way to reduce CO2 emissions worldwide quickly and cheaply, but also a very important emphasis on renewables.
We we have started to change drastically our energy mix, increasing the share of energy we are selling through electricity. And this is a driver that we are developing through an integrated strategy in Europe.
Outside Europe, worldwide, we want to increase our footprint in renewables. We have already a large footprint delivering gas, mainly through LNG to a lot of countries worldwide, but we want also to help those countries to transition to a cleaner energy world, and we think that a combination of natural gas and renewables is a winning combination.
Total has made a number of high-profile acquisitions in this area since 2016. Is there appetite for more M&A activity?
Well, it is clear to us that this evolution of Total will be achieved through a combination of organic development and also with acquisitions. We need to speed up the development because we think that the time is of the essence. And if we want to meet our targets and to cope with the evolution of the demand as we see it, we need also to speed up through acquisitions.
Of course, acquisitions are dependent on opportunities because we want to be selective in terms of acquisition to focus on the ones that are really bringing value to the group, that are complementing our portfolio. And so we have been active with Engie, we have been active with Direct Energie in France, which is increasing our footprint and our customer bases in France. And more recently in the first months of 2020 we made several acquisitions. We made a very significant one in Spain, which will be our third country after Belgium and France where we will have a complete integrated strategy from LNG to gas to power, including production of power through renewables.
We also made some other acquisitions in renewables. In India with Adani where we acquired more than 2 GW of solar assets. More recently, we made our first acquisition in offshore wind with a project called Erebus and even more recently a deal that we signed with SSE.
European energy prices are currently very low. How do you see the price environment evolving in the future?
What is clear is that what we see right now in the current very low prices for energy a combination of long-term factors and short-term ones. Short-term ones – you need to understand with the COVID crisis and the lockdowns that have been imposed by the different governments in Europe but also worldwide. It's clear that the demand is down. And when the demand is down, no surprise, the price has to go down.
In the long term, of course, there are some challenges that could change the structure of the demand.
It is clear that there will be a global move to more low carbon energy that will drive higher demand for renewables and for electricity because electricity, of course, is a nice way to consume energy to avoid CO2 emissions, especially locally. There will be a drive from coal to gas. And all of these factors are driving movement of the demand that will increase the prices of certain commodities and decrease the price of others.
Of course, we are dealing with commodities. And there will always be the commodity boom and bust cycle. And all the industry players, we are all the same when we see very high prices, we are tempted to invest like mad, and you see a lot of projects being developed. And in the end, there are too many projects and oversupply, and therefore, we see the consequences on the prices.
When the prices are low, everybody becomes more reasonable and there is no investment.
So what we are seeing today, prices of gas are very low, very, very depressed. And you have seen that decisions for new LNG projects have been very, very scarce because everybody has understood that there was a limit to what the market could absorb on a reasonable basis. Even if low prices are stimulating demand. And of course, there is a rebalancing with the demand stimulation. But there are limits to that. And we have seen a lot of projects being either canceled - you know some of them - or at least delayed by several months, not to say several years.
The LNG market has been particularly weak with prices are record lows. What do you make of the impact on US LNG economics?
I would by lying if I told you that two years ago, I was already foreseeing the situation in which we are today. It's clear that we have seen a stronger wave coming from many different projects around the world. And the oversupply was coming. It's clear that the combination of this wave of new projects, mainly from the U.S. is reaching the market at a time when the COVID-19 crisis is depressing it in an unexpected manner. So the crisis is more intense than what we could reasonably expect.
But as I said, I’m not completely surprised. We knew that in this boom and bust market there is always a temptation of some investors to go too quickly. The strategy of Total is always the same. We want to focus on very low breakeven projects in order to be resilient in these tough times.
And we remain confident that the market is continuing to be favorable. Even in China, we have seen progress and an increase in demand in China in spite of the COVID crisis. Just before the lockdown in India, we had seen a very strong reaction of the demand, a positive reaction to low prices. So we are still confident that LNG, gas in general, but LNG in particular will benefit worldwide from this transition to low carbon.
