Industry Trend Analysis - Quick View: Total Consolidates As Portfolio Player - JAN 2018

The Latest: Total has signed an agreement to acquire the entire upstream LNG portfolio of Engie, in a deal worth USD1.49 billion. The French major's latest acquisition includes interest in several liquefaction plants, most notably the Cameron LNG project in Louisiana, USA. The deal also brings to Total an extensive portfolio of long-term LNG purchase and supply contracts, as well as access to additional regasification capacity in Europe and a fleet of LNG carriers.

Implications: The deal enhances Total's push into natural gas, with the company set to benefit from an increasingly vertically integrated LNG business. The consolidation of Total as a portfolio player in the LNG market will be positive for the company as the global LNG market looks set to move into a period of oversupply in which scale and integration will be needed to support company outperformance. The deal also builds out Total's downstream LNG flexibility, with access to additional European regasification capacity, increasing from 4mtpa to 14mtpa.

This in particular will allow the company to focus on targeting increasing gas demand in the region, as low LNG prices support consumption and policy in several countries shifts in favour of gas. Similarly, the expansion of Total's carrier fleet significantly increases the company's midstream offering, with the number of vessels expanding from 3 to 13 following the deal.

Oversupplied Market Increases Importance Of Integration
Cumulative Global Liquefaction Capacity Additions, mtpa
f= BMI forecast. Source: BMI

What ' s Next? With the LNG market moving into a period of prolonged oversupply, the additional integration that the deal will provide for Total will help the company's profitability. A heavily oversupplied market will reward operational scale, with larger portfolio players in a better position to retain profitability and squeeze supply into demand markets across the globe. The deal also moves Total into a position to begin to compete with Shell, which following its acquisition of BG Group last year is the biggest player in LNG market. We expect Europe to receive greater volumes of LNG over the medium term, as a key region with the scale and flexibility to absorb some of the excess global supply.

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