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Feature
Jean-Jacques
Mosconi:The
Posible Roads To Safeguarding Supplies
Interviewed
by Sylvie Labesle
Energy is essential to development and securing its supply
is a priority in many countries. To this end, several levers
exist: controlling demand, diversifying
energy sources and supply locations, military presence and more. Jean-Jacques
Mosconi, Senior Vice President Strategy at Total, casts light on the issues.
Why is energy security currently such a high-profile issue internationally?
Since 2000, sharp economic growth worldwide, triggered in part by the economic
growth of countries such as China, India and Brazil, has significantly heightened
the demand for energy. Oil and gas demand has risen by 1.5% and 2.5% respectively
each year. 2004 marked a surge in this trend: oil consumption increased by 4%
from 2003 to reach 3 million barrels per day (MBD), a third of it being used
by China. The rise in oil consumption increased by a further 7% last year in
China, a country that now imports over 50% of its oil requirements.
Since 2003 energy supply has been struggling to meet this accelerated demand,
right across the world. Oil consumption in the United States continues to rise
and now exceeds 20 MBD, while domestic production is flagging, at just over 6
MBD. As for Europe, the North Sea’s resources in hydrocarbons are being
gradually exhausted whilst demand remains flat, making the Europeans increasingly
dependent on crude oil from Russia and the Middle East. Triggered by demand for
electricity, gas requirements are also on the up. Coal, however, remains a special
case, since the availability and reserves of this fossil fuel remain particularly
high, especially in the United States. In this pressured context, consumer nations,
industrialised and developing countries alike, are making efforts at securing
their energy supply.
Is this imbalance between supply and demand set to last?
Current and forecast price levels convey the rising tension
between energy supply and demand. In the short term, the
balance between the two may be disturbed by geopolitical
factors. The persistent troubles in Iraq, tensions in Iran,
security problems in the Niger Delta and uncertainties affecting
the operating conditions in Venezuela have all influenced
the availability of crude oil supplies, and continue to do
so. But, more fundamentally, the strain on demand stems from
extraction problems and the cost of new projects aimed at
replacing what is an essential resource. In addition to the
increased cost of service companies and drilling machinery,
oil companies are facing more difficult conditions in the
exploration for and development of oil and gas resources.
The technologies employed are becoming more and more sophisticated,
as is the case with deep offshore where drilling takes place
in water depths of up to 1,500 metres, liquefied natural
gas (LNG) projects, and the extraction and processing of
bituminous sand in Venezuela and Canada. The same is true
of high-pressure/high-temperature drilling and the production
of acid gases. Major technological challenges such as these
can only be taken on by a handful of international companies.
Added to the financing aspect, these projects have very lengthy
lead times. So basically the strain on oil demand is well
and truly set to last.
Does the refining situation fuel concerns on supply security?
Indeed it does, since increased oil demand requires putting
the refining resources in place to process crude oil. The
situation is noticeably different according to the region
in question. In Asia, where demand is the highest and the
costs of building a new refinery are a third less than an
equivalent construction in the West, a new facility is economically
viable. The same applies to the Middle East, thanks to having
the most abundant oil resources on the planet very close
at hand.
The contrasting development of the oil product markets means
that the situation is very different in Europe and the United
States. Products for the transport and petrochemical sectors,
namely naphtha, LPG, petrol and diesel, are in increasing demand,
in correlation with worldwide economic activity, because these
substances are very hard to substitute. On the other hand,
residue products like heating oil are less in demand, since
they are in direct competition with gas and, more importantly,
coal for major uses like electricity production. Under these
conditions, in mature areas like Europe and the United States,
refining projects that convert heavy products into light products
have a significant role to play. Taking the case of Europe,
the high number of cars running on diesel means that focus
is on steam cracking projects for producing diesel. In North
America, on the other hand, the need is for coker projects
for producing petrol, which still represents the dominant component
in fuels.
In the medium and long term, what are your forecasts in terms
of production? Do you share the viewpoint of the International
Energy Agency (IEA)?
The IEA has propounded two scenarios relating to the development
of energy demand by 2030. In what is known as the “reference
scenario”, energy demand will rise at a pace of 1.6%
annually (1.3% for oil demand and 2% for gas). Crude oil needs
will reach 116 MBD by 2030 (compared to 86 MBD currently),
with 70% of the increase for the period 2007-2030 due to the
demand of developing countries. But oil companies will have
trouble meeting that level of demand. The IEA has also envisaged
an “alternative” scenario based on an annual rise
in energy demand of 1.2% (0.9% for oil). In this second scenario,
the proportion of new energies, like nuclear, renewable energies,
like biomass, and efforts to reduce energy consumption, is
much more significant. But even with this scenario, crude oil
requirements will amount to 103 MBD by 2030. However, our own
calculations suggest supply of crude oil will have difficulty
exceeding 100 MBD by 2020, even if we envisage a return to
normality in Iraq, improvements to the situation in Iran and
increased production by OPEC countries, something they are
currently unwilling to envisage.
