TotalEnergies walks carbon tightrope with $27bn Iraq energy deal

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This month’s Iraqi announcement of a $ 27 billion deal with TotalEnergies received little public attention outside Baghdad. That may have been what the recently rebranded French oil major wanted.

Like its peers, Total is a challenging review of its business, sandwiched between maintaining oil and gas projects that generate most of its profits and a larger call to increase investment in cleaner energy. Is in the process of. The Iraqi agreement aims to do both at the same time.

Total will fund the construction of a huge 1 gigawatt solar power plant, but other projects covered by this agreement will inject seawater into oil fields to increase production and currently flare gas. Will be collected and sold to a local power plant.

Total, which promised an initial investment of $ 10 billion, makes little mention of its impact on oil production as a sign of sensitivity to new oil and gas projects.

CEO Patrick Pouyanne Focus instead About reducing gas flares, better water resource management, and the positive effects of solar energy. Iraqi Prime Minister Mustafa al-Kadimi said the investment would increase crude oil production in a single field from 85,000 barrels a day to 210,000 barrels a day.

Climate activists, including Climate Action Tracker Mia Moisio, said Total’s deal wasn’t in line with the breakthrough. report According to this year’s International Energy Agency, investment in new fossil fuels will need to be stopped globally to meet Paris’ climate goals.

Total declined to comment, but argues that large-scale investments in clean energy are possible only for its oil and gas business.

Total Chief Patrick Pouyanné focuses on the positive effects of reducing gas flares and improving water resources management © Christophe Morin / Bloomberg

Ahmed Mehdi, a visiting scholar at the Oxford Institute for Energy Studies, said, “We can’t fund the Net Zero Roadmap without access to low-cost, low-emission barrels. The” green “of Iraq’s trading. The part gives investors and shareholders confidence that the total upstream of Iraq will be different from their peers in the past. “

Bernstein analyst Oswald Clint said that compared to Europe’s biggest rivals BP and Shell, Total generally invests continuously in hydrocarbons to fund more environmentally friendly projects. He said he was willing to publicly acknowledge the need.

“Total is like a middle ground,” he said. “We are still pushing the oil and gas agenda, but it is still spreading to low carbon.”

So far, investors have supported the strategy. Unlike BP and Shell, Total maintained its dividend in 2020, when oil prices plummeted, and its market share increased by about 10% from the beginning of the year, but is generally superior to its peers.

BlackRock, which holds about 7.5% of the total stake, said in its July annual investment poll report that the oil group’s approach “reasonably balances ambitions and pragmatics related to global energy transformation.” Stated.

Another large investor told the Financial Times that he was happy with the division of oil, gas and renewables in Total’s portfolio, and the move to cleaner technology was funded by the “brown part” of the business. He added that it had to be provided.

Total says it will spend more than $ 2 billion on electricity and clean energy this year, but Puyanne also said. Overpayment of renewable assets With a “crazy” rating.

According to Bernstein’s Clint, developing a Greenfield Renewable Energy project in countries such as Iraq may provide a way to build a clean energy business at a lower cost.

“In these potentially high-risk countries, renewable energy makes terms and pricing more attractive because of its competitiveness. [new renewables companies] You cannot go to Iraq and use solar power. “

Total has had a presence in Iraq for almost a century. The company was founded in 1924 when a syndicate of French industrialists and financial firms took over the French government’s stake in Iraqi oil (then called Turkish oil) and has been deeply rooted in the country ever since. increase. French President Emmanuel Macron made his second visit to Iraq in less than a year in August, just a week before the total deal was announced.

Iraq’s Ministry of Petroleum, which courts foreign investors, described the deal as “the largest investment by Western companies” in the country. The prime minister said it would improve the stability of the country’s power grid and “optimize” revenues from Iraq’s oil, gas and water reserves. The parliamentary election is scheduled for October.

We had previously discussed with ExxonMobil about a project to use seawater to increase oil production. U.S. oil companies have nearly agreed to invest $ 53 billion in 2019, but now Iraq’s assets to focus on more accessible, lower-cost oil fields in Brazil’s Gaiana and the U.S. Permian Basin. He states that he is seeking to withdraw from.

French total oil refinery
Total states that large-scale investments in clean energy are possible only for its oil and gas business © Cyril Marcilhacy / Bloomberg

Iraqi oil minister Isan Abdul Jabbar said in July that BP is also considering withdrawing from Iraq, where political instability, security risks and corruption continue to complicate operations.

However, Total generally seems confident in its peers that it can continue to operate profitably in complex jurisdictions. Total has moved forward as other oil majors have withdrawn from many parts of Africa and the Middle East.

Last year, we increased our stake in the Lake Albert Oil Project in East Africa. This will make Uganda the first oil producer to export crude oil via a 1,400km electric heating pipeline.

At the same time, the French energy group is promoting a large-scale liquefied natural gas project in Mozambique, where the Islamic rebellion is taking place. Forced the company to declare Force majeure During aprilAnd in Yemen, a long-term civil war threatens progress.

In Iraq, Aditya Saraswat, an analyst at consultancy Rystad Energy, said security risks in southern oil production are likely to recede and both water injection and gas recovery projects are likely to generate good profits.

“At first glance, it looks like a risky investment,” he said, but “beauty is in the details.”

Additional report by Chloe Cornish in Beirut

TotalEnergies walks carbon tightrope with $27bn Iraq energy deal Source link TotalEnergies walks carbon tightrope with $27bn Iraq energy deal

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