I think the price signal that we have seen, the cancellation of U.S. cargoes that we are seeing for this summer considering the level of price, is a wake-up call for the projects that were considering to take FIDs thinking, yes, the LNG market is as market where you just need to build and then you will make profit. No, it's much more complex than that.
It's clear that if you don’t have a global footprint, if you don’t have the flexibility that is needed to cope with demand that will vary from one year to the other, if you don't have a low breakeven project you will suffer, and LNG will not be the golden market that some companies in the U.S., in particular, were willing to play with.
Speaking of low cost production, are you interested in joining the Qatari LNG expansion project?
Yes, of course. We have a strong interest. As you know, Total was a company that started to help Qatar to develop its LNG business. We were later joined by our U.S. colleagues and friends. So Qatar is a long story of commitment from Total. Qatar is a country where we can really have very low breakeven projects and maybe the best projects in the world in terms of cost.
And of course, we have an interest to continue our adventure in Qatar. Of course, it's a decision of the Qataris to select their partner going forward. But yes, Total has, of course, very strong interest.
Turning to renewables, Total is now investing in offshore wind. Do you plan to continue to grow this side of the business?
Well, it's clear that offshore wind for us is a new business. For years, we were a bit nervous when we were seeing a very high cost of this industry. And we were unsure whether European countries would be willing to subsidize the very high cost of offshore wind. And we've seen that, yes, countries, the UK in particular, we are ready to accept those high prices.
And this was the right bet. We have to agree on that. We have seen in the last two years a dramatic decrease of the cost, which is clearly making offshore wind a very attractive technology.
And these are big projects, multibillion euro or dollar projects that are not easily developed by small companies, as we have seen very often so far in the renewables business. So it's a game for big players. And so yes, we are comfortable with the perspective of developing this business further.
What do you think needs to happen in Europe to incentivize hydrogen projects in terms of policy, subsidies, and other financial incentives?
Well, hydrogen, of course, is an interesting technology that favors the carbon neutrality policy that Europe wants to develop.
The difficulty that we are facing today is whether the industrial players are really willing to develop hydrogen. We have been advocating for hydrogen for years.
But what is clear for us, the challenge is on one side the demand and on the other the cost of the technology, especially to go to zero-carbon hydrogen. And if you want to develop it, you will need a combination of both stimulation of the demand on one side and on the other, subsidies to cover the cost.
The subsidy can be achieved in different ways. It can be the price of carbon. At Total, we are in favor of the carbon price, for sure. What we have seen in the past is that the carbon price is nice because it brings a level playing field between all competing technologies. But when you want to speed up the development of the higher cost technology, the carbon price might not be enough in order to fast-track the development, the scaling up of the technology.
And today, it's clear that with the price for CO2, which is around Eur25/mt, there’s no way you can develop carbon-free hydrogen production.
I think there is a clear need of subsidies for those projects, for green hydrogen - hydrogen produced by 100% renewable electricity and blue hydrogen, which is less costly, but still costly, which uses natural gas, but captures the CO2 and stores the CO2. So you have both technologies.
But in both cases, we need today at this level subsidies in order to develop the first projects and to start to see a decreasing cost curve.
And you have also a problem of demand. What we are advocating at this stage is to consider to inject hydrogen into the gas flows.
The grid operators, all the natural gas consumers, more or less tend to agree on the fact that with up to 20% of hydrogen flow in natural gas there is little consequence on the transportation or burning of gas.
CCS is also a technology, that we believe has to be developed. We are lucky at least in Europe to have the North Sea. And in the North Sea, you have two ways of storing the CO2 on the long term, either the depleted gas field and you can have also the aquifer, like we are doing in Norway. I'm sure that you've noted that we have announced along with our partners the first real large project to store CO2 in the North Sea, in Norway, the Northern Lights project.
Of course, it's still an expensive technology, but we think that we can reduce the cost. And if you compare it, for example, to green hydrogen, it's much cheaper than green hydrogen today. Of course, the future will tell us what is less expensive, the more competitive. But once again, we are convinced that we have to develop the technology.