Climate Crossroads: Debating Energy’s Next Frontier with Patrick Pouyanné

I understand you had some important investors. You know, in Boston you have many investors hosting here, so we met I think 10 of them today before coming here. So thank you for the invitation. It's the second time I'm speaking in an international university. Generally I do that in France. Last time I did it was last March in Beijing, the equivalent of our in Beijing. So it's fine, it's better maybe.

You have one, you are quite smart. You have one, you have others, you have some.

Oh, investors want to understand the dynamic of the oil and gas market, which is complex. The question for me is: why do you invest in electricity and why don't you just do oil and gas? That's a traditional question. So let me explain why. In 2020, we decided to engage in developing an electricity business. The reason is an observation about future growth. Oil demand has been growing about 0.8% per year for the last 20 years, decorrelated from GDP, but there is debate about peak oil. It remains profitable, but future growth is uncertain. Gas grows at about 2.5%, but it's more expensive, especially LNG. The real growing energy is electricity, which grows more than GDP. In 2024, electricity demand grew 4.3% while GDP grew 3.2% and primary energy 2.2%. Electricity is only 20% of global energy today, but it's growing because it's a good way to decarbonize. We saw a natural fit: gas to power. We are a big gas producer, and electricity from gas adds value. Then we started thinking about renewables. My predecessor invested in SunPower, a solar manufacturer. I never understood why we bought a manufacturer. We learned a lot but faced Chinese competition. The investment collapsed from $1.5 billion to $500 million, and investors were angry. My predecessor said no more renewables. I inherited that. I learned solar is intermittent, so one of my first acquisitions was a battery company called Soft. I told my colleagues it won't work economically without storage. That was the beginning. Then we decided to be serious. I told the board it would be a 10-year journey. We set the ambition that electricity should represent 20% of the business. We are halfway at 10%. We need to invest in renewables, gas plants, batteries, and build an integrated value chain: produce, trade, commercialize. Today we have 5 million customers in France. This strategy also helped reconcile employees who were questioning the future. We changed the name to TotalEnergies. We set a KPI of reducing the carbon content of our energy. Since 2015, we have reduced it by 16%, targeting 25% by 2030. The 2022 energy crisis generated cash that allowed us to accelerate. We increased investment to $4-5 billion per year. Today the electricity business makes $2.5 billion with a 10% return on capital. At $60 oil, I make 12%, and our target for electricity is 12%. It provides resilience against oil and gas cycles. We never cut dividends in 40 years, so investors are happy.

And if I have the right to develop a strategy, as long as we distribute dividends and grow them, everything is fine. If I cut dividends to finance electricity, it would be more complex. But we never cut dividends in 40 years, so you can invest in this company.

In fact, on renewables, one difficulty is that we speak about megawatts but it's a lot of small plants. In Texas, I can do 1 gigawatt plants. In Europe, 100 megawatts is huge. The first difficulty is access to land. Then you need access to the grid, and grids are not all equivalent. In Texas, it's easy to get land and permits. In Europe, it's more complex. Today we are able to build 8 gigawatts per year, positioning us among the top five developers outside China. We want to continue that, reaching around 80 gigawatts of renewables gross capacity by 2030, plus some gas-fired plants and 10 gigawatts of battery. There is no lack of financing. With our balance sheet, we attract capital easily. The limit is more the size of projects and geography. In India, we are building a 20 gigawatt solar and wind project. So access to land and stakeholder acceptability is the most complex.

The difference is we don't do only renewables. If you only do renewables, it's subsidized and regulated, giving 6-7% return. We build an integrated electricity business: renewables, batteries, gas plants, trading, full value chain. We are not an infrastructure business; we capture merchant upside. It's also about determination. We were lucky not to cut dividends during COVID, so we had support. The big difference from European peers is we never said we would reduce oil and gas. We maintained and grew our LNG business while investing in electricity. That provides the cash to finance the transition. If I decline my main business, I lose the freedom to execute the strategy. So we continue to invest in oil and gas because demand for oil grows 0.8% and gas 2.7%. The energy mix has hardly changed: 82% fossil fuels 25 years ago, 80% last year. Despite huge investments, low-carbon energies only meet 40% of additional annual demand. We cannot dismantle system A before building system B. Energy must be reliable, sustainable, and affordable. Nobody will pay more. The challenge is to build affordable low-carbon energy. COP28's goal to double renewables is a step, but we are not there yet.

