“All the people have complained to me that it was very hard to develop a project in such conditions. But... today’s weather is just perfect – so, I do not understand why you have issues,” Total chief executive Patrick Pouyanne joked at the inauguration ceremony of the Shetland gas plant (SGP) yesterday. It was Pouyanne’s first visit to the Shetlands, the UK’s northernmost inhabited islands, more than 160km north of mainland Scotland.
“All the people have complained to me that it was very hard to develop a project in such conditions. But... today’s weather is just perfect – so, I do not understand why you have issues,” Total chief executive Patrick Pouyanne joked at the inauguration ceremony of the Shetland gas plant (SGP) yesterday. It was Pouyanne’s first visit to the Shetlands, the UK’s northernmost inhabited islands, more than 160km north of mainland Scotland.
The weather was indeed mild and quite sunny, drawing lots of comments from the locals and adding to the good mood of Total’s executives as the SGP is now operating some 10pc above its capacity. The 14mn m³/d Laggan-Tormore field, which delivers to the plant, started up on 8 February. And Pouyanne confirmed that more gas will be coming to the SGP from Laggan-Tormore tie-backs Edradour and Glenlivet in 2017-18, despite the lower oil and gas price environment, adding: “I think we will be able to lower the investment by 20pc, more or less, which is a good achievement.”
Yet, since 2010 when the Laggan-Tormore development project was launched, there have often been times when both the weather and the executives’ mood were stormy. “This project is also a symbol of the difficulties we face in this industry,” Pouyanne said.
Among other things, the severe weather conditions around the Shetland frontier oil and gas region meant that a lot of modules for the SGP had to be built in the Middle East, adding to the challenges of the project. The SGP and the Laggan-Tormore field development also faced long delays and cost overruns “because of the harsh environment for sure, but also because of the difficulties of the project, [as a result of being] maybe too ambitious sometimes”, Pouyanne said.
And now when the project is finally on stream, the price of gas in the UK is sharply lower than several years ago. “I suspect it will remain low for quite a long time, because the LNG industry is growing very quickly, particularly in the US,” Pouyanne said. “It is not so good for a UK gas producer.”
Total says it produces one-third of the UK’s gas output, meeting 15pc of the country’s demand. But the company is not just a gas producer. Integration and diversification are proving to be a good umbrella. “We are a major oil and gas integrated company, so we maybe lose on one side, but I will benefit in my refineries, in my petrochemical plants and other businesses from lower gas prices," Pouyanne said.
Gas now represents roughly half of Total’s output. “We need to have a mix of gas and renewables when we think of what could be a lower carbon energy mix,” Pouyanne said.
Total has been one the most active in the renewables sector among large international oil and gas companies in recent years. At the same time — just like all other oil and gas firms — Total has had to cut investment in oil and gas developments as sharply lower oil prices since 2014 have reduced the amount of cash companies make from operations. The levels of investment by the industry in general, and Total in particular, today are unlikely to even support oil production at current levels in a few years.
Total said earlier this month that it would buy French battery manufacturer Saft for more than $1bn. Asked about the logic of this acquisition and whether Total should be spending the billion on buying new oil and gas assets instead to address future production issues, Pouyanne said: “We are a major oil and gas company, and we are continuing to look for additional reserves, and this is the right time probably. There will be some opportunities, even if sellers are still expecting quite high prices for the assets … And we have the willingness as well to develop our position in gas, renewables and power. We had the opportunity to acquire that company in the energy storage business. It is a piece of the puzzle if you want to be serious about renewables. $1bn is a lot of money, but for Total it is perfectly achievable.”
“Last year we spent $2bn to acquire a position in Abu Dhabi in oil. This year we see this one... It was a good opportunity," Pouyanne said. “I cannot just cut and cut costs, no investment for the future... If I have approved this investment in something which is about diversification, it is because I am convinced that we are doing very well in my own oil and gas businesses," he said.