The French oil major kicked off its investment here by taking over SapuraOVM Upstream from Austria-based OMV and Sapura Energy last year. The acquisition gave the company operating interest in two blocks off Sarawak, mainly gas fields.
Last week, it sealed a deal with Petroliam Nasional (Petronas) to acquire a 50% operating working interest in two blocks off Sarawak — SK301b and SK313 — which contain gas discoveries amounting to more than four Tcf.
TotalEnergies, alongside Petronas, will also hold interest in several exploration blocks off Malaysia and one off Indonesia.
Notably, these investments took place amid the ongoing negotiations between the federal government and the Sarawak government over the development rights of the hydrocarbon assets in the state, whose gas reserves account for 60% of the country’s total and 90% of its liquefied natural gas (LNG) exports.
See also: Shell-led LNG Canada ships first cargo to meet Asian demand
Concerns have mounted over the uncertainties in the local oil and gas (O&G) industry and have likely kept foreign investors away while they await clarity on the situation.
When asked about the issue, Pouyanné replies candidly that as TotalEnergies is an oil major that has no hydrocarbon reserves at home, it is common to deal with such scenarios and that the signing of the memorandum of declaration between the federal and state governments is quite clear about the rules of the game that it is playing.
Pouyanné notes that the ultimate goal for all is to grow the cake bigger, not to diminish it.
See also: Rex’s subsidiary to explore debt financing alternatives for Oman activities
When he took the helm of TotalEnergies in 2014, shortly before the global O&G industry slipped into a severe downturn that lasted longer than expected. Crude oil prices sank from above US$100 a barrel to below US$30. Soon after, there was the Covid-19 pandemic followed by the Russia-Ukraine war. TotalEnergies had invested heavily in Russia, from which it had to exit with over US$10 billion in impairments on its books after the European sanctions were imposed. But Pouyanné seized the opportunity to supply gas to the European market as the gas pipe from Russia was turned off.
In 2020, the chieftain led TotalEnergies to diversify into power generation and distribution. “We moved from Total to TotalEnergies. We decided to engage in electricity which, I would say, was not a given, to be honest.”
The following are excerpts from the interview with Pouyanné, who sees great potential in the demand for power and natural gas in Asia.
The Edge: We just found out that you have two new blocks in Malaysian waters.
Pouyanné: No, not two, 12. A multiple block deal in the Sarawak Basin, mainly with Petronas.
Of these blocks, there are two blocks with some discoveries. Quite large for this year. Four fields. So, we’ll develop … to produce gas by 2030 probably. So that’s the plan. It’s good news.
We acquired the SapuraOMV assets last year. We are already in quite a good position with around four Tcf, about the same amount [in the two blocks just acquired]. Now, we continue to develop a strategic relationship with Petronas. It’s both, some existing resources to be developed, plus some exploration blocks.
When I came two years ago for the first time to Malaysia to attend this conference [Energy Asia 2023], we had nothing [in Malaysia]. In two years, we have established a good operating position. And now we are reinforcing it with this big deal with Petronas. I am quite happy.
And by the way, we have also extended a partnership with Petronas because we are ‘farming in’ a block in Indonesia, a frontier block. Today, we are drilling in PNG (Papua New Guinea), a full deep water block, with Petronas, a Mailu well exploration. So we have, I would say, consolidated the position of the company in the Southeast region, Southeast Asia in particular, with Petronas. So it’s a good success story.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Is Malaysia your biggest exposure in Asean so far?
Yes. Historically, we are very strong in three countries — Indonesia, Thailand and Myanmar. In Indonesia, our licence expired almost eight years ago. Thailand, the end of the licence was last year. Myanmar, we decided to leave for other reasons.
Now, we think that Asean is an important region for future growth and Malaysia has a very prolific gas basin. Our strategy is oil, gas and electricity.
Today, yes, it is [Malaysia], by far the largest position in Asean. And in fact, it’s more than just that for us. It is a way to develop from Malaysia … in Malaysia and from Malaysia. Because we have established a relationship with Petronas in the last 10 years, we have quite a number of ventures with Petronas outside of Malaysia. We partnered together in Brazil where we produce oil together, in Angola where we are developing a field, in Iraq historically.
