TotalEnergies SE is committed to growing its LNG business and its growing U.S. position is a major piece, CEO Patrick Pouyanné said during the French company’s second quarter of 2023 earnings call with analysts.
“A very major example of the strategy in motion is our new LNG project in the U.S., the Rio Grande LNG project, which we have announced in June,” Pouyanné said July 27 during the call.
In June, NextDecade Corp. announced an $18.4 billion final investment decision (FID) for the first phase of its Rio Grande LNG (RGLNG) project and its first three trains, which will have capacity to export 17.6 mtpa. RGLNG is part of a second wave of U.S. LNG projects, and already this year three have taken a FID.
“We are very committed to LNG, we think demand [will] grow and … the U.S. position is very important because we have the lowest cost, a very low-cost source of gas there,” Pouyanné said. “And I would say this project is attractive because it's one of the most competitive LNG plants with a $850 per ton [cost].”
Pouyanné said TotalEnergies’ is moving to integrate its LNG projects in the Americas from North America to Mexico by becoming an equity holder or shareholder as well as its position as an offtaker.
“We've done that because, in fact, we are leveraging this integration in order to have access to the most competitive pricing for U.S. LNG, and which will give us a clear competitive advantage on the market,” he said.
The integration affords TotalEnergies the capacity to negotiate better prices than competitors, Pouyanné said “We might also enhance the value of the project by further integrating the upstream in order to protect our gas feedstock costs in the future.”
“Considering the cost of the feedstock [it’s] a smart way in order to control the full integration value — and so it's part of, I would say, our strategic agenda and integration in the U.S.,” Pouyanné said in response to an analyst question about TotalEnergies’ exposure to U.S. feedstock.
Paris-based TotalEnergies is focused on a two-pillar strategy for hydrocarbons and electricity. The former pillar aims to grow its portfolio with an eye on low-cost and low emissions, and is mainly driven by LNG, which is currently the company’s cash engine. The latter pillar aims to develop a profitable and integrated power business, key to generating future cash, Pouyanné said.
Weaker commodities weigh on results
Despite upstream operational improvements in the quarter, financial results were heavily weighed down by lower commodity prices.
“The commodity environment softened in the second quarter but still [remained] at high levels,” TotalEnergies CFO Jean-Pierre Sbraire said during the conference call.
TotalEnergies reported adjusted net income of $5 billion in the second quarter of 2023, down 49% compared to $9.8 billion in second-quarter 2022. Cash flow from operations came in at $9.9 billion, down 39% compared to $16.3 billion for second-quarter 2022.
Hydrocarbon production averaged 2.47 MMboe/d in the second quarter of 2023, up 2% compared to 2.41 MMboe/d in second-quarter 2022, excluding Novatek. Positive results related to start-ups and ramp-ups including Ikike in Nigeria, Mero 1 (Brazil), Johan Sverdrup Phase 2 (Norway) and Block 10 (Oman). Other factors included better security conditions in Nigeria and Libya as well as price effects, which were offset by declines from exiting Termokarstovoye (Russia) as well as natural field declines.
In the third quarter, TotalEnergies expects hydrocarbon average production of 2.5 MMboe/d driven by the start of the Absheron Field in Azerbaijan. The company expects utilization rates at its refineries to stay above the 80% mark.
LNG sales were 11 million tonnes (MMtonne) in the second quarter, down 6% compared to second-quarter 2022 sales of 11.7 MMtonne. The company said lower demand in Europe due to mild weather and high inventories had sapped demand, but was stable compared to first-quarter 2023 when Freeport LNG restarted operations on the Texas Gulf Coast, Sbraire said.
Financially, the downturn in commodity prices made a noticeable impact on TotalEnergies’ income statement during the second quarter compared to second-quarter 2022. Brent oil prices settled at $78.10/bbl, down 31% compared to the same year-ago quarter while Henry Hub was $2.30/MMBtu (down 69%), and the JKM benchmark LNG price was $10.90/MMBtu (down 60%).
“European natural gas prices are currently around $10/MMBtu due to high inventories in Europe,” TotalEnergies said in the press release. “Demand recovery in Asia and tension on supply capacities in Europe support forward prices above $15/MMBtu for the winter of 2023/2024.”
TotalEnergies expects its average LNG selling prices to be between $9/MMBtu and $10/MMBtu in the third quarter.
TotalEnergies’ integrated power business generated much lower income than its upstream and LNG business segments but continued to build “its track record as an integrated and profitable player in the electricity markets with a ROACE [or a return on average capital employed ratio] of 10.1%,” the company said.
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