New developments in the global energy landscape--from the rise of clean energy technologies and predictions of peak oil demand, to the shale revolution and depressed oil prices, to the ebb and flow of geopolitical tensions and policy efforts to address the threat of climate change--are prompting international oil and gas companies to adapt in order to remain relevant and profitable.
To understand how these shifts are influencing the industry, host Jason Bordoff speaks with Patrick Pouyanné, the Chairman and CEO of Total, the fourth largest international oil and gas company, on a new episode of Columbia Energy Exchange. Patrick has been with Total since 2000. He has served as senior vice president of the exploration production department, deputy general manager of the refining and chemistry department, and president of the refining chemicals department. His career started in government where he served as technical advisor for environment and industry in the French Ministry of Industry, and as chief of staff to Francois Fillon.
Among many topics Jason and Patrick discuss, several include: U.S. energy policy actions, including the Trump Administration’s proposal to open up most federal waters to offshore drilling, U.S. tariffs on solar imports, and President Trump’s threat to reimpose oil sanctions against Iran; the outlook for oil markets amid geopolitical tensions in the Mid-East; and the role of oil and gas majors in a clean energy transition.
View the transcript
Jason Bordoff, presenter: Hello and welcome to the Columbia Energy Exchange, a podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. Patrick Pouyanné took the helm of Total, the fourth largest oil and gas company in the world in 2014 after the tragic death of his predecessor Christophe de Margerie and since then Patrick has transformed the company and emerged as one of the most dynamic leaders in the energy sector.
Patrick took over Total at a time of enormous disruption and uncertainty and transition in the energy sector, from the shale revolution in the U.S., to a more integrated global gas market to rapidly growing renewable energy sources and technological shifts. He has responded to these challenges in often bold ways, preparing the company for the possibility of lower for longer oil prices, expanding its footprint in natural gas and taking a leadership role in clean energy technologies, including large investments in the U.S. solar panel maker and a French battery firm.
Total also recently opened its first Washington D.C. office with a careful eye on recent U.S. policy issues, from sanctions to solar tariffs. It's always fascinating to spend time with Patrick and I had the chance to talk with him again, at the Oslo Energy Forum this month, to discuss some of the recent developments in the energy world since his last visit to Columbia, at the Center on Global Energy Policy to keynote our 2016 Global Energy Summit here on campus. Here is that conversation.
Patrick Pouyanné, thanks for joining us on the Columbia Energy Exchange. It's a pleasure to see you again.
Patrick Pouyanné, CEO, Total: Yeah, good morning.
JB: Let me start just, there is so many things I want to talk to you about, but since we are here talking in Oslo, tell me a little bit about what brings you to Oslo and particularly what you see in offshore production. Some people talk about North Sea decline, you’ve made a big acquisition recently with Maersk Oil and gas. So what do you see in the North Sea and in the offshore generally?
PP: First Norway is important for Total, we have 250,000 barrels per day, so almost 10% of the company. In Norway we have a long story in Norway and that’s true that this year we have made that move acquiring Maersk Oil, which is a strong I would say trust move and trusting that we can rejuvenate in some way the North Sea, in particular the basic idea behind that scheme was to put together the portfolio of Total and the one of Maersk Oil we become, with 500,000 barrels per day, the second largest player. And so synergies and operational synergies where we are looking for to be more efficient by lowering our cost of production, in fact by just amortizing our costs on a larger production basis, it’s quite simple, but we think there is still potential of resource in the North Sea, and Norway has demonstrated it with discoveries like Johan Sverdrup some three years ago, so you still have a potential but it's a matter to be more efficient and that’s the basic idea behind the combination of Total and Maersk Oil, and I think it's a way to drive the costs down and lower the breakeven.
JB: Do you see opportunity and the Trump administration has just proposed opening up most of the U.S. Federal offshore, do you think there will be commercial interest in the Alaskan Arctic or the Atlantic Coast of the U.S. or other places?
PP: I see some difference between the Alaska Arctic and the Atlantic Coast to be honest, so difference there is the potential cost of production, of drilling. Frankly, Total will not go to explore Arctic waters I think. This time it's a little over… I think the lessons that we drew, from my side, of the last three, four years, that there is a huge volatility in the oil business and that you need to think that your projects need to resist to lower prices and spending $300 or $400 million in a well in Arctic waters to find oil, even if you find oil, it's usually expensive and I think in terms of allocation of capital, I have other projects around the world. So it's different from maybe the U.S. Gulf of Mexico waters which are easier to develop and to produce, so I make some difference. Having said that, we also know that there are some environmental concerns which need to be taken into account so let's see. But we still have quite lot of things to explore in the Gulf of Mexico. We just made a big discovery with Chevron, a giant discovery, the largest one that has ever been made by Total in the U.S. on the Ballymore well in the Eastern part of the U.S. Gulf of Mexico, so let's continue to explore.