It is a good relationship, so we talked among ourselves, ‘Okay, it’s good to have this partnership with Petronas. It would be better if we could partner as well in Malaysia’, which is their homeland, I would say. We had the opportunity to acquire the assets of SapuraOMV, which has given us an entry into the country. And now, we can expand the position.
I hope there will be more to come. And now, we will establish, by the way, the exploration hub for TotalEnergies in Asia. It will be established here in Kuala Lumpur from this summer. We have many blocks [new fields] here, the team which is today in France will move to Kuala Lumpur to explore the Asean region. We will look maybe to Vietnam, Indonesia and other countries.
And then I would say Malaysia, because when we came, we were welcomed, which is also important. We came here, we met the authorities, and we were welcomed. Petronas encouraged us to establish ourselves here. There were some very well-established international companies. Maybe they wanted to develop a sort of competition, so we like to be the underdog which is coming to a country. I’m sure we’ll have a bright future here.
Would it be right to say that it is gas, the natural gas reserve, that attracted you to Malaysia?
Yeah, for sure. We have a strong strategy. Historically, we are an oil company, but we have increased our presence in LNG. We are the third largest company in the LNG business. Qatar is first, Shell is second and we are third. So among the private companies, we are No 2. Because we think it’s a good market with good growth.
And so yes, we came because Malaysia is perfectly located in the middle of the region. When you speak about energy, you speak about Asia. Europe is becoming a market because we stopped the Russian gas. But when you look at the future, it’s here. Malaysia is very well located next to China, Japan, Korea, Taiwan, India even — a developing market. So yes, for us it’s a very important driver. We have some positions in Australia, but are moving to Malaysia because it is very well located. So that’s the Malaysian driver.
Your reserves are all in Sarawak?
Maybe one is in Sabah, if I remember. But mainly in Sarawak, yeah. Which is not a problem. We like Sarawak.
What about the state? Have you met the Sarawak government?
No, [but] we have met the people of Petros (Petroleum Sarawak). We know it is quite well established. I had discussions during the last two years with your prime minister. Of course, I understand that the authorities signed an agreement recently between what is the role of Petronas and what is the role of Sarawak — that has been clarified. So we can work with that. We respect the rules of any country. We are not here to tell you how to work. Of course, when you have uncertainties, it will be more complex.
But for us today, the framework is quite clear, so we welcome it. And I met representatives of Petros today, and I think we had a good discussion. And again, we will engage with different stakeholders. What was important for us is more clarity of the discussion. This is not the only country where you have this type of debate, you know. So we are accustomed to that. We are in many, many countries.
TotalEnergies is the only oil major company with no hydrocarbons in France [its home country], so we have been obliged [to adhere to local rules and regulations].
We were born 101 years ago in 1924 and we were obliged to develop our skills outside [our home country], to deal with different governments, regulators. We have experience. We are the largest IOC (international oil company) today in the Middle East, in Sub-Saharan Africa. What we want to know are the rules of the game. We will work with the rules of the game for the benefit of all stakeholders. That’s our way of looking at it.
But I think it’s good that you have foreign companies involved in Sarawak. It will help [to resolve things] between the Malaysian stakeholders. So we are ready to play that role where we are accustomed. The way we develop our company is to find ways to respect each stakeholder and that’s what we will do here. So no problem, Sarawak.
You have two pillars of strategy, one is LNG, the other is electricity. Would you like to tell us your plans, especially in Asia and Asean?
We are historically oil and gas, so we continue. I would say 70% of the company is oil and gas. We continue to grow in oil and gas, and [natural] gas in particular, LNG, because we consider that gas has a good future to replace coal, to produce electricity. So it is gas to power. When you speak about renewable electricity, which is intermittent, it’s good to marry it with gas-fired power plants. There is the logic there.
Electricity demand is growing in many countries, four or five times, much more than oil by itself. That’s why we decided to develop this electricity business, and today it represents 10% of TotalEnergies. After five years it will represent 20%. In Asia, it depends on what the situations are. Electricity [supply] is quite regulated in Asia. So it’s not easy to play what we can play in the US or Europe, which in fact we can produce, we can trade, we can store, we can go to customers. Here it’s more controlled. So of course, we look at different ways.
