Interview: Christophe de Margerie, ceo Total

December 2, 2009 | 00:00

Interview: Christophe de Margerie, ceo Total
‘If you stop the production of fossil fuels, you stop the economy’

When it comes to the energy future of our planet, Christophe de Margerie, CEO of Total, has his own “inconvenient truths” to tell. ‘I  do not agree with those who say we need to develop a decarbonised world’, he says. ‘You cannot replace oil and gas. If you do that, you will face very rough times ahead’. In a wide-ranging interview with European Energy Review, De Margerie lives up to his reputation as a man who is not afraid to speak his mind. ‘It is OK to be nice’, he says at one point in the interview. ‘But only for the right reasons.’

Christophe de Margerie (1951) is a pétrolier, as the French say, an “oilman” of the truest kind. All his professional life, including 20 years “on the ground”, has been devoted to exploring and producing oil and gas.

He is, through his mother, the grandson of a prominent politician and businessman, Pierre Taittinger, who, in 1935, in the city of Reims, founded the Champagne wine establishment which brought him wealth and still bears his name. But Christophe de Margerie chose another path, at 23, when he joined the French oil company that would later become Total.

In 35 years, he worked his way up the ladder, reaching the rank of Director Middle East, before he went on to the top spot, that of CEO, in 2007. He has followed – and often directly orchestrated – Totals every evolution in the past decade, as the company bought up the Belgian firm Petrofina in 1999 (becoming Totalfina) and then in 2000, its French rival Elf-Aquitaine, with its many interests in Africa.

Today, Total is one of the world’s major international oil companies, along with ExxonMobil, Shell, Chevron, BP and ConocoPhilips. Its business covers the whole production chain, from crude oil and gas extraction to energy generation, refining, retail and petrochemicals. In terms of revenue, Total is the fourth largest company in Europe and the sixth worldwide, in 2009. It is of course the first among French companies, but the French hold no love for it. For many years, they have denounced it as environmentally irresponsible – as France was traumatized by the sinking of the oil tanker Erika, in December 1999 off the coast of Britanny – and dangerous – especially since its chemical plant in Toulouse was destroyed in September 2001, by the explosion of its ammonium nitrate stocks, killing 30 people and injuring 2500.These last months, with the economic crisis making things worse, the French accuse Total of the most dreaded sin in France: that of being rich. Not a week goes by without a politician or a pundit echoing the “vox populi” by blaming Total for its “super-profits” and calling for extra taxes.

With the bearing of a colonial officer and a conquering moustache – some call him “big moustache” – as well as a taste for cigars and malt Scotch whisky, Christophe de Margerie has taken on the task of improving his company’s image. Without, however, falling into politically correct, environmentalist discourse. While he doesn’t deny the seriousness of the global warming issue, he will not sign petitions in favor of a “decarbonized world”.

His vision is clear: we must keep on producing fossil fuels – indeed, lots of them – or else, humanity will be unable to achieve economic growth. And although he is convinced there is enough oil and gas in the world for a long time to come, he does warn that we are headed for another period of high prices and possibly even energy shortages if we do not expand investments quickly enough. For this reason, he believes it is adamant for the industrial world to build long-term relationships with the big oil and gas producing countries, especially in the Middle East. He warns western governments, ‘if you consider the producing countries bad because they produce carbon, you get off to a very bad start.’

European Energy Review spoke with him in his office on the 44th floor of Total headquarters in La Défense, overlooking the city of Paris.

How do you look upon the whole idea of “the energy transition”?
Well, the concept that the age of oil is over or even nearing an end, is quite dangerous. It is true that we have to move from being an oil and gas company  - what we call petroliers in French – to an energy company in a much broader sense. But we do not do this to replace oil and gas. We need alternative forms of energy, yes, but in addition to oil and gas. You cannot replace oil and gas. If you do that, you will simply not have enough energy. I do not agree with those who say we need to develop a decarbonised world. If you say you don’t want CO2-emissions, you have to stop the production of carbon. If you stop the production of carbon, you stop the economy.

