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Pointing to the increasing use of natural gas as a fuel for generating electricity, Total has purchased the LNG business of French utility Engie. Total is hedging its exposure to the oil market by diving deep into natural gas. Sarah Kent reports:
The acquisition is a down payment on Total’s strategic bet that lower-carbon natural gas will replace coal and play a central role in future power supply. More than any other major oil company, Total has identified the power sector as a hedge against oil’s eventual decline and has been building a business around that strategy.
“We think gas-to-power will become one of the main sources of power in the future,” Chief Executive Patrick Pouyanné said in an interview. “This deal for us is perfectly in line with the strategy we have described to expand along the gas-value chain.”
LNG is gas that is super-chilled to the point that it becomes a liquid, allowing it to be shipped around the world on tankers, much like oil.
Total said it would pay $1.49 billion to acquire Engie’s interests in liquefaction plants in the U.S. and Egypt. The deal also includes LNG import capacity in Europe, a fleet of 10 LNG tankers and a portfolio of long-term sales and purchase agreements. The deal may be subject to a further payment of $550 million if oil markets improve in the coming years.
The deal will catapult Total into the upper ranks in the LNG market with a market share of 10% by the end of the decade. By 2020, Total’s LNG position among the big Western oil companies will be second only to Royal Dutch Shell PLC, which made a massive bet on natural gas in 2016 with its roughly $50 billion purchase of BG Group. Total’s new clout and access to export and import infrastructure will give the company a competitive edge in the expanding market, Mr. Pouyanne said.
The LNG business is growing at a rate of 5% to 6% a year, attracting a range of new players and fueling competition for access to customers and infrastructure capacity.
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