JB: Total opened its Washington DC office as well, so you have several policy issues in Washington that impact Total, let me ask you about two of those. First solar tariffs, which the administration has just imposed against China, Total obviously the majority stakeholder in SunPower, what impact do those tariffs have on SunPower’s business prospects, are you worried about a U.S. trade war with China?
PP: I think for SunPower it's not a good news, because as you know SunPower is a high tech company, we have all the R&D jobs in the U.S., but they are manufacturing, because they have to be competitive with other competitors, they manufacture most of their cells in South East Asia, not in China. I think there is a – by the way we have applied and I have written myself to the President to tell him that they should look if we cannot have an exemption because of this technology, which is different from the others; they have awarded some exemptions to some of the competitors FirstSolar….why not to SunPower? It would be quite a strange story for me.
All that is going from the complaint of two companies, one of them being held and the property of a Chinese company by the way. And they have made a complaint and the U.S. administration in fact to protect a U.S. company, which is not U.S., it's U.S. based but it's a Chinese company, it's putting tariffs which could damage U.S. companies. I think all that is a little strange to me and frankly we do so well. In fact my main fear today is more fundamental, is that this tariff will have an impact on the global solar market in the U.S., which is a mistake because the U.S. were the forefront in fact because of a policy which was held during years.
You add momentum in the U.S. of the solar industry and there I think the impact will damage the full chain, not only the players outside or inside the U.S., so I think it's not a good idea and again I think this is a type of commercial weapon, which will more create damages and you will see, it will have a negative impact on jobs in the U.S., because today the solar industry is not only manufacturing. Manufacturing does not create a lot of job, distributing solar panels, also solar installation this creates jobs for people. It's not high tech jobs but this creates a lot of jobs, more than 100,000 people I read in newspaper, so these ones will be – will lose jobs, so I'm sure that the balance is wrong and what could be created by a little more manufacturing in the U.S. will be lost globally by the solar market.
JB: And what about the other policy issue in Washington, that deeply affects Total of course is Iran sanctions, Total being the first oil and gas major to go back into Iran after the sanctions were lifted and Trump has recently issued an ultimatum to Congress and Europe to toughen the sanctions or else threaten to not extend the waivers. How big a risk is this for Total?
PP: It's not a risk. Today, we have created the opportunity. We have decided to sign that contract in July 2017, because we could sign it according to the diplomatic framework since the JCPOA was signed in January ‘16. So as I said, the project is progressing, first and we didn’t stop the project, project is progressing in line, with no delay. Having said that, of course if the U.S. decided to change diplomatic framework and to reinstate secondary sanctions….you know, during years, nobody was working in Iran because of the secondary sanctions, let me be clear, so if U.S. reinstates the secondary sanctions then it will be complex to continue with.
So today we are in a sort of uncertainty and what I expect is that all this debate within the U.S. administration and President Trump with the U.S. Congress, because he wants the Congress, if I understand, to clarify the law, will have an end and I hope that we will have a clarity on it. Having said that, as long as the framework, the international frameworks allow us to work, we will continue the project. So it’s uncertainty and I think as I said recently, if we try to think to what has been proposed by Obama administration to Europe, Russia and China, what is it? It was to make a deal on the nuclear. As the deal has been done with some reformists I would say and the Rouhani camp – and the bet which was in fact, the diplomatic bet is that if we lift sanctions we can have an economic development in Iran and we will reinforce the camp of reformists, and the more momentum we give to the reformists the more we could have one day an evolution of Iranian regime. This is a bet. So of course we cannot tell to President Trump it's tomorrow, it's in five years, it's in 10 years, but time…we try to give time!
JB: You think a tougher line with sanctions you think will undermine the reform as well?
PP: Of course it will; it will undermine the reform. I suspect that if… that’s why Europeans are having a debate. It depends on which way I think, you could have things which are acceptable but if it's just destroying the balance of the agreement, this could just undermine the full effort which has been done.
JB: We are obviously in the U.S. talking also about new sanctions against Venezuela, tightening sanctions against Russia, what are your views on the effectiveness of sanctions as a tool of economic and foreign policy?
