Total sees power as key in Middle East

French firm Total has been criticized by the U.S. for working in Iran when sanctions are in place, and for chasing work in Iraq. But Total sees its work in Iran and Iraq-development of Sirri A & E and South Pars projects in the former and preparing to develop Nahr Umr in the latter-as a continuation of its work in the region.

April 20, 1998

3 min read

David Knott
London
[email protected]

French firm Total has been criticized by the U.S. for working in Iran when sanctions are in place, and for chasing work in Iraq.

But Total sees its work in Iran and Iraq-development of Sirri A & E and South Pars projects in the former and preparing to develop Nahr Umr in the latter-as a continuation of its work in the region.

Christophe de Margerie, president of Total's Middle East division, says the reasons why the company stays in the region are obvious. One is the low production cost: $2-4/bbl on average, down to less than $1/bbl in some countries, compared with a typical $6-13/bbl elsewhere.

Another is that Total expects Middle East oil to be competitive for many years to come, with Asian demand for crude oil set to grow at 2%/year and Asia being the main market for Middle Eastern crude.

De Margerie added that oil and gas industry investments amounting to $60 billion are required in the Middle East over the next 5 years. The region's lure is the fact that it holds 70% of the world's oil reserves.

Open-minded

"In the Middle East Total takes an open-minded approach," said de Margerie. "Our company was one of the first to seek to redefine contracts to deal with the realities of the countries where we want to operate."

Total is the second largest foreign producer in the Middle East after Royal Dutch/Shell. Shell produces 387,000 b/d of oil equivalent in Oman, says de Margerie, while Total produces 308,000 b/d of oil equivalent.

But Total is in a better position than Shell in the region, says de Margerie, because Shell produces oil in only one country: "Shell is trying to diversify, and is our main opponent in Iran."

Total's immediate aim is to build a presence in all countries around the Persian Gulf. Abu Dhabi currently accounts for the bulk of Total's Middle East oil production, but its three producing concessions expire during 2014-17.

"We cannot yet renegotiate terms to explore further in Abu Dhabi," said de Margerie, "so we have to get more reserves to replace this production outside the country. For the near future we are looking to Iran and Iraq" (see story, p. 38).

Saudi ambition

"We'll also do our best to get into Saudi Arabia, even though now it is difficult. On top of our Gulf strategy, we see opportunities in links between the Middle East and the Caspian Sea, the current fashionable area."

De Margerie said Total has exploration interests in Kazakhstan, Azerbaijan, and Turkmenistan, and is talking with countries in the Caspian region to open transportation links between the Caspian and Middle East.

"We are looking to go downstream of oil and gas," said de Margerie, "including electricity generation. More and more countries are talking of opening their electricity sectors to foreign companies, particularly Abu Dhabi, Oman, and Saudi Arabia."

On Mar. 31 Total bid as junior partner to Belgian electricity utility Tractebel BV to build a 600 MW gas-fired power generation plant in Abu Dhabi, in a 35/65 joint venture.

"Oman redefines its electricity privatization schedule frequently, so we must wait," said de Margerie. "In Saudi Arabia we see an opportunity to enter the country through electricity generation, as a means of getting to oil and gas."