The Business Times

Total CEO says Opec needs to prolong cuts to eliminate glut

Published Wed, Feb 22, 2017 · 01:34 PM

[NEW YORK] Opec and Russia will need to prolong their six-month deal to cut oil output if they plan to trim the global inventory glut that has kept a lid on prices, said Total SA Chief Executive Officer Patrick Pouyanne.

"If they want really to have an impact on the market, which means to have the inventories going down because inventories are quite high, it will have to be extended beyond May," Mr Pouyanne said Tuesday in a Bloomberg television interview in New York.

"I'm convinced that they will do it."

The CEO of the French oil and gas company added that he plans to keep lowering its so-called break-even point - the oil price at which cash flow covers spending and dividends - because he's "not fully convinced" that tough times for the industry are over. Factors including rising US shale oil production and increasing output from Libya may continue to have a negative impact on prices, Pouyanne said.

Oil has held above US$50 a barrel since the Organization of Petroleum Exporting Countries and 11 other nations started trimming output from Jan 1. The exporters group implemented about 90 per cent of the pledged cuts last month and Goldman Sachs Group Inc predicts the market will shift into supply deficit in the first half.

At the same time, US crude stockpiles have kept increasing to the highest level in more than three decades and oil drillers are deploying the most rigs since October 2015.

Mr Pouyanne also warned against mounting economic protectionism, especially in developed countries, saying it may lead to disaster. Free trade has helped reduce poverty in emerging markets, he said.

"This trend to have countries around the world thinking that it's better to be inside their borders" than open to the world "will lead to catastrophe", Mr Pouyanne said.

"Total is in favour of open trade and fair trade."

His remarks come as the French presidential candidate for the National Front party, Marine Le Pen, is calling for France to increase trade barriers, abandon the common European currency and exit the European Union. She is rising in opinion polls ahead of elections in April and May.

The euro "is a powerful currency" which needs to be kept, the CEO of France's largest company by market capitalisation said. Voters' support for Ms Le Pen and the UK's decision to leave the European Union are "a question mark for ourselves, the global leaders".

Rather than set up their own trade barriers, Mr Pouyanne urged the US and Europe to limit themselves to fighting against "unfair" Chinese solar industry subsidies through the World Trade Organization. Total has a controlling stake in US solar-panel maker SunPower Inc.

He expressed hope that US President Donald Trump will maintain "policies in favor" of renewable energy. He also reiterated that Total will soon announce its decision on whether to develop a new petrochemical unit in Texas that will create jobs, and expand in liquefied natural gas to take advantage of cheap US shale production.

Total said on Feb 9 that it will increase its dividend by 1.6 per cent and give the go-ahead for almost a dozen new projects in the next 18 months in countries including the US, Brazil and Iran, as it benefits from cost cuts and higher oil prices.

Regarding Iran, where Total has signed a pre-agreement to develop a gas field, Mr Pouyanne said he was encouraged by recent comments from US Defense Secretary James Mattis.

The French company will sign the contract if Iran respects the international nuclear treaty and if the US sticks to it, he said.

Mr Pouyanne also called for the US and Europe to improve their dialog with Russia and work together in the fight against terrorism in the Middle East.

Relationships have been strained after Western powers imposed sanctions against the Kremlin when it annexed Ukraine's Crimea region and backed pro-Russian rebels in the eastern part of the country.

Total would prefer fewer sanctions against Russia, where the company is poised to complete a giant gas project with partners in the Yamal Peninsula, Mr Pouyanne said.



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