IMG.gif

Total CEO: Russia Price Caps a Bad Idea

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.
Patrick-Pouyanne-TotalEnergies,Energy,Intelligence,Forum,2022,London,Discussion.jpg

TotalEnergies CEO Patrick Pouyanne said on Wednesday that the G7 plan to cap Russian oil prices is a "bad idea" that would end up benefiting Russia.

"I think it's a bad idea because it's a way to give the leadership back to Vladimir Putin in fact, and I would never do that," he told the Energy Intelligence Forum in London.

The EU looks set to adopt a new package of sanctions soon including a price cap for Russian oil exports as part of a joint effort with G7 nations to rein in Moscow's oil revenues without curbing global supplies.

Meanwhile, the Opec-plus alliance, which includes Russia, announced a 2 million barrel per day cut in production quotas on Wednesday that seeks to prop up prices in an already tight market.

The US administration criticized the move, calling it "short-sighted" and said that President Joe Biden would assess whether to release more oil from US strategic stocks to lower prices.

Russia Under Pressure

Moscow needs higher prices to bolster its revenues at a time when the Kremlin has been forced to offer its crude to buyers at deep discounts. It is also facing an EU embargo that could force Russia to suspend some production as it seeks alternative markets.

Pouyanne said on Wednesday that Russia might have some difficulty finding buyers for some 1.6 million barrels per day of supplies that will no longer go to the Europe, without offering higher discounts.

"There is a reason why Russia is ready to participate with Opec cuts — because they are not sure whether they will find somebody to buy this oil," he said.

EU governments are also worried about the European gas supply outlook, but member states remain divided about a cap on gas prices that is favored by France, Italy and others.

Several European leaders are looking, for example, at locking in long-term contracts with other countries such as Qatar, but they will have to be prepared to pay an energy security premium to do so.

Pouyanne said he was surprised that none of the governments had directly approached the LNG industry's two largest Western players — Total and Shell — to bring in additional volumes of LNG.

Liquidity Problems

Pouyanne also noted that the market currently faces some liquidity issues because of huge volatility and because some companies are finding it difficult to manage margin calls — as they are asked to provide extra collateral to cover trading positions when prices rise.

"My recommendation to governments is the best thing they could do is announce that in this market if there is a failure of one counterparty there would be a guarantee of last resort. If they do that immediately you win back some liquidity in the market."

Pouyanne said that Total itself had received an $8 billion margin call one night.

As a large player he said it was "no problem" to cover its trading positions. "But I could imagine other players could have difficulties," he added.

"We need to find ways to inject liquidity into the market to avoid these incredible high prices."

On security of supply, Pouyanne suggested the best way for Europe to secure gas supply today would be to look to Japan, which for 30 years has committed to long-term LNG contracts with large volumes.

Topics:
ENERGY INTELLIGENCE FORUM 2022, Policy and Regulation, Gas Supply, Sanctions, Oil Supply, Oil Prices, Gas Prices
Wanda Ad #2 (article footer)
#
Opec-plus on Sunday kept its oil production policy unchanged, in line with market expectations.
Sun, Dec 4, 2022
Frustrated US natural gas operators are bracing for an apparent morass of federal methane emissions regulations that may overlap or conflict.
Fri, Dec 2, 2022
In this opinion piece, Energy Leader for Tomorrow Lilly Lee, reflects on last month's Energy Intelligence Forum and looks forward to COP27.
Fri, Nov 4, 2022