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TotalEnergies upbeat on output, earnings as gas price surge lifts Q3 performance

Highlights

Q3 production up 4% on year as OPEC+ output grows

Sees global LNG prices at $12/MMBtu in Q4

Refining margins sharply higher on demand boost

France's TotalEnergies reported higher production and a sharp jump in earnings in the third quarter of 2021, predicting that surging oil and gas prices and rebounding demand will lift its performance into early 2022.

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Given the outlook for higher OPEC+ production quotas and seasonal gas demand in the fourth quarter, TotalEnergies said Oct. 28 it expects fourth-quarter 2021 hydrocarbon production to be in the range of 2.85 million-2.9 million b/d of oil equivalent, up from Q3 levels.

After gas prices hit record levels in Europe and Asia during the quarter, TotalEnergies said, "barring an exceptionally mild winter, the low inventory level for gas and expected sustained demand are likely to keep gas prices in Europe and Asia at high levels until the second quarter 2022."

Global oil prices reached multiyear highs in the quarter at over $85/b, marking a steady recovery in oil demand to pre-crisis levels from the pandemic.

TotalEnergies said it anticipates that 2021 oil price increase will positively impact its average LNG selling price for the next six months, given the lag effect on price formulas. As a result, TotalEnergies said it expects LNG to be above $12/MMBtu in the fourth quarter 2021.

Higher production

For the third quarter, the company's upstream division reported production of 2.81 million b/d of oil equivalent in the quarter, up 4% year on year, on higher OPEC+ quotas, rebounding gas demand and project start-ups and ramp-ups. These included North Russkoye in Russia as well as Iara in Brazil, and the resumption of production in Libya.

TotalEnergies reported adjusted net income of $4.77 billion, up more than fivefold from the year-ago quarter and 38% higher compared to the second quarter of 2021.

"The global economic recovery, notably in Asia, drove all energy prices sharply higher in the third quarter due to the interconnection of energy systems. Gas prices in Asia and Europe, up more than 85% from the previous quarter, reached unprecedented levels, and oil prices gained 7%, continuing their steady year-long rise," CEO Patrick Pouyanne said in a statement.

TotalEnergies' integrated gas, and renewables & power segment generated record adjusted net income of $1.6 billion and cash flow of $1.7 billion, helped by "an outperformance" of its trading activities, which leveraged its integrated worldwide LNG portfolio.

Total LNG sales increased sharply compared to 2020, up 24% for the quarter and 7% for the first nine months.

The average LNG selling price increased by 38% compared to the previous quarter, benefiting on a lagged basis from the increase in the oil and gas price indexes on long-term contracts.

Refining margin boost

Downstream, TotalEnergies -- Europe's biggest refiner -- saw its average refining margin double in the third quarter of 2021 as fuel demand continued to recover in the region, but said higher energy costs had dented earnings from the sector.

The company's "variable cost margin" for its European refineries averaged $20.5/mt, or about $2.8/b, in the third quarter, compared with $10.2/mt in the previous quarter, it had said in an Oct. 15 trading statement.

The margin recovery, which remains below average 2019 levels, compares to minus $2.7/mt in the year-earlier period when coronavirus lockdowns flipped TotalEnergies' reference margin into negative territory for the first time in over a decade.

Adjusted net operating income for the refining and chemicals segment rose sharply year on year to $602 million in the third quarter, compared to a loss of $88 million in the third quarter of 2020.

Crude throughputs in the third quarter, however, were little changed at 1.22 million b/d.