Do you think the climate problem is being exaggerated?
No, I cannot say this. I am not in a good position to say this. It is not our role as an oil company. We are experts in producing oil and gas. That is our responsibility. Everybody has to take their responsibility. We are investing widely as we search to find new energies that do not have a significant impact on the climate. Since we are at the core an oil and gas company, some could think that we are against new energy sources but nothing could be further from the truth. Indeed, it is at the root of our strategy to supplement the core business of Total with other forms of energy production, for example nuclear and solar. But as I said, hydrocarbon production will remain essential in supplying humanity’s energy needs for a long time. The fact is that the world needs increasing amounts of energy. Thus when I hear people who are against hydrocarbon production and against nuclear too, I can only say, you are against the future.

So then how can emissions be limited? Through carbon capture and storage (CCS)?
CCS will be essential, yes.

How is Total’s CCS-project in Lacq coming along? (A pilot project, started in February 2007, to capture CO2 at a natural gas production site, and then to transport it and inject it in a nearby underground natural gas reservoir in the Lacq basin in Southern France.)
We are now working on the injection. The capture part of the process is ready. That said, it is a complex process. When it comes to CCS, I believe oil companies should cooperate more. We all have our own projects but by themselves they are all too small. When for instance it comes to developing technology for deep-sea oil production, it is normal that we see ourselves as competitors. But when it comes to CCS, there is no merit in competition. CCS will be the only way in which we can really reduce global warming. It will cost a lot of money. We need to work together to find ways of reducing costs.

You say that hydrocarbon production will remain important for a long time to come. But you have also been quoted by “peak oil” advocates as saying that we are running against the limits of our oil reserves.
I have never said that we are running out of oil. I do not believe that. But we are running out of production capacities. It is not a question of reserves as “peak oil” theorists would have us believe but rather a question of available production capacities. So why is it we are reaching a production peak? First of all, there are few “easy” oil and gas fields left out there. Second, oil nationalism as well as the economic crisis are making matters worse. This is leading to less investment. Producing countries at present are quite simply asking “why invest now?”, when they have a shortage of cash and have other priorities.

There is a reduction in investment for  there is a shortage of financing. The producing countries lack the financial strength of companies like Total. This stresses the importance

of why an oil company like ours needs the profits it makes. Our balance sheet is helping us through the hard times and allows us to keep up our investment program. If we hadn’t made these profits, we would not have been able to continue investments as we are today.

But overall the crisis is having an adverse impact on investment. And I fear that in a few years’ time, once the economy picks up again, this will become a very big problem. Prices will climb again and what is more, we may face a shortage of energy. We now produce 84 million barrels a day. According to the International Energy Agency, we will soon need over 100 million barrels a day. Saudi Arabia can produce maybe 4 million more. That would take us to 88 million barrels per day. Still far short of what is needed. And when you see what is going on in Iraq, in Iran, in Venezuela, in Athabasca (Canada), in Russia, in Nigeria … The reserves are there, but will they be developed in time? I happened to speak to the French Prime Minister (Mr François Fillon) this morning, and I told him : “be careful, you are confronted with a strong problem – not just CO2, but also economic growth. Without energy, there will be no growth.”

Is the crisis having an impact on the relationship between the producing countries and the international oil companies (IOC’s) like Total?
The very high prices we had were not a stimulation to production. With lower prices today, we can start anew, with a new policy. The producing countries once more have a need of the IOCs since we can bring financing and technology. But it is still uncertain how this will work out. It is still very short term. The producing countries are wondering what their strategy should be. There are also big differences among them. Some countries, like Angola or Russia, need more financing. Others, like Saudi Arabia, less so.