PP: I think I just explained that recently in a newspaper. I think it's not an efficient tool. When you have sanctions, not only the people of the country suffer, but in fact they just suffer, they don’t like it at all, you know, in each country you have a nationalist feeling and when you have an aggressor from outside, what is the impact? The people are even more and more united behind the leader, so in fact this is what I have observed in all the countries is that it helps the leaders, the ones that you want to attack to even have a stronger power and you will see the impact of the sanctions in all of these countries. You will see soon in Russia, the leaders, somewhere, you just reinforce them, because the nationalistic feeling even if the people suffer more and they don’t like sanctions, they are united against the external world. They don’t like that. So I think it's not a good idea, it has exactly the opposite impact. And wherever it is by the way I have seen little example where we can say we managed to get it because of sanctions.
JB: I'm cognizant of time and I want to cover a few different topics, tell me your view on where the oil market is now, where we are in the rebalancing with the shale surging back, supply from Brazil and Canada on the other hand, OPEC and Russia seem to be continuing their cooperation, demand is very strong, geopolitical risk is always present, so what's the next year or two going to look like?
PP: I think you said everything, you have a strong demand clearly, because price is low, you have a clear alignment between Saudi Arabia and Russia and you notice them…
JB: You think that will continue.
PP: That will continue. When Khalid Al-Falih and Novak said we should think to continue in 2019 and we are just in January 2018, that’s proof that they are very serious about it, because obviously these two countries they want to maintain the price, they prefer 60 than 40, I can tell you for this $20 makes a huge difference and then of course you have the U.S. system, U.S. ecosystem which will drill again and the production will come back, and so the rebalancing… Let's be clear, I have seen the last figures of the inventoryies, which were published, the OECD inventories are going down, not far, they are yet above the five year average, but not far from it, I think 50 million barrels, so there is a rebalancing, but it is not yet fully done and I'm sure that we’ll have the news that production of the U.S. will come back again, so markets will react, the price will go down. So you have a sort of a small cycle, but the fundamentals, I think fundamental is that even if the U.S. shale oil is dynamic, we do not invest enough in this industry, we do no not invest enough, $400 billion per year…
JB: And Khalid Al-Falih said we’re setting ourselves up for an underinvestment cycle. We have cut too much spending.
PP: Of course we continue, and we…
JB: Come back to bite us after 2020.
PP: Yeah, my vision is that post 2020 the price will go high, because we’ll have a lack of capacity and even with the shale oil dynamic we will have… the global production of oil will be not enough, so we were underinvesting in ‘15, ‘16, ‘17 and ’18, frankly all the announcements of CapEx products are still in line with that.
JB: And whether it's enough of course depends on what demand looks like. Demand is strong now, but everyone is talking about peak oil demand, electric vehicles, where do you think demand is going to go?
PP: I think peak oil, the demand will be strong for the next… I mean, yes, passenger vehicles are progressing, but we should not exaggerate. All that is there is a timescale that people forget and you don’t renew passenger vehicle park in five minutes, not true, it takes 10 years, 12 years. Try to buy today an electric vehicle, I bought one for my wife, I can tell you it's, it's quite expensive, it's not so easy to manage, you have to have all recharge, … all towns are not equipped and at the same time price of oil is low, demand is growing, and emerging countries they need energy and more and more. I think frankly that now we have time and I will not be surprised to see another oil cycle price going up and then at the end. So we should not mix long-term trend like electric vehicle and short term issues.
JB: Towards the end of last year you acquired Engie’s upstream LNG business. What's your outlook for the global LNG market? There is a lot of… there has been talk for many years about an oversupply, a glut in the market. It hasn’t happened yet, as we’ve written about recently at the Energy Center, but what's your view on…?
PP: I think fundamentally I think this gas market is going to be more and more commoditized, global and flexible, we have more and more sources of LNGs around the world, the U.S. become exporter, Australia, Qatar, Russia. You have more and more sources and you have more and more customers. Why? Because there was an innovation, technological innovation, which was floating in regasification units (FSRU); for $300, $400 million, you can regasify gas, before it was more than 1 billion and onshore regas unit. So it changed the world and today you have more and more regas units. In emerging countries, you have seen Pakistan, Bangladesh wants one, Vietnam, Myanmar, I can tell you and of course you have a big elephant, which is China and China, Xi Jinping has declared that in the next five years we’ll be building a “beautiful China”, which means more gas fundamentally, they want to increase the gas share in the national mix of China from 5-6% to 15-20%, so this is a big market and on top of it you have plenty of people, and this is why we have acquired Engie’s, a strong demand and the size matters. So with Engie and Total combination we will have 10% of the world market and I think the size, which means also being able to optimize all the logistics of all these LNG. Today, and I'm convinced this gas market, LNG market, will go towards the trends of the old market. It's why by the way… one trend this year, we have seen all the trading houses entered into that energy business. Why? Because they think they can make money out of all this optimizing the logistics, the vessels, the units, the regas. So it's very interesting and frankly for energy transition, gas is one of the solutions, if not the solution combined to renewables, so for me and for Total, growing in gas is fundamental axis of the strategy, so that’s all why.