Environmental
constraints should help to keep demand under control…
It is hard to find genuine experts who can discuss the reality
of the global warming phenomenon. But managing greenhouse gas
emissions, carbon dioxide (CO2) in particular, could harm economic
growth and thus reduce the energy needs it generates. In 2007,
China will have the highest CO2 emissions on the planet, ahead
of the United States, because its development is accompanied
by the strong growth of coal-fired electricity. Despite efforts
to manage pollution, China doesn’t seem to be willing
to sacrifice its economic growth for the sake of the planet’s
environmental problems. On the other hand, a good number of
OECD countries have taken this new challenge on board. As part
of its pledge to the Kyoto Protocol, the European Union (EU)
has set up an emission-trading scheme. It went even further
by introducing the “20/20/20 rule”: by 2020, greenhouse
gas emissions and energy consumption should be reduced by 20%.
What’s more, at least 20% of global energy supply will
have to come from renewable resources. The US is a case apart,
because the federal government refuses to adopt a quantified
commitment to reducing greenhouse gas emissions, while many
initiatives have been introduced at the state level to control
emissions, and technological and R&D efforts are receiving
more and more investment.
So it is no longer relevant to contrast the American way,
concerned with access to supply, with the European approach,
based on controlling demand?
Both European countries and the United States bring all the
different elements into play, but combine them in varying proportions.
For instance, France, with its high number of nuclear installations,
does not need to depend on fossil energies to any great extent
to generate its electricity; Germany and Spain seem to be backing
wind power. European Directives have set targets and a strict
calendar to include biofuels in petrol and diesel. Car manufacturers
are offering lines of low CO2-emission vehicles, at least for
small- and medium-engined cars. But Europe remains watchful
when it comes to the conditions of its energy supply, for gas
especially, because it knows it is vulnerable to influential
players like Russia and Algeria.
The United States is still very active in the area of securing
the national oil and gas supply. But the Bush administration
and Congress have also set down important measures to control
demand. North American legislation now requires that by 2012
a mandatory 5% proportion of ethanol be included in all petrol
sold. Just recently, the National Petroleum Council called
for a reduction in energy consumption and increasing use of
alternative energies.
What is the main challenge facing the European Union with
regard to energy security?
The European Union’s policy for securing supplies is
inextricably linked to its policy of controlling demand which
requires economising energy as well as using alternative energies.
But this is a very sensitive issue: most cars are, nowadays,
fitted with air-conditioning systems that increase energy consumption
by 15% and, accordingly, emissions of CO2. Yet who these days
is prepared to go without air-conditioning in their car?
Are
you in favour of the European Commission’s plans
to hold stocks representing 120 days of consumption?
The debate on increasing reserves rears its head each time
there is a rise in the price per barrel. But it seems more
reasonable to improve the collective management of stocks,
at the European level for example, than to increase their absolute
level per country. Such a solution would artificially alter
price signal on the market and would not solve the long-term
problems.
Does opening the markets reinforce energy security in the
European Union?
Opening the markets contributes to more transparent prices.
In theory that is. Practice, however, shows that things are
much more complicated. You need to bear in mind other considerations:
the historical players are well positioned in the market, and
prices remain regulated in sectors such as electricity and
gas. Nonetheless, users now have the option of choosing their
supplier, which opens windows of opportunity for the most dynamic
players, those that are able to roll out a comprehensive marketing
strategy. These windows of opportunity open wider still when
these marketing activities are founded on integrated production
as, for example, in the gas sector. From this point of view,
initiatives such as this do contribute to securing energy supplies.
What has an international company like Total got to offer
within this new context?
What international companies now need to bring to the table
is their indisputable technological prowess, and at the same
time they need to know how to establish dialogue with the national
company or companies in the host country. Total proved its
expertise in deep offshore in Angola a few years ago with the
commissioning of the FPSO unit (Floating Production, Storage
and Offloading) at Girassol and with the more recent Dalia
installation. Total is recognised for its commitment to gas
liquefaction, with the Group having a stake in six facilities
that represent 40% of worldwide LNG production. The Group is
also running a major project in Yemen, due for launch in 2008.
Total has successfully proven its capacity for managing heavy
oil in Venezuela, and is doing the same in Canada.
