International News
2 MAY 2017

TOKYO -- The energy business is in a state of flux as ongoing tensions continue in the Middle East and over North Korea's nuclear and missile programs. In addition, an uncertain political climate across the world is casting a shadow over the issue of global warming.

Patrick Pouyanne is the chief executive officer and chairman of Total, the international energy giant headquartered near Paris. The Nikkei recently spoke with him about his plans for steering the company through the myriad changes the industry is facing.

Edited excerpts of the interview follow.

Q: Three months have passed since OPEC and non-OPEC countries agreed to cut production. How do you evaluate the current oil market, and do you think OPEC will extend the production cut?

A: First, I think it was a historic agreement. It was the first time not only OPEC decided to cut production, but also non-OPEC countries agreed to as well. Countries are serious about implementation and compliance.

French energy giant Total's headquarters in Courbevoie, near Paris         © Reuters
For the time being, inventories are still high and their decrease take time. The cut is ready to be efficient, but it takes some months. I am convinced that when the market will realize that inventories really are going down, it will have a positive impact on the oil price.

There is a very important meeting scheduled for the end of May. If OPEC and non-OPEC countries like Russia want to have influence on the market, they will need to maintain the cut.

Q: Does the balance of supply and demand need more time?

A: If we continue not to sanction new projects, in two, three years' time we will have a lack of supply. In 2015 and 2016, very few new projects were decided. It means that three or four years ahead from now, the projects which have not been sanctioned will not come into production. We could face a situation, like explained by Fatih Birol from the International Energy Agency, where we will have a lack of production because of a lack of investment. The strategy of Total is to permanently lower the breakeven. This is the best answer to the volatility of the price.

Q: Next, I would like to ask about Total's E&P strategy of investment and geopolitical risks. I understand Total has good relations with Russia and Iran. First, could you tell me the potential of these two countries?

A: Russia is among the top 3 countries regarding oil reserves and also gas reserves. Iran has the largest gas reserve in the world.

The Total Grandpuits oil refinery and petrol depot, located southeast of Paris     © Reuters
In Russia, we are developing the giant project Yamal LNG, the first train will start up in 2017.

We intend to continue to develop in Russia, because of the huge gas reserves of the Yamal Peninsula.

Q: On the other hand, there is tension between Russia and the U.S.

A: Yes there are some sanctions, and at Total we comply with these sanctions. That means that we cannot use dollars so we are using euros, and the euro is a good currency.

Of course we faced some difficulties in order to finance the Yamal project, but in 2016 we succeeded, and in particular we obtained support from the Japan Bank for International Cooperation. And we appreciated it.

Q: What do you think will be the impact of the new U.S. administration under President Donald Trump to your Russian business?

A: Today there are a lot of crises around the world. Seen from Japan, I would say that the number one issue is North Korea. There are also tensions between Europe and Russia over the Ukraine situation; or Syria and the Islamic State group in the Middle East.

I am convinced that it is in the best interest of many countries to try to find a solution to the Ukrainian crisis, to the North Korean nuclear threat and obviously to terrorism. I hope that world leaders will find a way and make progress. Diplomacy is a matter of building bridges between countries, not walls!

Total can work in Russia respecting the sanctions and using euros instead of dollars. If we go to Iran, we will work in the same way. If nuclear agreements are implemented by both parties, if Iranians and Western countries respect their commitments, it means that we can work in Iran.

When I'm listening to public declarations of U.S. Secretary of Defense Jim Mattis, I have the impression that the U.S. wants to stay within the framework of the current nuclear agreement.

Q: State-controlled media in Iran reported that Total was talking to Shell about the Azadeghan oil field.

A: We are talking with Iran about the South Pars project.

Q: It is said that the Japanese company Inpex has interest in Azadeghan. Are you thinking of working with Inpex?

A: Again, the priority for Total is to conclude the South Pars contract.

Q: What do you think about the U.S. market under the Trump administration? Is the Trump government favorable for your business in the U.S., such as with shale or renewable energy?

A: I understand the Trump administration policy is "America First." "America First" means if you invest in the U.S., it could be good. Last year we increased our business in the U.S. when we invested in the Barnett Shale field in Texas.

We also just announced in the U.S. a new ethane cracker for petrochemicals. It's a $1.7 billion investment.

Total is also involved in renewables in the US. We are a majority shareholder of Sun Power, which is a U.S. listed company, and one of the leading solar companies.

Renewables are creating a lot of jobs as well in the US. President Trump might not be in favor of CO2 climate initiatives, but he likes jobs.

We have to show President Trump that the solar industry is also providing a lot of jobs. I hope the Trump administration will maintain a policy favorable to renewables, because they create jobs as well.

Q: Could you tell me about the importance of the Asian market for Total?

A: Asia is very important.

Asia has a large population. Just look at China and India. But also Japan, which is historically a big gas consumer or South Korea and so many countries -- Indonesia, Vietnam, Myanmar -- all have growing economies, and growing economies mean growing energy demand.

The challenge for us is to convince them to buy more gas, not only coal. So, in order to do that, we want to develop our gas downstream business, and we are willing to develop partnerships with Japanese companies in order to have access to emerging market in Asia, which need power to fuel their economic growth. Bringing gas for power generation is part of our Gas to Power strategy.

Q: Is your target Asian countries, not Japan?

A: We recently invested in two solar farms in Japan. One started-up in Nanao, 27 megawatts. Another one to come soon is our Miyako project. So, we are investing in renewables here in Japan.

Japan is important because it is a strong buyer of LNG. Today (interview took place on April 5) I met with the management of JERA, which is a new strong player in the LNG market. We have also historic partners like Inpex, Mitsui and Mitsubishi. We have invested abroad with a lot of partners. Japan is important as a gas buyer, and we can invest here in renewables.

Q: Regarding the Ichthys project with Inpex, there was a report that said the export of LNG would begin in 2018, not this year.

A: Gas production will start this year. But this is offshore gas production, and then you need to fill the line, go to the plant. The plant is in Darwin, 800km away. So, it all takes a little time. The first LNG cargo should be shipped by the first quarter of 2018.

It's a very large project, we're talking about $37 billion, huge, and one of the largest offshore platforms in the world.

For me, the most important aspect is "safety first". So let's deliver it safely, then Ichthys will produce for 25 years or more.

Q: The LNG market is oversupplied today. When Ichthys starts production, and also Yamal LNG within a year, can these projects stay competitive?

A: Ichthys is competitive, because Ichthys is not only LNG, it is also a big condensate field. We will have big production of condensate, something like 80,000 or 100,000 barrels per day at the beginning. It gives a lot of additional revenues. Besides, Ichthys has been sold on long-term contracts for 90% of the production.

Considering Yamal, this project has one big advantage: The cost of the gas production is very, very low, as Yamal is onshore and reserves are huge, easy to produce.

Both projects have been sanctioned and developed based on long-term contracts with reliable customers, so we have no worries about the competitiveness of Yamal and Ichthys

Q: Once again, I would like to confirm your downstream business in Asian countries. Could you give me some examples?

A: Myanmar is a country that will need power and power needs gas. So we are studying if we could bring LNG to Myanmar by developing a floating regasification unit, in order to supply Myanmar with gas and produce power. We are discussing this with some Japanese companies.