Golden Age of Gas: Total’s LNG chief

Philippe Sauquet. CEO, Total Gas & Power explains the company’s enthusiasm and the LNG sector’s exciting future with AFAQ.

“Total has certainly been one of the pioneers in the LNG industry. When LNG was born in Algeria in the 1960s, Total was involved right there and then, and we’ve been at the forefront of its evolution ever since,” he says.

“Back then the idea was to import LNG into France and the UK coming from Algeria. But the real start of the business was really when Japan opened up to gas imports. We were part of the key projects which made that possible and we developed the feed for the Japanese market.”

Among those early Total projects was Bontang LNG in Indonesia, which came on stream in the same year as Abu Dhabi’s ADGAS LNG project in 1977. From these beginnings, Total has continued to build on its reputation as a world-leader in LNG development and delivery.

“Today Total holds interests in nine liquefaction plants currently in operation, two projects under construction and five others under study. This network forms an integrated web spanning the globe and connecting core producers in every major gas exporting region with the major consuming nations,” explains Sauquet.

The company’s global project portfolio today includes bases in gas giant’s Australia and Russia, as well as stakes in every major LNG project in the Middle East, in addition to Nigeria LNG which has an output exceeding 21 million tonnes each year.

In Qatar, the company holds a 10% stake in Qatargas 1 and a 16.7% stake in Qatargas 2, firmly cementing its presence in the awe-inspiring super-complex at Ras Laffan’s processing and export hub.

“We have a truly worldwide position in the upstream and gasification elements of the business, and we are also driving downstream. Regasification terminals are of course an important area to be in, and we are present in five of them, in North America, in Asia and in Europe.”

Article continues on next page …

The Right Partners
Taking a gas reserve, developing the upstream infrastructure and constructing a liquefaction plant is an enormous and expensive undertaking. As such, the risk allocation in an unpredictable world could fall heavily on the developer or host nation.

To alleviate such fears, the model which has proven fruitful for investor partners and consumers alike is through long-term purchase and sales agreements, whereby the majority of produced gas, often over a 15-25 year period is contracted for sale before the wells are sunk.

Recently operators have kept up to fifth of capacity, or in some cases much more, freeing them up to sell it on the spot market.

The fundamental project partnership and long-term buying agreements model hasn’t changed much since the early deals in the late 1970s , though of course the available destinations for diverted cargoes has opened up new lucrative and important revenue streams for producers. Sauquet believes the tried and tested model will continue to play an important role in LNG projects of the future.

“Clearly the LNG story is one of extremely strong partnerships over a very long period. The capital requirements of these projects have grown a lot in recent years. Right from the beginning we realized the strong interaction along the chain was fundamental,” he says.

“Having such a long-term relationship between the producers and buyers is a fairly unique thing. As the technological complexity has evolved and the costs of the projects have increased, that long-term union or marriage between suppliers and consumers has become even more entrenched.”

The challenges IOC partners and host nations are faced with necessitate an extremely close bond and no small element of faith from both partners. Working closely with potential partners remains, says Sauquet, his favourite part of the job, and his most exciting challenge.

“There is no question. The building of trust that comes with these projects is certainly the most rewarding element of my job. I have tried to contribute to the building of relationships in Qatar. It really is a pleasure working with our colleagues and compatriots from Qatar in terms of professionalism, and it’s a great learning experience for everybody.”

Sauquet says it is demanding, but really very exciting and intellectually stimulating work. “To be working for the best interests for the national oil company partners we have is a real pleasure. To be a part of building the future of these countries is immensely satisfying,” he reflects.

The close-knit ties which develop transcend the business of production and export, he says, and the longevity of the projects has spin offs which extend deeper into the host nations than a financial appraisal could ever show.

“When we embark on an LNG project we intend to develop in countries for the long term. We aren’t in the business of turning up in countries and making a quick spot deal and then quitting. Clearly with that economic commitment comes a need to contribute to the development of these countries,” he says.

Sauquet adds that the best way to contribute is through the training of nationals within the host countries.

“We want them to develop with us and run the plants. We are very keen to work on the diversification of our workforce, with an emphasis on training young managers all the way up.”

There is no uniform formula or approach, and each market has its own characteristics to work with. Sauquet says the Yemen LNG project required a clean-slate approach.

“With Yemen LNG we had to change the marketing strategy completely, but the common theme of working to build trust was the same. We had to work closely with our Yemini partners and convincing them that waiting and waiting for a long-term contract from Asian customers was not going to allow us to launch the project.

Today that relationship has paid off and we have a great project. We are working with them today to re-route some of the cargoes to take advantage of those high Asian prices being witnessed today.”

Article continues on next page …

Going Global
Tomorrow’s LNG world is evolving quickly, and the dynamics of trade, illustrated by Total’s marketing model with Yemen, have changed massively in recent years.

“Really today we are seeing the fruits of the process of globalizing LNG. Up to the beginning of the 2000s, LNG had tended to be developed almost as a piped project. Nearly all production was committed to certain destinations, and the tankers were simply shuttling to and from those contract partners,” he says.

