Patrick Pouyanne, Total chief executive, said “gas was becoming the new world market” and that, after the deal with the state-backed French utility, Total would be a “major player” in LNG with 10 per cent of market share by 2020, up from 6 per cent.
“This cements Total’s position as a top-tier LNG player. BG upped Shell’s position as the dominant portfolio player in the LNG business and this deal helps Total to respond,” said Frank Harris, global head of LNG at Wood Mackenzie.
The deal “shows just how much the LNG market is swinging towards portfolio players” with the scale and ability to “squeeze more out in an oversupplied market”, he added.
LNG is gas that has been super-cooled so it can be carried in tankers. Investment into the commodity has soared recently as part of a dash for gas among the biggest energy companies.
The industry is betting that the cleaner nature of gas compared to oil and coal will allow it to keep growing as other fossil fuels decline.
Volume of LNG Total aims to handle by 2020
Supplies of LNG are on course to increase by 50 per cent between 2014 and 2021. That increase has, in turn, affected profitability in the sector and rewarded scale.
Mr Pouyanné said the deal would allow Total to hit an overall volume of around 40m tonnes of LNG per year by 2020, making it the second-largest provider among the majors behind only Shell.
The French oil company said that additional payments of up to $550m “could be payable by Total in case of an improvement in the oil markets in the coming years”.
Total said the portfolio bought from Engie included interests in liquefaction plants, including the Cameron LNG project in the US, long-term LNG sales and purchase agreements, an LNG tanker fleet and access to regasification capacities in Europe.
“We see this as a sensible deal for Total, enhancing its overall LNG portfolio and, importantly, rebalancing its geographical positioning towards the US, where gas supply likely remains cheap over the next few years,” said Biraj Borkhataria, an analyst with RBC Capital Markets
“The key attraction of the deal [is] exposure to Cameron LNG, a project in construction and due to start up soon,” he added.
“This deal makes sense for everybody,” said one senior banker in Paris adding that: “Total saw this as an opportunity to grow in the LNG market, to become a more integrated player and in one go they could make a major move.”
Engie said it was keeping its downstream activities and was “pursuing its refocus on three key businesses: low-carbon power generation, infrastructures — notably gas — and integrated downstream customer solutions.”
Isabelle Kocher, Engie chief executive, is increasing investment in renewable power and emerging markets while scaling back in coal and nuclear power.
As part of that strategy Engie, which reported its third-quarter results on Wednesday, has been working to offload €15bn of assets in a bid to reduce dependence on fossil fuels and thermal power generation.
“Engie are basically delivering on what they promised, The jury is out on whether it’s a good thing or not, but it is apparent that this is what they communicated and they are delivering on it,” said Peter Crampton of Macquarie.
The transaction is expected to close by mid-2018. Société Générale and Rothschild advised Engie on the deal.
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