TotalEnergies Eyes Strong Refining Margins

French oil giant TotalEnergies SE expects refining margins to stay strong, especially once a ban on imported Russian petroleum products goes into effect, owing to Europe’s inability to compensate for the lost volumes.

“We think that the ban on Russian petroleum products that will be effective in February 2023 will contribute to maintaining these distillate cracks at a very high level,” TotalEnergies CFO Jean-Pierre Sbraire said Oct. 27 during the company’s third quarter of 2022 webcast and conference call with analysts.

The company’s average refinery throughput was 1.6 million bbl/d in the third quarter, up 31% compared to the previous-year quarter, due “to the recovery in demand, particularly in Europe and the U.S., the restart of the Donges refinery in France in the second quarter of 2022 and the Leuna refinery in Germany,” the company said Oct. 27 in a separate press release.

Additionally, Sbraire said it would be easier to compensate for the loss of crude due to a ban on Russian crude that goes into effect in December 2022 due to an ability to reroute crude shipments to other countries.

“But we are very clear that all these bans will contribute to support prices. Russian crude will need to find alternative customers, so it will go to India, perhaps to China or more globally in Asia,” Sbraire said. “These countries could therefore benefit from discounted crude. But on the opposite, the European refiners will have to pay a premium to attract new crudes. So that's the paradox of this ban, I think, implemented at the level of the EU.”

TotalEnergies is one of Europe’s key energy companies providing the region with vital energy supply from oil to LNG. With a global footprint that spans from Africa and Asia, the company continues to play an important role in Europe’s ongoing energy crisis spurred on earlier this year by Russia’s invasion of Ukraine.

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Operationally, TotalEnergies' combined production averaged 2.7 MMboe/d in the third quarter, down 2.5% compared to the previous-year quarter owing to planned maintenance, notably at Ichthys, and unplanned downtime at Kashagan, partially offset by the entry into production in Brazil of Sepia and Atapu and the ramp-up of Mero 1, the company said. Production is expected to average 2.8 MMboe/d in the fourth quarter, the company said.

In Russia, TotalEnergies’ capital employed in the country was $6.1 billion as of Sep. 30 a $3.1 billion impairment in the third quarter.

Financially, the company reported adjusted net income of $9.9 billion, adjusted EBITDA of $19.4 billion and cash flow from operations of $17.8 billion. The company purchased $5 billion of its shares between January and September and plans to buy back another $2 billion in the fourth quarter.

“In a context marked by an average Brent price of $100/bbl and an increase in gas prices exacerbated by Russia’s military aggression in Ukraine, TotalEnergies leveraged its integrated model, particularly LNG, to generate results in line with previous quarters,” the company’s CEO Patrick Pouyanné said in the company press release.

European regas capacity

The Paris-based company has more than 15% of the global regas capacity in Europe, having recently acquired a 9.375% stake in the 16 million tonnes per annum North Field South LNG project in Qatar and recently launched the FEED for the Papua LNG project’s upstream production facilities in Papua New Guinea.

This scenario offers its traders advantages to arbitrage between the U.S. and Europe, Sbraire said during the webcast.

“We have production contracts on the main hubs. I remind you that we are No. 1 LNG exporter from the U.S.; we have a strong presence in the U.S. with access to more than 10 million tons of LNG,” Sbraire said. “So, this adds capacity for our ships to deliver this LNG to our European customers, thanks to our regas capacity.”

The company’s ability to source LNG in Asia, in the Middle East and customers in Asia is a reason behind its favorable arbitrage ability, the executive said, adding that “given the price of LNG, each cargo represents something like $80 million, even $100 million.”

Over the remainder of this year and into next, Sbraire remains upbeat on volumes to come in November from Freeport as well as from Ichthys, which was supposed to return to normal production in the fourth quarter after completing a shutdown. The executive also expects Nigerian volumes potentially next year.

In terms of prices, Sbraire said they were “highly dependent on temperature and final consumption in Europe,” and that he expected LNG prices to be above $17/MMBtu in the fourth quarter.