Navarik Market Update

August 24, 2017


Earlier this week, AP Moller-Maersk AS, the Danish shipping conglomerate, successfully found a buyer for their oil business in the French Oil Major Total. This was a huge milestone in a process that started as much as a year ago to streamline Maersk’s focus back on its key strategic operating segment. It also represents a major push for safer assets for Total, given both the geopolitical risks and newbuild E&P costs of Maersk’s predominantly North Sea assets are lower than new reserves elsewhere, even if the decommissioning bill could be sizeable once due.

Seen another way, however, this trend also counter-intuitively represents a different kind of strategic shift for Total – one towards renewable energy. This is because the North Sea is a generally mature oil patch, and the lifespan of remaining reserves are very likely to be shorter than (for instance) a new marquee project in the Arabian Gulf. Total therefore avoid tying themselves exclusively to the crude oil game for the long- to very-long term, while still sourcing the reserves they require to operate in the medium-term. This buys them time to continue roughly as per usual while planning for the decline of this revenue stream. In an ideal world this decline would occur at approximately the same pace as the alternative revenue streams ramp up.

This gradual shift represents an important caveat in an environmentalist interpretation of the purchase. Despite their recent press (such as Shell CEO Ben van Beurden’s announcement that his next personal vehicle will be electric), oil majors still see fossil fuels as a fundamental part of the transition to renewables. Companies like Total may be investing initially small sums into solar cell manufacturers and others as a sort of hedge, but their primary strategy to manage the shift is to adapt to declining energy consumption in its traditional forms or changes in the fuels that are consumed. Shell, for instance, has made a focus of more closely collaborating on the technical side to stay ahead of changes in engine efficiencies or fuel types and manage their operations accordingly. This sort of move remains open to Total by reducing the tail-end of their dependence on crude oil. The supposed lower remaining life of the North Sea fields not only might lengthen if developed countries continue to become more efficient, but might be able to serve as a cleaner break when this same trend reaches the global market in general.

Further Reading:
Financial Times, Aug 21 2017
Total, “Developing Renewable Energies”
Terry Macalister, The Guardian, May 21 2016

 

Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.

To reach a Navarik Oil & Gas analyst email tradeflow@navarik.com. To reach Colin directly call 778-327-6917 or email cmccann@navarik.com.

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