JB: More competition in the global gas market may mean lower prices in different parts of the world and people have raised questions about whether the U.S. can compete in that world. You took a stake in Tellurian, a new LNG export project, what role do you think U.S. gas exports are going to have in the gas market moving forward?
PP: A very important role, not only Tellurian. It’s more than that, in Engie, there was a beautiful asset called Cameron LNG that came with Engie as well.Combining our production in the Barnett Shale and our Cameron LNG share we are becoming an integrated gas export producer in the U.S. Why? Because you have huge amounts, huge resource of gas in the U.S., and there is maybe… I'm not ready to take a lot of bet on the future oil price, but on gas price in the U.S.…
JB: It’s going to be low for a long time.
PP: I will not be surprised to $3 or around 3 for long, because each time you increase your production of shale oil, you increase your production of gas, so you have gas for free there.
And that’s the base and I think Henry Hub will direct more or less some markets around the world and you have more and more exports. So no, I think it will be competitive, I know there is a critical debate between Russia and U.S. who is the most competitive, but at the end of the day Europe, since I am a European player, in fact Europe we have only the North Sea. It’s not enough to feed gas consumption…
JB: Especially with declining production.
PP: So from Europe point of view, you need to maximize a point of access, you need to… the security of supply for Europe needs to have contracts with all these players, not to select one but Russia is important, the U.S. will come, North Sea is important, Nigeria is important. So let's be… as we will be more buyer than a producer we need to have more points of access…
JB: What about Qatar, can they meet their… they have lifted the moratorium; they have ambitious plans to grow production. Can they get there?
PP: Yeah, they will get there, for sure, no doubt. Qatar is in perfect position. Today when you run the LNG projects by efficiency and by cost merit curve, Qatar, it's conventional water, I would say you have huge amounts of gas, so it's very easy to produce gas, so it's easier to produce this gas than shale gas in the U.S., so then even gas in the Yamal LNG where we are also developing, or in Mozambique, so Qatar is in the right position, then it's a question for them on market share, it's a question of customers and… but they will do it, I can tell they will do it.
JB: How worried are you about the tensions within the GCC and Sunni, Shia tensions kind of flaring up in that region?
PP: That’s part of the fundamental geopolitical trends which are creating instability and that’s within the GCC. These tensions are not really needed but they exist, so I hope they’ll find ways and for Total as I said to each of the leaders of each country, because we have the chance to work in all of them, I told them, I am Qatari in Qatar, Emirati in the Emirates, Iranian in Iran, Saudis in Saudi Arabia, what does it mean? We do our best in each of your countries for you, but don’t ask me to choose, I will not choose. Because if I choose, don’t trust me, why should I choose? I have big business in all of those countries but we are dedicated to do the best for the each other and that is the only answer. Then what I observe is that all pipe gas dolphin between Qatar and Abu Dhabi continues to flow, despite the row, they continued to produce, they continued to buy, which is fine. So we have made bridges, and I think part of what a company like Total can do is more to build bridges than just participate to erect walls.
JB: You mentioned a minute ago the role gas and renewables can play in the clean energy transition. There is controversy about gas, about issues of methane emissions, growing concerns from environmentalists, you see that within Europe and the U.S. Is the industry doing enough for… what else do you think it needs to do to make sure that people see the role that you think gas can play in addressing both climate and air pollution?
PP: I think gas is fundamental, we have to be pragmatic. A world only with renewables does not exist for long, it's not true, and if we don’t do the right measures we will continue to have more and more coal, because gas is not fighting against renewable, somewhere it will replace coal. So what do we want to have in emerging countries, in Asia, in Vietnam, we want to have coal-fired power plants or gas-fired power plants?
Then the point about methane, which is coming mainly from the U.S., it's serious. We need to exactly measure what it is. The more we look at it, and frankly we are in a group of ten companies, the OGCI (Oil and Gas Climate Initiative) is working hard on it to put figures on that. Because all that is not fully rational. In fact, clearly in the production stage is very minimum and all the data we have is 0.3-0.5%, it's minimal and so then the question will be more into distribution and in particular we discover that maybe the problem is coming from the city gas distribution networks, which maybe are old and not fully with no leakage which is maybe beyond our scope of intervention, but which is we are responsible for the gas we produce. So we need to put that on the table, to really face it, and I'm ready; we will take some commitments. I'm ready to commit at Total level, but whatever the gas I produce and I sell, I will sell it in a way that there will be no emission, it will be competitive compared to coal. This debate, I think a few institutions or environmentalists have put it on the table on basis which I would like to be sure that all that is fully honest.