We have developed some businesses, distributed generation with a Japanese company, Eneos. We have some assets in Japan, some assets in Korea. It has now been done. We have offshore wind assets in Taiwan. Recently, last week or 10 days ago, we signed a cross-border project to supply electricity from Indonesia to Singapore. Singapore is a big industrial hub but with not a lot of space. They want to decarbonise their electricity, so we have a strategy. Of course, when you go from one country to another, crossing borders is never very easy. But our plan is to develop quite a large project in Indonesia to do renewables. Part of the production will go to Indonesia and part of the production will go through the subsea cable to Singapore. It is a big project.
So your investment includes the subsea cable?
Yeah, everything. So we have the right to develop in Indonesia. We have the right to connect to Singapore, in between. It is up to us to develop the project.
So, the right is in Riau Island, near Batam. It’s not elsewhere in Indonesia?
No, it is a specific island. We have proposed a project where we consider we can deploy quite a lot, I say, 1GW. Because if you want to make 1GW 24/7 to Singapore, you will need to develop quite a lot of gigawatts upstream. So, we’ll develop a project of, I think, several billion dollars, six or seven. And part of the gigawatts we’ll develop for Indonesia, because Indonesia also wants to keep part of the electricity, which is very normal, I would say. So it’s both objectives.
The operating landscape for oil majors has been evolving fast due to environmental awareness, shorter cycles, among others. How should an oil major plan or strategise for future survival in your opinion?
What TotalEnergies is doing, we have a perfect model. In fact, the fundamental, I think, is to provide the energy of today. Customers today, we all live with O&G, so we must continue to provide, to supply the energy that you use today, and affordable oil and gas. But at the same time, we need to prepare for the future. Energy is a long-term industry. So if I don’t make a decision today, my successor maybe in five to 10 years will say, ‘Why didn’t they do that?’
So we have decided to prepare for the future by investing in the electricity [business]. Why? If you go to experts, they will tell you electricity is the energy of the 21st century and there is strong growth [in electricity demand] everywhere in the world, including today in the US and Europe because of data centres and so on.
But not only that, to decarbonise, you need to electrify processes. So you need more electricity. So it is obvious, I would say, for us. And at the same time, people explain that oil will one day plateau. It is not yet the case. It continues to grow, but it’s a small growth. EVs (electric vehicles) in China, for example, are becoming more than 50% of the new vehicles — 60% of cars in China are EVs. So, it’s not me. If the customers like EV, then less oil will be needed, but more electricity. So it’s the idea that we want to secure our future by putting more investments in the electricity business … by learning, developing competencies, skills, at a large scale, because we are a large company.
So it’s not at all greenwashing. It has to do with profitability, of course. And I would say in five years, we have demonstrated that today, we have around US$20 billion [$25.8 billion] to US$25 billion of assets in electricity. And last year, we made US$2.5 billion in cash, so a 10% return is quite good, in fact, for a new business, which encourages us to continue.
That’s the vision we have. And we’ll keep it that way and the board is very clear about it. I know some of my major oil companies, gas companies, are thinking it’s not good, but we think it’s good. It’s an advantage to be able to plan our future.
Venturing into the electricity business is to future-proof TotalEnergies’ business model. But when it comes to profitability, when it comes to margin, will it be as good as oil?
It will not necessarily be as good. But you know the metrics we have, we want the electricity business to give a return of 12%. And in fact, it’s exactly what we do in O&G when the oil price is at US$60 per barrel. So we have less upside [for the power business] because in the oil business when oil prices go to US$80, you can have more profit. The break-even of TotalEnergies is US$25 per barrel. So obviously when it’s going from US$60 to US$80, the US$20 is completely profit, cash profit for us. Electricity does not follow exactly the same volatility. But again, at the end of the day, if ... and I’m taking US$60 per barrel as an average assumption, considering the fact that this market of oil could at a certain point see a decline, is quite reasonable. It’s also true that there is less volatility in electricity, but it’s a way to secure some profits despite the volatility of O&G.
