France’s international oil ambitions
The French Government is being lauded for its commitment to clean energy at home, yet less has been said of their investments abroad. We spoke to Richard Mallinson, partner and geopolitical analyst at Energy Aspects, about France’s international ambitions.
France’s newly installed administration delighted environmentalists in June by announcing a ban on all new oil and gas exploration as part of the nation’s clean energy drive.
President Macron’s ecological transition minister Nicolas Hulot went further still, outlining plans to increase taxation on diesel fuel and fast-track efforts to reduce pollution. During his election campaign, Macron said he favoured a ban on fracking, particularly in the overseas territory of French Guiana in South America.
So far, so progressive, but when it comes to French energy companies, the government continues to champion oil and gas giants such as Total as they invest heavily in countries including Nigeria and Iran.
In late June, it was revealed that the French Government had set aside €1bn to invest in Nigeria’s oil and gas industry. Multinational Total already has significant investment equity in Nigeria Liquefied Natural Gas Limited (NLNG) and the Egina ultra-deepwater oil project off the country’s south coast.
In July, Total paid $1b for a 50% stake in the South Pars gas field in Iran. The offshore field is shared between Iran and Qatar, where Total is also a major player in oil and gas production and refining.
“Total is out in front in that it is the first Western company to sign a deal in Iran since the sanctions were lifted in 2016,” says Richard Mallinson, partner and analyst at consultancy Energy Aspects.
“South Pars 11 signals a willingness by Total to operate in an environment that many companies are still cautious about. It is also indicative of an increasing appetite by Total and other super-majors for gas assets and production.”
“Total is a multinational and tends not to produce oil and gas for dedicated supply to the French domestic market,” he adds. “That size of company tends to have a portfolio of oil and natural gas projects and will match that to demand, only some of which is from downstream demand in France.”
France’s energy mix
Gas is a key to France’s decarbonisation strategy, as is energy security during the country’s highly publicised transition to renewables. France continues to rely on nuclear for 75% of its power, a fact that was brought into sharp relief in January when temperatures plummeted across Europe.
As the harsh winter persisted, France experienced peak electricity demand close to the historic high recorded in 2012. However, several nuclear power stations were shut down for maintenance, taking 9GW of capacity offline. The country’s reliance on electricity for heating meant an additional 2.4GW was needed for every 1°C drop in temperature – roughly the equivalent of two nuclear plants.
Add to that France’s commitment to reducing its reliance on nuclear power to 50% by 2025, and it is clear the other constituents in the nation’s energy mix need to start pulling their weight – and quick.
“The priority will be removing coal and there are a lot of question marks over the scale and pace at which nuclear’s share in France’s energy mix can be reduced,” notes Mallinson. “So, even with very rapid growth in renewables, there is still an opportunity for gas as a low-carbon, transitional fuel.”
According to the International Energy Agency (IEA), renewables account for roughly a quarter of France’s electricity capacity, the majority from hydro. But with water levels in French reservoirs at their lowest levels in a decade, hydro’s contribution to total generation has significantly waned.
Other renewables such as solar PV contribute about 7% of electricity generation, but are limited by fewer daylight hours during the winter months. Conventional sources including gas, coal and oil account for roughly 6% − only around a tenth of the country’s nuclear generation in normal times.
Total has been present in Nigeria for over half a century. The company owns a 24% stake in the Egina ultra-deepwater oil field, along with Chinese partner CNOOC and Brazil’s Petrobras Sapetro.
Located 130km off the coast of Nigeria at water depths in excess of 1,500m, the play is one of the company’s most ambitious offshore projects to date. Drilling began in December 2014.
Much of the project is being developed locally to accelerate the pace of technology transfer and benefit local contractors. A total of 70% of the planned man hours and 34% of the equipment, will be produced locally. In addition, infrastructure will be developed and built in Nigeria.
However, the project has not been without its problems.
“Total has a strong track record in Nigeria over 50 years, but there have been persistent issues in terms of security, sabotage and strained relations with local communities,” explains Mallinson.
“That said, Nigeria is still a country where companies such as Total have made significant amounts of revenue and the company is signalling that it is still willing to do business in there, while taking steps to limit the risks, such as using fewer ex-pat workers and prioritising offshore projects like Egina.”
Total reports that five out of the planned 44 subsea wells have been drilled, at depths of between 1,400m and 1,700m, and 13 more will be completed when the field comes on-stream in 2018.
They will be connected using umbilicals and risers to a floating production, storage and offloading vessel designed to hold 2.3m barrels of oil. Egina is forecast to produce up to 200,000 barrels a day.
France’s gradual transition to renewables
How does Mallinson see the energy market in France evolving in the short to medium term and what role will oil and gas generation play in a country that has effectively staked its future on renewables?
“The demand side in France is changing, as it is in Europe and globally,” he says, “The importance of petro-chemicals and plastic as opposed to traditional sources of fossil fuel demand will increase.
“Again, this makes a project such as South Pars 11 in Iran attractive because it includes condensate production that can be supplied to the petro-chemical industry as a bio-product of gas.”
Mallinson also believes that the French Government wants to see the likes of Total competing with other supermajors, while simultaneously adapting its business models to gradual decarbonisation.
“French energy companies such as Total are positioning themselves for the long term,” he says. “The publicity around the Paris Agreement, the banning of diesel cars, preventing news sales of petrol cars – all these things give the impression that demand for oil and gas will disappear immediately.
However, beyond the next five to ten years we still expect to see a solid level of demand for both oil and transport fuels.”