There are a huge number of examples to choose from if you want
to talk about Total’s technological expertise. For instance,
historically many of its activities developed from the Lacq
field, which according to some operators was impossible to
exploit due to high hydrogen sulphide (H2S) levels. The Group
is currently drawing on this experience to contribute to the
development of the Kashagan project in Kazakhstan. Total has
also been chosen to examine, alongside national company Petrochina,
the development of Sulige, a tight gas-rich Chinese field.
Although technological expertise is of course indispensable,
retaining a competitive edge also depends on the quality of
relationships that are built up and the innovative nature of
the solutions implemented. For example, Total has just been
selected by Gazprom to join the first development phase of
the giant Shtokman gas field, nearly 600 kilometres offshore
in the Barents Sea and at a depth of 400 metres. Total’s
recognised expertise in offshore and LNG (a component of the
project) naturally played a part in this success, but the quality
of the solution was also a factor.
How does Total contribute to securing international energy
supplies?
By carrying out its work with both professionalism and passion:
these two qualities are crucial to achieving the goal of increasing
production and satisfying growing demand whilst renewing reserves.
All of which represents a major and exciting challenge. Each
year Total discovers between 800 million and 1.2 billion barrels,
a considerable amount. The renewal rate for reserves, which
measures this performance, places Total amongst the best in
the industry.
The development of fields under acceptable economic conditions
also represents a major challenge in terms of managing costs
relating to investment, contracting and organisational expertise.
Referred to as technical costs, the overall costs incurred,
including exploration expenditure, in relation to the production
unit provides a good yardstick for measuring a company’s
performance. Total’s technical costs are amongst the
lowest in the industry, although this fact should not stop
the Group from investing around $12 billion dollars in upstream
activities in 2007.
By
sticking to a projected price for crude oil of $40 per
barrel, the major players are often accused of being too conservative
and of undertaking too little exploration. How do you respond
to such accusations?
A fundamental criterion such as the benchmark price of crude
oil, as used by the major international companies in their
internal planning, cannot be modified too frequently. Any change
to the benchmark affects all the Group’s subsidiaries:
a price hypothesis not only corresponds to a vision of the
environment, but also serves as a tool for operational management.
However, the tension between supply and demand that we are
witnessing, and that should continue, encourages a general
upwards revision of economic hypotheses as a whole. Therefore,
the projected price per barrel that underlies our vision of
prevailing conditions is currently higher than $40 a barrel.
The accusations of conservatism and limited exploration efforts
are unfounded, in Total’s case at least. The technological
challenge represented by the upstream projects I have mentioned
prove this clearly: in addition, our exploration budget currently
stands at $1.7 billion annually.
And
what about Total’s role in securing downstream supplies?
Total’s investments in downstream activities also contribute
to securing energy supplies. Total has invested €550 million
in the distillate hydrocracker (DHC) project at its Normandy
refinery in order to increase the platform’s diesel production
capacity to 1.3 million tonnes. The Group is currently at the
advanced planning stage for the installation of a coker at
the Port Arthur refinery. This new unit will enable heavy crude
to be processed for a market that suffers from structural deficiency
in fuel supply. In Saudi Arabia, Total and Saudi Aramco have
joined forces in a project to build and operate a very high
conversion level refinery at Jubail. The plant is designed
to handle very heavy crude at a rate of 400,000 barrels a day.
The majority of the output will be destined for the markets
of Asia, although some of the diesel will go to Europe and
some of the petrol to the USA. Similarly, petrochemical activities
integrated within refinery activities are the fruit of the
same policy, aiming to bring to market plastic intermediates
derived from raw materials for which favourable conditions
exist (gas in particular). The same logic lies behind the recently-announced
partnership between Total and Sonatrach for the construction
of an ethane steam cracker in the Algerian town of Arzew. This
installation will be similar in design to the Total-designed
plant in Qatar.
Doesn’t Africa, which accounted for approximately 30%
of production and reserves in 2006, represent a dangerously
high share of Total’s portfolio?
As far as the Group’s exploration and production activities
are concerned, non-OECD countries account for a larger share
than countries within the OECD. Whilst it is undeniable that
this carries higher levels of geopolitical risk, it is also
true that these regions offer greater potential hydrocarbon
deposits to discover and exploit. In Africa, Total has successfully
developed beneficial partnerships, notably with Nigeria and
Angola. The relative importance of the subsidiaries in these
two countries is likely to increase during the years ahead.
We are able to provide acknowledged expertise — particularly
in deep offshore (as evidenced by the installations for Block
17 in Angola) — whilst simultaneously ensuring good integration
between local teams and our expatriates.
The Group does however also intend to make significant investments
in OECD countries such as Canada and Australia, both of which
are pretty stable in political and fiscal terms. The aim is
not to reduce the relative share of our African activities,
but rather to augment our upstream portfolio in regions that
are attractive from the point of view of their hydrocarbon
potential.