It wasn’t until the early 2000s that Total and its partners began to develop more complex projects, forced in part by the Asian economic crisis in the late 1990s.

“Asia wasn’t in a position at that time to be an engine of LNG demand growth. There was therefore a need to find a home for the LNG production slated for these very big, significant LNG projects. At that time the destinations were seen to be Europe and the US. Of course, things have changed quite a lot since then,” says Sauquet.

“We had to reinvent the business scheme completely for the LNG chain. What we realized was that we had entered a world more complex than ever before. The prices of gas would vary a lot between continents. If we were to make a success of our LNG projects we had to reinvent our marketing scheme.”

In the decade that followed, a flexible model had to be developed to support upcoming projects, based on several destinations, not just individual clients.

“It also needed the flexibility to change where cargoes were going to optimize the business opportunity. Destination flexibility was a huge change in how the business worked.”

That flexibility was invaluable when the US shale gas revolution started in earnest.

“Clearly, the cargoes of LNG we had planned to deliver in the US ten years ago, we had reroute those deliveries to where demand from our customers is the highest,” he says.

Those recipient markets today are dominated by Asia, notably Japan, South Korea and Taiwan, but but volumes to China and India are set to take off as energy demand continues to spiral.
“We were among very few companies advocating this mutli-continent sales model, and now we have proven that it was a good course of action,” Sauquet beams.

Courting new markets to receive the future volumes is a vital part of keeping the dynamic pace of growth up. Through its advisory services Total is constantly engaged with both upstream host nations and potential customers.

“Our role is almost that of a match-maker, looking to arrange a wedding of sorts. Both components are vital and we are a go between trying to drive progress. India is a good example of where we pitched to the downstream partners, and more recently we have tried to play a similar role between Qatar and China.

“Although the investment decision is made at a governmental level, Total is committed to assisting that dialogue through an advisory position, and we think that is a decisive role,” Sauquet adds.

Article continues on next page …

The Future
In tandem with its Middle Eastern partners, Total is ensuring markets for LNG continue to expand and that a greater number of countries can benefit from the clean power generation it can drive. To that end, Sauquet says he has a firm target of where he’d like to see Total’s LNG output grow in the next eight years.

“Our global output was around 13.2 million tonnes for 2011. Myself and the board share the vision and target to grow that to 20 million tonnes by 2020,” he says. Some of that growth has already been earmarked with project under construction, but these alone will not be sufficient to reach that goal.

“We will need additional projects,” says Sauquet. “We have already identified one which is a Greenfield site, and there are some brownfield opportunities out there too. If all of the projects we have identified are proven to be successful then we will be comfortably above our target of 20 million tonnes per year.”

Such is his enthusiasm for the future of LNG, Sauquet says that any opportunities to increase stakeholdings in existing projects would be looked upon favourably.

“If there was an opportunity to grow our holding in an existing project we would certainly be interested in that, and of course our share of the output would help us reach our target too.”

Customers around the globe have found additional LNG supplies through OLNG, Qatargas and Yemen LNG in the Middle East, as well as Total’s upstream partnerships in Nigeria, Australia and Indonesia, irresistible as the energy itself represents good value, long term stability and a predictability of delivery.

“Our Group view is that we are in a situation where the global needs for energy are enormous. Therefore we think we will need all of the energy resources developed, which will include renewables.

As the energy picture evolves, the renewable, gas and oil will all become much more complimentary ingredients in meeting soaring energy needs of tomorrow, but for the coming decades LNG offers a flexible fuel in a dynamic energy mix. We’re excited about helping the world meet its energy needs this way,” he concludes.

Enabling Global Growth
30% Membrane technology on board the latest generation of ocean-going behemoth LNG carrier vessels from was developed by Gaz Transport & Technigaz, a company in which Total holds a 30% interest. From upstream field development right through the value chain to re-gasification terminals, Total has pioneered the way the LNG business looks and works today.

Future Fuel
180 trillion m3 Known reserves of natural gas are estimated at around 180 trillion cubic meters, and should cover 60 years of consumption at the current rate of demand.

2012 Launch: Ichthys is live
In January Total and joint venture partner Inpex approved the Ichthys LNG project in Australia, representing an investment of $34 billion. At the time Total held a 24% interest in the project which will develop approximately 3 billion barrels oil equivalent of reserves, including around 500 million barrels of condensate. First production is expected at the end of 2016.

The project consists of the development of the Ichthys gas and condensate field offshore North West Australia and construction of an 889 kilometers gas transmission pipeline together with an onshore LNG plant near Darwin in the Northern Territory.

Offshore facilities will consist of a subsea multi wells development connected to a central processing facility (CPF) for gas treatment and a floating processing, storage and offloading (FPSO) vessel for condensates. The CPF and the FPSO will both be one of the largest in the world. Onshore installations will consist of two LNG trains with a capacity of 4.2 million tons per year.