Image: Total Media
Total revealed its own strategy towards a lower-carbon world, in a shift away from oil and towards electricity generation which is heavy on natural gas production and renewables.
The Paris-based oil and gas company sees annual investment in renewables and electricity scaling up to $3 billion from $2 billion currently, and equaling more than 20% of capital investment in the coming decade. Oil product sales will fall by almost 30% in the same period. That will leave the company with sales composed of 50% gases, 30% oil products, 15% electrons and 5% biofuels.
European oil-major rivals have one after another revealed lower carbon strategies as the European Union seeks to become carbon neutral by 2050. BP was the first to announce a major change in strategy. Shell also has plans in progress, according to a recent Reuters report.
In addition to climate concerns, companies are also adjusting to an extended period of lower oil prices as halts in transportation related to the pandemic have caused a supply glut.
Total’s strategy emphasises natural gas — which is cleaner burning than oil products — in transitioning to lower-carbon production. This may in part reflect its equity stake in Russian natural gas producer Novatek, which is expanding its liquified natural gas (LNG) business, as well as the company’s own projects. Total LNG sales will reach 50 million tonnes by 2025 and double in the period from 2020-2030, according to the company’s release. Total may seek additional gains on this path in decarbonizing natural gas via additions of hydrogen and biogas.
The company aims to have 35 gigawatts in energy production capacity by 2025, up from 25 GW outlined in an earlier plan. It is aiming for returns of more than 10% on renewable investments, a target many analysts consider ambitious compared to the 6-8% returns at other major producers in the segment, according to a Reuters report. The target could be met by selling stakes in projects to outside partners.
The strategy underscores Total’s recognition that consumers are increasingly choosing electric cars, and, potentially, other modes of heavy transport such as trucks, buses and ships in a switch to cleaner-burning fuels like LNG. Total has already set off on a plan to acquire electric car charging points in major European cities. As for heavier transport, the ability to blend next generation fuels like hydrogen with natural gas is no doubt appealing, as it gives some flexibility during the transition.
It is also clear that oil is on the outs with traditional European oil majors. This is a combination of lower prices — and that is a supply glut controlled by OPEC which is outside the control of European oil majors — as well as the EU pushing hard for lower carbon, and consumers increasingly choosing to go electric.
The upshot is that the next decade will start to be very different than the previous decade in terms of energy usage. After such a large shift in capital, it will be interesting to see where current oil majors decide to go in the next 10 years — as well as to enjoy the significant reductions in air pollution.