So do you think the trend towards oil nationalism is being turned back because of the crisis?
Take Russia for instance. I was with (prime minister) Putin on a trip to Yamal recently, where he said, we cannot do this (i.e. develop huge new oil and gas regions such as Yamal, ed.) without everybody’s help. We need our partners to work together. That is why Shtokman is so important. If the development of Shtokman with foreign partners does not work, developing Yamal will be very difficult. Shtokman is

the first big deal after what happened to Shell, to BP, to ExxonMobil, to Total in Russia in recent years. (Editor’s note: Total has been selected with StatoilHydro as one of the foreign partners of Gazprom to develop the potentially huge offshore Shtokman field. For Yamal, no foreign partners have been selected yet. In the recent past, foreign oil companies have been forced to cede part of their interests in Russia to Russian companies, e.g. Shell in Sakhalin to Gazprom.) Now the Russians are saying, “we need you, for your financing, for your technology”. Projects of this size cannot be done by anybody alone. They are too big and expensive. We don’t even know how much Shtokman will cost. It might be near to $30 billion.

Aren’t you worried that you will be thrown out once the project is up and running?
Well, if you start with this spirit, I would say, don’t go. At the same time, one should not be naïve and should seek all the protection they can. The best protection is to take the National Oil Company on board. We are doing that, we are on board with Gazprom. In fact, we have always done that. You know, I was surprised to see how much expectation there was in the West that Russia would become a western country. But Russia is Russia. It is not New York. It is not even Paris. How surprising! Russia is a producing country. They want to benefit from the oil and gas they have. Why did we think it would be different? Are we naïve or arrogant or just stupid? I was surprised to see how much support Khodorkovsky got from the West.

But Russia is Russia. It is not New York. It is not even Paris. How surprising!
Where should investments be made to avoid the problems you see looming ahead? And what part does Total play in this?
First of all, we cannot invest anymore than we do today. Like most of the big oil companies, we have not stopped our investment program, despite the crisis, although some projects have been delayed and we are trying to reduce costs. Our investment budget for 2009 is $18 billion. But this investment program is grounded in the belief that prices of oil and gas will rise again. Otherwise, we will not be able to continue to invest this much in the upcoming years.

But Total is just one player. We cannot substitute for any of the other actors. Others must get involved, not necessarily to invest right now, but we have to start negotiating now. We will have to open discussions with countries in the Middle East, Africa and elsewhere. We have to explain to them that they have to be careful, if we don’t invest now, we will face shortages in 2015. This is where governments can help. They should send the message that we can help them with their other problems. And to stop considering them as our enemies. That is why I said that if you consider the producing countries bad because they produce carbon, you get off to a very bad start. If you tell them that the only things you believe in are solar energy and wind farms, as we are telling them now, they’ll say “OK, if that’s what you want, stay home.” What do we think we are doing? I mean, we’re not going to produce electricity on wind farms in Saudi Arabia to import it into Europe. So what are the options that we have?

Which regions do you concentrate on?
On the regions where there are reserves. When people ask me where I choose to invest, I say “I don’t ask myself that question, I go where there are opportunities. Let’s be honest, today an oil company goes where the oil is.
Which is where?
Well, there is the Gulf of Guinee, Russia, Brazil – where we are not present yet. And finally, the Middle East. Where are the oil and gas reserves on this planet? In the Middle East, the Middle East and the Middle East! If you are an oil and gas producer, but you don’t think you can work in the Middle East, maybe you should try another line of business.
What about Iran?
Today, I would say, the most difficult thing is to convince the Iranians that we can reach a deal with them. They usually start telling you right away “But, your government will never do this ... Brussels will not appreciate this... The Americans won’t like it.” So, I always send the same message: “Just try, and we’ll see.” If you keep anticipating negative reactions, you’ll never advance.
So you’re still willing to invest in Iran?
Of course. Iran has the second largest gas reserves in the world.
We thought that TOTAL had made a clear decision not to invest in Iran.
You ask me if I’m interested in investing in Iran. Yes. At any price? No. Right now? It is not the right time. Total does not have a contract by the way, so how could we invest? We need to have an acceptable framework first. I am sad to say, because I have very good friends in Iran, that the worst enemy of Iran is … Iran. They always ask: "What will your government’s answer be?” I say, “we are a private company, we are free to make our own decisions”. Now, of course we listen to our government, and we try to evaluate the risks and rewards ... But the problem is not what the French government is going to say, it’s what I can tell the French government. Because, frankly, I have nothing to show them, regarding what the investment projects could be. I have no agreement. And we have not been able – any of us, for the time being – to reach anything that comes close to an investment decision.
What does this mean for the EU’s gas supply?
I don’t like to say this, because the role of a company is not to teach lessons. And especially not to politicians and Heads of State! But I can ask questions. You want Nabucco? (The EU gas pipeline which is being planned to bring gas from Central Asia to Europe while bypassing Russia, ed.) OK. Where will the gas come from? Azerbaijan? It wouldn’t, because they are selling their gas to Russia. How do I know this? Because we are involved in Shah Deniz. (The biggest gas field in Azerbaijan, ed.) We sell the gas to the customers who are willing to buy it. The Russians want to buy. And thanks to Nabucco, they are willing to pay a higher price. Turkmenistan? They are selling to China and Russia, not to Nabucco. Nabucco today is a pipeline without gas. It will have no gas unless it is brought in from Iran.

