Oil, natural gas and coal aren’t getting very good press these days, especially since their use releases the greenhouse gases that are threatening our climate. Aren’t future generations going to blame Total for continuing to increase fossil fuel production even though you were well aware of the risks?
The climate change issue is indeed pressing, but the world also needs more and more energy. And it so happens that today, 80% of demand is being met by oil, natural gas and coal. It will be ages before carbon-neutral energy sources overtake fossil fuels, so for now, there’s just no way around this contradiction. Admitting that doesn’t mean we’re somehow irresponsible; rather, it means we’re facing the facts and using them to develop actionable, real-world solutions. We’re helping to manage energy demand more efficiently, diversify supply and develop technical solutions that reduce greenhouse gas emissions. Our pilot CO2 capture and sequestration unit, scheduled to come on stream in late 2008 in Lacq, southwestern France, will enable thermal power plants, cement plants, refineries and other facilities to use fossil fuels without emitting carbon to the atmosphere. Spreading this technology would help to resolve part of the contradiction.
Total is committed to increasing production while also advocating more efficient energy management. Is that really a credible position?
Global energy demand is going to remain strong, because developing countries lag far behind industrialized nations. How can you justify dashing the hopes of the billion and a half people in the world who don’t have electricity, or crushing the aspirations of people who want to own a car in China or India, where there’s only one car per 50 or 100 inhabitants, compared with one for every two people in the West?
Total’s primary responsibility is to help meet this demand on a sustainable basis. That’s why we committed $16 billion in capital spending in 2007 and will be investing $19 billion in 2008. I’m delighted that the offshore Dalia and Rosa fields were recently brought on stream in Angola and that the Dolphin gas project between Qatar and the United Arab Emirates has been commissioned. We have a host of other building block projects under way or planned in the oil, natural gas, refining, marketing and petrochemicals segments, to meet demand and help to secure supply.
On the demand side, however, genuine efforts must be made to bring it under control for two reasons, to protect the climate and to limit the risk of tight supply. We are paying very close attention to our own energy use, but the main challenge is to support our customers with products that produce fewer emissions and are more efficient, while delivering the same service. We have to help them heat their homes and businesses, to drive their cars and trucks — all while managing their energy use more efficiently.
To grow its production Total is taking part in very environmentally risky projects in Canada and the Arctic Ocean. How can you justify this?
Canada’s oil sands and the Arctic’s natural gas potential, mainly offshore Russia, are among the few untapped oil and gas resources left on Earth. Thanks to advances in technology and today’s high energy prices, they can now be developed cost-effectively, but finding and bringing them on stream does raise environmental issues that we are taking very seriously.
In Canada’s Athabasca region, our Joslyn and Surmont projects are producing oil using energy-intensive processes that emit carbon dioxide. But we are committed to reducing their emissions because the market can’t afford to turn its back on Canada’s vast resources.
The Shtokman natural gas project, for which we signed a memorandum of understanding with Gazprom in 2007, means we will be working in an isolated environment, in the midst of fragile ecosystems. We are addressing this challenge in three ways: understanding the environment holistically, in all its aspects; designing environmental protection into the project; and taking precautions to limit the risks of spills.
Higher energy prices may be bad news for consumers and economic growth, but they’re good for oil producing countries and companies like Total. What’s your take?
Prices of mining and agricultural commodities have soared in recent years, driven in particular by demand from Asia and the Middle East, in an environment of sustained global economic growth. But in addition to this demand pressure, the real reasons for higher prices are the reluctance of certain oil producing countries to increase their output and concerns about the political situation of many stakeholders. Speculation alone is not to blame, nor are the oil majors, who account for only 15% of global production — and 23% of capital expenditure — and are therefore in no position to influence prices.
But are higher prices really good news for oil companies? It’s true that they’ve kept our profits high, at €12.2 billion in 2007, and allowed us to increase our dividend by 11%. Above all, they’ve enabled us to double our capital spending budget over the last five years. They also benefit our contractors, who have sharply increased their prices in the overheated oil industry. But most of the additional revenue is going into the pockets of oil producing countries.
Certain developing countries without energy resources have been hard hit by higher prices. In the euro zone, this trend has been somewhat alleviated by the weak dollar. I realize that paying more for energy can be a hardship for consumers, but at a time when many are lobbying for the introduction of a carbon tax to encourage people to moderate their consumption, I think these prices may send the same message, and goad consumers to invest in less energy-intensive homes, heating systems and cars.
