France’s Total walks political tightrope in region

The regional stakes for the French oil major Total are high and the political finesse required has not been lost on its chief executive, Patrick Pouyanné

Total is the largest foreign oil firm in the UAE and recently hooked up with Mubadala. Mubadala Petroleum is the majority shareholder in the Dolphin project that transfers gas from Qatar's North Field to Taweelah in Abu Dhabi. Courtesy Total
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The French major Total is walking a political tightrope to keep its energy deals on track in the Arabian Gulf region, where it has bet bigger than any other major oil company.

Paris-based Total’s chief executive, Patrick Pouyanné, confirmed yesterday that despite the political turbulence between Qatar and several of its Gulf neighbours, he will travel to Doha this week - on July 14, Bastille Day in France - to mark the company’s new role as the operator of Qatar’s biggest oilfield, Al Shaheen.

Last week, Total signed the first post-sanctions Iranian petroleum contract - a 20-year deal to develop the 11th phase of Iran’s South Pars gasfield, the world's largest - even though Iran-Arab tensions have rarely been higher.

The political finesse required given what is at stake for Total is not lost  on Mr Pouyanné.

"Tensions have risen a notch between Qatar and [the Saudi Arabia led group of countries],  and of course, we take into account the sensitivities of our hosts," he said. "But this is exactly the type of situation where Total can serve as a bridge between the countries; we have experience dealing with geopolitical uncertainty."

The company was founded in the 1920s as a French national champion, in part to differentiate itself from rival colonial companies and tread a more business-focused path.

“Total seems to be able to transcend the politics of the region because they have this really firm focus on the economics,” said Valentina Kretzschmar, the director of corporate research at the consultancy Wood Mackenzie.

With demand for traditional fuels plateauing and shifting more toward petrochemicals and gas, “it will be the low-cost players who will be the last man standing, so the Gulf becomes even more important because it offers the lowest-cost resources, and that's where Total wants to be.”

Total is unique in having its finger in so many regional pies.

It is the largest foreign oil company in the UAE and recently embarked with an arm of the Abu Dhabi conglomerate Mubdadala on a US petrochemicals venture, a key strategic plank for the country.

Last week,Total said it was considering an investment of up to US$5 billion at its 400,000 barrels per day refinery joint venture with Saudi Aramco (Satorp, at Jubail industrial city on Saudi’s Arabian Sea coast),  to expand into petrochemicals, also key for the Saudis.

Despite the difficulties working there, Total is in the consortium developing the giant Halfaya oilfield in Iraq’s southern Missan province.

It is helping to broker a deal to bring Iranian gas to Oman to feed its liquefied natural gas (LNG) projects, where it owns small stakes. And it retains interest in Yemen LNG, although the war has shuttered it.

The Gulf leaders “all understand that it's in everyone's best business interests when we work with each country”, the Total chief said. “They appreciate our transparency [and] our participation in South Pars 11 will show that companies can, in their own way, help to broker peace through economic development. It will also pave the way for other international oil companies in Iran, I truly believe that,” he added.

Mr Pouyanné downplayed the role that being French holds in Total's ability to navigate Gulf politics.

But, says Homayoun Falakshahi, a Woodmac analyst, it is an undeniable benefit. “Twenty years ago when Iran was opening up, [the US oil company] ConocoPhillips was the first to sign,” he recalled, referring to the $1bn deal to develop the Sirri oilfield. “Two weeks later, Bill Clinton nixed it,” and Total was able to step in.

Mr Pouyanné's shuttle diplomacy included meeting the UAE Energy Minister, Suhail Al Mazrouei in Paris two weeks ago to discuss keeping business running smoothly, according to a person at the meeting.

The fruit of that labour can be seen with the Dolphin pipeline, which supplies about a fifth of UAE gas demand from Qatar. Although UAE-Qatar links, including oil ports, were severed, Dolphin Energy - 24.5 per cent owned by Total - has kept the gas flowing.

“There is going to be a level of annoyance and discomfort with Total’s involvements” across the political divide, said an official familiar with the high-level talks, requesting anonymity. “But Exxon and Shell [chiefs] also recently visited Qatar, and there is an understanding, up to a point, that business is separate.”