There is a huge difference between the US and Europe. Thanks to shale, the US became a net exporter. Europe is a net importer. The US has energy dominance. Europe dreams of producing its own energy from renewables and nuclear, but even nuclear requires uranium we haven't secured. China invested in renewables and green technologies since 2010. In competitiveness, the US has everything: gas, oil, space, coal. Europe is more expensive, but it's also about security of supply. The narrative in Europe evolved from sustainability to include security of supply after the Ukraine war. Affordability now dominates. The lesson is you cannot just regulate; you must consider affordability. The US approach with the IRA was to give fiscal incentives to create low-carbon products and let the market find affordable solutions. Europe tries to regulate supply, but it doesn't fully work. You need both: mandates for things like sustainable aviation fuel, because nobody will voluntarily pay $1,500-$2,000 per ton when jet fuel is $500. Europe over-regulates. The EU is a trade organization with only normative power, no fiscal power. You cannot do the transition by regulation alone. Pragmatism is needed: keep affordability for customers, otherwise populist parties take advantage.

I don't think so, but I will explain why. It's more expensive, but that's where we are. It's linked to security of supply. The narrative in Europe has evolved. In 2022, we were afraid of not having enough gas to heat homes. Affordability is now dominating. You can regulate that EV cars will be only in 2035, but the transition won't work if you don't consider affordability. People are not ready to accept constraints if they are not affordable. The US approach is to incentivize innovation and let markets design affordable solutions. The reality is in between. For example, sustainable aviation fuel: you need a mandate to create a market. So Europe over-regulates. The EU is not a state; it's a trade organization. We need pragmatism to keep affordability.

When you produce electricity from gas compared to coal, you reduce emissions by 30-50%. The Chinese have improved their coal plants, but both are not ultimate solutions. It's a transition. We cannot immediately implement green hydrogen because it's too expensive. If we could replace all coal with gas, we would be on the right trajectory. But coal is cheaper, so China and India use it. The mistake in the West is to put gas in the same category as coal. We miss an opportunity to convince that gas contributes. For example, the maritime industry wanted to go straight to ammonia or methanol, but it's expensive and lacks infrastructure. Using LNG in shipping reduces emissions by 20% compared to bunker fuel. At first they rejected it, but last year they came back to that solution for until 2035-2040. So gas is not perfect, but it's a positive contribution. There is one caveat: methane. We take that seriously. Since 2018-2019, we realized methane has a much higher climate impact than CO2. We discovered it's not complex to abate methane emissions in our production. We have a target to eliminate them to less than 0.01%, reducing emissions by 80% between 2020 and 2030. We have already done 60% compared to 2010.

So methane, it's clear that we took that very seriously. My company is one of the leaders on methane. We realized in 2018-2019 that methane has a huge climate impact. We look at it very seriously and discovered it's not so complex to abate all methane emissions in our production.

Less than 0.01% and reducing our emissions by 80% between 2020 and 2030. We have already done 60%. Compared to 2010, 70%.

Yeah, it's very cost effective. It's just very easy: stop venting and flaring. We are generalizing close flare technology on all our platforms, so no more flaring. Also stop venting for safety reasons. We managed to do it with about $200 million to reduce emissions by 90%. It's the easiest contribution. I am the champion of the Gas Decarbonization Charter created in Dubai. We have developed technologies to measure methane with drones. This year we are implementing 13,000 detectors around all our operations. If a detector alarms, you must treat it like an oil leak: find the source and stop it. So methane is a very good topic for the oil and gas industry to have a real positive contribution to lowering emissions.