London — Total on Friday closed its $1.5 billion acquisition of Engie's portfolio of upstream LNG assets, strengthening the French major's hand in the fast-growing global LNG sector and giving it improved risk management options during a period of plentiful supply into the next decade.
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Total and Engie -- which is transforming away from fossil fuels into a greener, service-focused energy company -- first announced the deal in November last year.
"Acquiring Engie's LNG business is a real step change for Total allowing us to leverage size and flexibility in the fast-growing and increasingly commoditized LNG market," Total CEO Patrick Pouyanne said in a statement.
"This transaction makes Total the second largest global LNG player among the majors with a worldwide market share of 10% and the group will manage an overall LNG portfolio of around 40 million mt/year by 2020," Pouyanne said.
Total said an additional payment of up to $550 million could be payable to Engie in the event of an "improvement in the oil markets in the coming years."
Engie's LNG portfolio comprises participating interests in liquefaction plants, notably a 16.6% stake in the planned Cameron LNG project in the US, long-term LNG sales and purchase agreements, an LNG tanker fleet as well as access to regasification capacities in Europe.
Following the transaction, Total will have a liquefaction capacity portfolio of 23 million mt/year, spread out across the Middle East, Australia, Russia and the US, it said.
It will also have a worldwide LNG trading contracts portfolio of 28 million mt/year, 18 million mt/year in European regasification capacity and a fleet of 18 LNG carriers, of which 2 are FSRUs.
SUPPLY, DEMAND FLEXIBILITY
Already a major LNG player, Total is following the example of Shell in gaining increased coverage across the entire LNG value chain, enabling it to secure margins despite the well-supplied market by exploiting the optionality afforded by a broad portfolio of assets and supply arrangements.
With LNG attracting the interest of ever-expanding numbers of independent traders keen to take advantage of the growing market -- and more producers and more buyers emerging all the time -- the traditional players are challenged with moving quickly to benefit from the expanding market.
Adding Engie's upstream assets -- and more importantly its portfolio of long-term LNG purchase and sales contracts -- means Total can more easily match LNG supply and demand requirements.
Shell -- which spent $54 billion in 2016 buying the UK's BG Group -- is well positioned now as the world's number one LNG portfolio player with assets covering the entire value chain.
Being able to move cargoes from location to location depending on price and having optionality in the global LNG market is becoming increasingly important.
LNG buyers are increasingly in the market for shorter contracts with more flexible volume terms. Large, integrated LNG players stand a better chance of managing risk and creating value under these circumstances.
Taking a stake in the planned three-train Cameron LNG liquefaction plant in Louisiana is also part of Total's plans for expansion in the US LNG sector.
In December 2016, Total agreed a $207 million investment in Tellurian -- which is developing the Driftwood LNG export project in Louisiana -- in exchange for a 23% stake in the company.
The capital infusion helped provide the funds that Tellurian, co-founded by former Cheniere Energy CEO Charif Souki, needed to proceed with development of Driftwood.
Total is also among the foundation customers Cheniere secured to buy LNG produced at Sabine Pass after previously reaching a deal to have Total buy regasification capacity before Cheniere switched plans from importing LNG to exporting it instead.
-- Stuart Elliott, Stuart.Elliott@spglobal.com
-- Edited by Jeremy Lovell, firstname.lastname@example.org