TotalEnergies to ramp up LNG production as it shifts away from Russia

But the company did not say it would exit its stakes in Russian Arctic LNG.

By Benjamin Mallet, Reuters, Silvia Aloisi, Reuters - September 29, 2022
The TotalEnergies logo sits on the company’s headquarter skyscraper in the La Defense business district in Paris on March 24, 2022. (Benoit Tessier / Reuters File Photo)

PARIS — French oil major TotalEnergies said it would increase investments and ramp up production of liquefied natural gas as it laid out its strategy for a possible future without Russia — while still stopping short of severing links.

Unlike rivals such as BP and Shell, TotalEnergies has held on to several of its holdings in Russia, which include important LNG joint ventures. But on Wednesday, at an investor presentation in New York, it set itself a series of business targets for the next five years that excluded its Russian interests.

“There is no future with Russia in this presentation,” chief executive Patrick Pouyanne said.

“Less Russia, more Qatar and more U.S.,” he added, days after announcing a big investment in a Qatari LNG facility.

As Europe scrambles to find alternatives to Russian gas, TotalEnergies said it would grow sales of LNG by 3 percent a year through 2027 and increase LNG production by 40 percent from 2021 to 2030.

Overall, it expects cash flow to grow by $4 billion in the next five years compared with a previous target for a $5 billion increase between 2021 and 2026.

Pouyanne said the new target was a “little conservative.”

“Keeping 5 billion without Russia and without Canada would have been a challenge,” he said, in reference to the fact that the group is also considering spinning off its oil sand business in Canada.

Capital expenditure will be increased to $14-18 billion a year through 2025 from $13-16 billion previously, with investments targeting wind and solar energy and energy savings as well as LNG capacity.

The company also said it would maintain its $7 billion share buy-back program for 2022 and pay a special interim dividend of 1 euro per share in December of this year.

Shares in the group closed 1.4 percent lower.

Mouloud Kadem, broker at Market Securities, said even though targets in the plan looked upbeat, he believed some investors might have been put off by the heavy investment plan. He also said it could be difficult for TotalEnergies going forward to replicate the strong results achieved so far in 2022.

Some analysts said the future of the company’s Russian investments — including minority stakes in Russia’s Novatek, Yamal LNG and Arctic LNG 2 — remained the elephant in the room.

The group has said it will not invest in new projects in Russia and will phase out purchases of Russian oil by the end of 2022. But Pouyanne reiterated that as long Russian gas is not targeted by Western sanctions, TotalEnergies would stick to its existing contracts in the country.

“We…see this position becoming harder and harder to defend and remain wary around the potential for asset expropriation, and the impact it could have on (its) LNG portfolio,” RBC said in a note ahead of the presentation.

It added it saw the group’s positioning in Russia “as an overhang and cloud on part of the investment case”.

Analysts say uncertainty over Russia, as well as the hit from a possible European Union windfall tax for energy groups that have benefited from soaring prices, explains the relative underperformance of TotalEnergies’ shares despite record profits.

Its share price has barely risen this year, compared to increases of around 20 percent for Shell and BP.

Pouyanne said the EU windfall tax could cost the group more than 1 billion euros, on top of another 1 billion hit from a similar tax in Britain and 500 million euros from price cuts the group has implemented at its French petrol stations under pressure from the Paris government to help consumers.