Demand pressure has given producing countries the upper hand. Do Total and its peers still have enough influence to persuade them to increase their production capacity and avoid further shortfalls?
Clearly, at current prices, there’s no incentive for most oil and gas producing countries to produce more. A number have taken advantage of the tight market to increase their share of oil revenue by tightening the tax system for operators or making it a legal requirement that national oil companies have majority control of operations. In Venezuela, for example, we agreed, after difficult negotiations, to reallocate the interests held by the Sincor project partners.
Our only chance of persuading producing countries to keep pace with world energy demand is to forge mutually beneficial partnerships that respond to local aspirations. Locals have high expectations for economic and social development. Many of our current projects involve gas liquefaction trains, refineries and petrochemical units that are helping to industrialize our host country economies. We make sure that our projects transfer knowledge, create local jobs and provide business opportunities for local contractors.
Our technological excellence is a key strength, allowing us to implement projects on time and on budget, which gives host countries the tax revenue needed to finance their development projects. But technological excellence is not enough. We have to act as a good corporate citizen, attuned to local needs, if we want our host countries to welcome us and accept our presence over the long term.
Those are fine-sounding principles, but do you really contribute to progress in your host countries? Some of them violate democracy and human rights, and that doesn’t seem to bother Total.
If democracy and reserves were found in the same places, life would be a lot easier for us, but sadly that’s not the case. However, most of the time, poverty and lack of democracy go hand in hand. We always hope that sound development of a country’s mineral resources will help it to take off economically, improve education and health care, promote the emergence of a class of businessmen and managers to succeed the ruling elite, and encourage an improvement in governance and democracy. We feel that transparent financial relationships with host country governments are critical to this process. It’s not easy to set this type of virtuous circle in motion, but that’s what we’re aiming for.
Some countries, such as Myanmar, seem to be falling far short of this goal. Although our hopes have so far been disappointed, as the serious events in September 2007 illustrated, we make no bones about wanting to stay there. Our main motive is not economic gain, since our activities there are fairly small compared with the Group as a whole. But for Myanmar, Total is a rare window still open to the West. Our presence benefits our local employees and host communities. We owe it to them to stay, and are still hopeful that change will come.
We are taking a similar attitude about our operations in Sudan, which were suspended 20 years ago but will be resumed when security conditions are right.
Total talks about developing renewable energies, but are you really going to do it? After all, they currently account for a very negligible percentage of your capital expenditure.
I think it’s vitally necessary to broaden the range of energy sources in order to secure the future and protect the climate. Total is an energy producer and provider. We have been active in biofuels for a long time, on a very significant scale. We’re interested in all forms of energy, provided they allow us to use our capabilities and put together cost-effective projects. We recently bolstered both the teams and budgets allocated to new energies. I believe that the most promising avenues for Total are photovoltaic solar energy and biomass, which we are already familiar with and where we expect a lot from R&D and innovation. I also believe that nuclear power will be a key ingredient in the energy mix. That’s why we have teamed up with Suez and Areva for a nuclear power plant project in Abu Dhabi.
What does Total think of the various environmental initiatives undertaken in 2007, such as France’s Grenelle Environment Forum, the European Commission’s energy and climate package, and the United Nations Climate Change Conference in Bali?
Without going into too much detail, I’d like to briefly touch on four points.
First, this consensus-building process involving government, associations, businesses and unions has enabled stakeholders to listen to what everyone else has to say about the environment and better understand each other’s expectations and needs. In this way, it has led to a number of practical recommendations. The process has also helped to break down the wall of distrust that too often separates business and civil society on these issues.
Second, we support the commitment expressed by France and the European Union to lead by example, but feel that this shouldn’t be an excuse for overregulation. As far as possible, standards should be defined at the E.U. level, making sure that European companies remain competitive in the global marketplace.
Third, the climate issue is by nature a planet-wide concern. That’s why I’m so pleased that the United States and China returned to the fold at the Bali conference, with everyone pledging to reduce their emissions.
Fourth and last, I can confirm that Total will actively participate in the various programs that support the often voluntary initiatives that we have deployed for many years. Experience has taught us, sometimes painfully, just how important environmental stewardship and safety are for Total, and how they can play such a critical role in driving continuous improvement.