So what is the lesson then?
The need to build long-term relationships with the producing countries. Someone, I will not mention his name, someone very important in the Middle East, said to me, “With all those discoveries the IOC’s have been making in Canada, in Brazil, in the gulf of Guinea, you don’t need our oil now. We can keep it for the future. You can go and produce it by yourselves. We need to have high oil prices.” So, they are doing everything they can to help companies develop the Athabasca and Brazilian oil fields. Because if the price of oil is low, it will be their responsibility to supply us and they don’t want that. Now another problem is that we thought Athabasca would be relatively easy, but it is not.

Why not?
Because of high costs, new taxes, CO2 taxes coming from the Athabasca government. All the new projects have been abandoned. It is difficult to work there now. Look at all the campaigns against heavy oil. I mean, there is a limit to what companies can accept.

Can you comment on Total’s diversification strategy? You are investing in nuclear, solar, biomass. Where do you see the best options? And do you see yourself as investor primarily or as an operator?
First, it’s not diversification. We don’t want to diversify. We want to develop oil and gas. If you talk about bringing something else into your portfolio, then you should be able to do it as an industrialist, the way we operate in oil and gas – not just as a financier. We’re not interested in being financiers. Now, it’s important that we have the benefit of skills in those businesses that don’t exist today. We have the skills to manage big projects, we have financial strength, we have relationships with suppliers and buyers. But it still needs to be proved that these activities are compatible with our core business, and that we can really bring expertise which they lack today. For nuclear energy, it might be the right time. At a time when no new plants have been developed recently, when we can see that there is a lack of skills, of skilled people, there may be an opportunity there.

But we are not doing everything. We aren’t interested in wind farms, for example. We are also not interested in anything concerning biomass linked to the food industry. Now, regarding other sources of biomass, we are involved in research, particularly in Europe.

And we’re looking at clean coal, which is linked to the problem of reinjecting CO2. And the last one is solar, where we believe strongly that it is in its early stages. That’s why today you won’t see any huge investments from us in solar as it is still in the research and development phase.

What do you think of the prospects for electric cars?
I’m not opposed to them, but, at the same time, I’d have to tell you: “Well, it all depends on what you expect of them”. It depends on what type of electricity you use –  is it nuclear electricity? Is it solar? That’s the debate I have wih the car manufacturers. I say, “First, you know very well, that, for a long period of time, diesel and gasoline will be your first sources of fuel. Second, we can do a lot more, better with gasoline cars, than what is done today.” Now they want to present it as ... being nice, being friendly to the planet. That’s going too far. Because the core business of car manufacturers is still diesel and gasoline. I am more than happy to see electrical cars. But, frankly, when I see their prospects, I don’t think that they will replace diesel and gasoline cars very soon.

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