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TotalEnergies bullish on gas and LNG while expanding into renewables: CEO

Highlights

75% capex in hydrocarbons, 25% renewables

Supports clearly regulated carbon market

With its name change from Total to TotalEnergies amid its transition from fossil fuels, the major oil company is investing more in renewables and energy storage while decreasing emissions from its natural gas business, CEO Patrick Pouyanné said Oct. 14.

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"Everyone wants to transition, and there is huge pressure to quit fossil fuels, but fossil fuels represent 80% of the energy supply today on the planet," Pouyanné said in a fireside chat during the remotely held S&P Global Platts Energy Summit.

It was 80.2% 10 years ago, and it is 80.1% this year, and in that time energy demand has increased, he said.

"We want to decarbonize energy, so we need to invest largely in renewables and decarbonized energy," he said, adding that TotalEnergies plans to invest 75% of its capital expenditures in hydrocarbons and 25% in renewables and electricity, "which is quite new."

Pouyanné said he is not sure that is the right balance, but it is the current strategy. Globally, the oil industry has not been investing enough in conventional oil production to fight against natural decline rates, he said.

Corporate name change

The company said in late May during its shareholders meeting that investors had approved a resolution to change names from Total to TotalEnergies in order to represent the "strategic transformation into a broad energy company," according to the company's website.

Specifically, TotalEnergies has businesses focused on oil, natural gas, electricity, hydrogen, biomass, wind and solar power.

Pouyanné said the strategy is linked to the evolution of oil and power demand because the speed at which automakers are shifting to electric vehicles "is impressive" and is expected to lead to global oil demand declines, though it remains unclear when that will happen.

The company remains "quite bullish" on natural gas, and LNG in particular, because TotalEnergies sees gas as the right energy for the transition, he said.

"We are building today a multi-energy company with oil and gas, but also renewables and electricity, and tomorrow hydrogen and other technologies," Pouyanné said.

Asked about the role of gas in the energy transition and whether investing in gas-related assets locks in greenhouse gas emissions for the life of those assets, he responded that at first it is better to make electricity from gas rather than coal, which cuts the emissions in half, and power demand is increasing.

In China, for example, which is increasing its coal-fired power generation capacity, there is also "huge demand" for LNG, and over time the company expects to see a shift in China's energy mix toward gas, he said.

When looking at China's road map to the world's carbon neutrality, the country wants to increase the share of gas in its energy mix over the next 10 years from 7% or 8% to 15%, which is aimed at reducing coal consumption, Pouyanné said.

Cutting methane emissions

And while it is better from a climate perspective to generate power from gas instead of coal, the challenge for gas usage is reducing methane emissions, he said. Gas-fired power plants are controllable assets that can ramp up and down, which helps deal with renewable energy intermittency, and although batteries can help, long-duration energy storage remains a difficult challenge, Pouyanné said.

Regarding decarbonization strategies, Pouyanné said carbon offsets do not help and Total is focused on cutting emissions directly from its operations. Also, a certified and efficient carbon credit market that is clearly regulated is needed, "and we will work with that," he said.

The draft Article 6 of the Paris Agreement allows countries to achieve their mitigation goals in several ways: by setting up compliance instruments such as carbon taxes or industrywide emission trading schemes, by resorting to a yet-discussed new crediting mechanism akin to the UN Clean Development Mechanism, and by exchanging voluntary carbon credits among each other.

When policymakers meet at the United Nations Climate Change Conference, or COP26, in Glasgow in November, Pouyanné said he has "some hope" they will reach an agreement to develop an effectively regulated international carbon market.