What
is Total’s position vis-à-vis political
or terrorist violence?
Safety has become a core component of general working conditions.
Naturally we take steps to ensure the safety of people and
the integrity of installations. This is a major challenge for
a group employing 95,000 people worldwide, operating 400 production
sites classed as Seveso-2 (or equivalent) and 30,000 kilometres
of pipelines. We do all that we can to ease the pressure that
some of our people are subject to in certain countries, such
as Nigeria.
Will increased production of natural gas and renewed interest
in coal reduce oil dependency? What steps has Total taken in
this regard?
The upsurge in gas is driven by its ‘clean’ image
as an energy source that emits less greenhouse gases than oil.
It also boasts global reserves of 60 years, more than oil’s
40 years. However, these reserves are concentrated in a limited
number of countries — Russia, Iran and Qatar — in
which Total intends to continue to develop its activities,
as witnessed by the Qatargaz project in the Emirate of Qatar,
and Shtokman in Russia. It is also important to point out the
importance of the LNG element, which is taking an increasingly
large share of gas projects, as this provides additional fluidity
in a market whose pipeline element is relatively rigid.
At 140 years, it is coal’s lifespan that renders it attractive
as a resource. Its main use today is in the generation of electricity.
In order for it to become a primary fuel source via processes
such as CTL (Coal to Liquids) that combine coal gasification
with a Fisher Tropsch synthesis, it is vital to develop solutions
for the capture and sequestration of the CO2 emissions. Total
is working to achieve this. The Group has set up a pilot project
at our Lacq site that demonstrates an integrated CO2 collection
system; the gas is sourced from steam, transported and re-injected
into a depleted gas field.
What weight does Total give to biofuels?
There are two main factors driving the development of biofuels:
energy security, as biofuels are a substitute for fossil
fuels sourced in the main from imported crude; and cutting
back on greenhouse gas emissions. But there are limitations
to the development of biofuels. The first is technical: most
engines will only burn biofuels as a mixture with a fossil
fuel. Second, overemphasis on biofuels will drive up the
price of certain food crops. In the USA, growing demand for
ethanol as a fuel source over the past two years has driven
up the price of corn. This is why so much effort is going
into the development of so-called second generation biofuels,
which do not divert resources from food production. Examples
of this are enzymatic hydrolysis of lignocellulosic ethanol,
or biomass gasification for biodiesel.
With 900,000 tonnes incorporated into its fuel production,
Total biofuels lead the way in Europe. The Group was one of
the first-movers in the production of ETBE (ethyl-tertio-butyl-ether),
a biopetrol combining ethanol and a refined fraction (isobutylene)
that does not present difficulties of incorporation. Total
also distributes biodiesel at the same time as working to adapt
its refinery hydro treatments to suit inputs such as palm oil.
An R&D effort into second generation biofuels is also underway.
However,
the environmental impact of biofuels is increasingly called
into question…
Impact varies considerably according to the method. Growing
plants absorb CO2 which is emitted into the atmosphere when
the biofuel is burnt in an engine. Activities relating to growing
and processing the plant give rise to use of additional fossil
fuel and CO2 emissions. The most environmentally sound method
is that used for Brazilian sugar cane, as the plant’s
coproducts (bagasse) provide the energy needed for processing.
This method reduces the emission of CO2 by over 80%. Conversely,
only 30% of emissions are saved when producing ethanol from
wheat or beetroot using traditional methods. The reduction
is of the order of 50% for biodiesels (using colza).
What role is Total playing in the development of new and renewable
energy sources?
Through Tenesol — a company owned jointly by Total and
EDF — we are active in the manufacture, sale and operation
of photovoltaic systems. Furthermore, Photovoltech, our joint
subsidiary with Suez, specialises in the manufacture of photovoltaic
solar panels. This is an area in which we are keen to increase
our presence. Wind energy is another field in which we are
active. Further work is required to optimise wind installations
as this resource is, by its nature, unstable. Finally, in a
global context that will require increased inputs from all
energy sources, there are specific advantages offered by nuclear
energy in terms of the availability of the natural resources
needed and the absence of associated CO2 emissions. Total must
position itself in this field as the opportunities arise, and
as possible links to its traditional activities occur.
Jean-Jacques
Mosconi is Senior Vice President
Strategy at Total, Sylvie
Labesle is a journalist at
Total. Petroleumworld
does not necessarily share these views.
Editor's
note: This
article was originally written for Énergies,
the external Total Magazine, N°12 - November 2007. Petroleumworld
reprint this article in the interest of our readers.
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