JB: And you talked about the role gas can play, you said some of this was coming from the U.S. We’ve seen even in France saying they may ban hydrocarbons from 2040, you see BNP Paribas say recently they might not invest in shale and oil sands project, do you see the mood turning decisively against oil and gas, and the increased pressure being brought to bear on oil and gas companies to disclose climate related risk from investors, how is the industry prepared to respond to that?
PP: I don’t know. The industry clearly is too defensive. My view is that we need to be proactive on that and that for Total we have clearly enacted and shared a strategy which to be an oil and gas company, because you will need oil, you will need gas in 20 years, so let's not abdicate, let's not become irrational. At the same time, we want to be responsible, which means I participate, I’ve taken a position of transparency. So we have we have published in 2016, the first climate report. Before TCFD was asking us to make a report, we can't be proactive and to put the data, I have signed of course this commitment to the TCFD even if I fully don’t agree with all the statements, I'm not sure that putting scenarios will not be a source of confusion in particular we need to avoid legal risk with class actions.
But fundamentally I cannot refuse to sign a paper which asked to be transparent; I have no problems with transparency, the most important there it’s to have a strategy where we will continue to invest in low carbon businesses, and we are doing that. We have five billion assets. Our target is that in 2020 we will 20% of the company in these fields, and so I think that we need to demonstrate that we participate to this energy evolution and that we don’t stick on oil and gas, but we are ready and frankly, let me be clear, gas, at the end we don’t consume gas, we transform gas in power, power I think the demand for power in the 21st century will grow quicker than the energy demand.
So power is the right domain, so let's be more and more involved in producing power and then we have renewables to power, so I think it makes sense, so let's be proactive. We are part of the solution. We are the solution. We are an energy company and so the question is how do we change our image to be classified not from an oil, but oil and gas or gas and oil by the way, and for an energy company this is the journey that we have to do.
JB: How are those investments going for Total in clean energy? You’ve said you’ve wanted to make renewables and low carbon the growing piece of the business?
PP: For this year we had a result of $500 million and with five billion it makes profitability ratio of 10%, which is not so bad in fact, so then it's a question of at which pace will we grow that? We have decided that each year we will put $1 billion in this low carbon business and it’s finding opportunities. Our battery business which we have invested is growing. This year it has increased by almost 20%, so you have some markets… it's a trend… you cannot fight against the market and you have market growth in this world of renewable energy storage, so let's try to capture part of it, this is a way to answer to all this pressure, but I can understand we have to be responsible.
JB: There is a perception that the U.S. and the European oil companies are in somewhat different places when it comes to how progressively they think about investments in low carbon technologies and climate change. Do you see that and why do you think…?
PP: No, but I think there is a debate. No, but I think that the consciousness of environment is stronger in Europe than elsewhere in the world; it's not today. The European project has been based on consumers, no inflation and environmental matters for 30 years. So you have this consciousness, this perception. It's also I think a question of generation of leaders of young leaders. This feeling of environmental matters is more important, but I think the U.S. companies will come, then of course you have a debate with your investors which is a strategic debate, which is not so easy to answer, should I concentrate on what I do the best, which is oil and gas?
JB: And be the lowest cost…
PP: …And be the lowest cost and be hyper-efficient, or should I also try to diversify and diversification is not always a success, so I can understand that you could have a debate and maybe it's other players which would make this diversification. So this is where sometimes we could have a strategic divergence, but I think the fundamentals are fine and the more I speak with my U.S. colleagues, I think they feel themselves very responsible and, look, I know Exxon has been accused for long, which is not true, because they always state very clearly they were in favour of carbon tax and things like that, but it's a question to be proactive and to be engaged so that the people, to change the perceptions, which is complex, politicians know that, when you are a big player to change the perceptions takes time.
JB: Patrick Pouyanné, I know we are just about out of time, but I want to thank you for making time to be with on Columbia Energy Exchange. Hopefully we can welcome you back to Columbia University in New York very soon, thanks again for your time today.
PP: Thank you and I will be happy to come soon in New York. Thank you.
JB: Thanks to all of our listeners for tuning in, remember to rate us on iTunes and for more information about the Center on Global Energy Policy, check us out at our website Energypolicy.Columbia.Edu or follow us online at ColumbiaUEnergy. Until next week, I'm Jason Bordoff, thanks for listening.