So yes, the answer to your question is clear. We are securing the future. We will be net cash positive in electricity from 2028. So today, we invest US$4 billion, and from 2028, we should be able to generate US$4 billion, so it will become a contributor to the dividend from 2028, which is good for shareholders. So we are developing a business, more stable, more diversified.
But margin-wise, is it thinner for the power business?
Margin is not an issue, it’s not a problem. At the end, my shareholders, they don’t live with margin, they live with the cash that I’m generating. So if it’s cash positive, it’s fine. And again, a 12% return is comparable to O&G [business when oil price is] at US$60 per barrel.
The oil and gas industry is subject to fluctuations in the oil price. But in renewable energy, there are also factors that are beyond human control, for example, sunshine, wind.
Yeah, but we like it because we are not only in renewable energy. We do renewables, we also do gas-fired power plants, we have batteries. An electricity [supply] system with more renewables is more complex. When it’s more complex, you have more opportunities to make money. Of course, we need to have the batteries. If you don’t have the batteries then it can be a disadvantage, and you need to have the gas plants, because your customers want reliable electricity supply 24/7.
I must be able to give you my electricity every day, every minute. Otherwise, you are not happy if you cannot turn on your lights. So to do that we need to have, I would say, all these assets to be able to combine them. And if you have an O&G company, this is what we want to do. Whoever is able to offer, I would say, low-carbon electricity 24/7 will be making very good returns. This is what we do.
So for electricity, you concentrate on only renewable energy?
No. Gas and renewables, both. No nuclear [power].
Would you say it will be a consistent long-term strategy being in Malaysia?
Yeah, but I know what we just signed. We need to develop four Tcf for gas production, and we are already looking at other opportunities. You will hear about TotalEnergies soon. We are working on different topics. And I think it’s good because we are offering Petronas an alternative, you know, an alternative to the traditional partners. And again, Petronas can see how we work internationally. It’s a matter of trust, all that, and of course for the authorities as well. But you know, since 2023, I think I have met your prime minister four or five times already, in order to explain to him who TotalEnergies is and to establish trust. Because when you invest hundreds of millions of dollars in a country, you want to be welcomed, and I have the feeling we are welcomed in Malaysia.
And just to go back to the Sarawak and Peninsular discussion, would you say you are confident about the regulatory environment?
Again, I believe the interest is at the end of the day to develop the gas. The issue is not to diminish the cake, it’s to grow the cake. So TotalEnergies wants to grow the cake, and then how do you split the cake? It’s up to the authorities to decide where you split the cake. So I don’t see that as an issue. Peninsular has a different issue — you don’t have gas and you have a bigger population.
What are your thoughts on carbon capture and storage (CCS)?
We’ll need CCS. If we want to achieve the net zero target, we will need to have negative emissions to compensate. But then CCS is not cheap. In fact, the storage is not expensive. What is expensive is the capture.
I’m not an expert in capture but I’m an expert in the transport of carbon dioxide (CO2) and the storing of CO2. We have a project here with Petronas and Mitsui, because the Japanese government is looking to have some, I would say, storage in the region. Malaysia has a lot of depleted fields, so it’s a way to use your historic geology to try to use it again and to generate new revenue. And we have already invested in Europe. In Norway, we have a Northern Lights project which we have gone to phase 2 — five million tonnes of CO2. We are looking for customers there again because it’s a little expensive. Not the storage but the global chain is expensive. But again, if you think about what we call the hard-to-abate industries like cement, there is no other solution than storage of CO2, because the CO2 is native to their own process, so you need to store. So let’s develop that.
And Malaysia has established, it was part of the discussion we had with the authorities, the prime minister … you need to establish a legal framework. Recently, Malaysia passed the bill in parliament, which is good. So you have established some rules of the game. [There are] still some details to clarify. And so we have this project here with Petronas and Mitsui, and now the question is to go to Japan. We are flying to Japan after Malaysia, to find customers, to be sure that Japan will send CO2 to Malaysia. But Malaysia is, from this perspective, again, it’s not too far. It’s an interesting perspective.
