The Guardian: Total’s nuclear venture sets precedent, no trend

Reuters
Tuesday January 15 2008
By Marie Maitre

PARIS, Jan 15 (Reuters) – Total’s foray into nuclear power may prompt copycat moves by rival oil majors, but the French group holds trump cards — France’s decades-old atomic expertise and its state-controlled reactor builder Areva.

Total has a stake in Areva, giving it privileged access to technology and precious uranium resources, and it has already worked with electricity group Suez, with which it expects to co-develop a nuclear power plant in Abu Dhabi.

Total and Suez announced this week they were joining forces to develop a nuclear power plant in major oil producer, the United Arab Emirates. Areva would supply two new-generation nuclear reactors and fuel.

Total will lean on these two global players to invest in the nuclear arena, without becoming an atomic power operator, a diversification oil majors have so far been reluctant to make, arguing they have no competitive advantage in this sector.

“Other oil companies will see Total going in there and they will be weighing options,” said Pierre Terzian, director of French energy weekly Petrostrategies.

“They all have the same problems Total has in terms of discovering new reserves, increasing oil and gas production, and preparing for the energy world of 2040, 2050 or 2060. But Total has something they don’t, the French nuclear expertise.”

“In this respect, this (nuclear) agreement is all down to Total’s French identity, without a doubt,” Terzian added.

Oil majors may also choose to opt for other energy sources than nuclear power, from clean coal to wind farms, meaning Total could remain an exception, some analysts say.

“There is a long-term logic for oil companies to diversify… but each one has its own strategy,” said Francis Perrin, editor in chief of magazine “Petrole et gaz arabes.”

“You have various strategies, and you have managements with different visions. Exxon Mobil for instance thinks nuclear power is not profitable.”

FRENCH TOUCH

Total Chief Executive Christophe de Margerie has for months made clear his group’s ambitions to diversify its activities into nuclear energy, so Monday’s announcement did not take industry experts or market players by surprise.

The move into such a different area of expertise could leave some unconvinced about its benefits for Total. But others see it as a relatively-low risk way of broadening its business.
“Total remains an oil player… This is just a new string to their bow,” said Societe Generale analyst Aymeric de Villaret.

Villaret said it was hard to say whether Total would be followed by the rest of the oil industry.

Others argue Exxon Mobil or Chevron could well seek alliances with reactor makers such as Westinghouse Electric.

It could make commercial sense for Total and its rivals to help oil and gas producing countries generate electricity by other means than burning hydrocarbons, said Colette Lewiner, who is the head of energy and utilities at consultancy Capgemini.

“It makes sense for Middle Eastern countries to keep the gas they currently use to produce electricity for exports. It makes sense especially with current prices and when you take into account the potential scarcity of those gas and oil resources.”

The UAE says it needs nuclear energy to meet surging demand for power and desalinated water.

There was no indication yet as to when the UAE would officially grant the deal, but although an UAE official said the Gulf emirate was talking to other countries, the French companies appeared confident their project would be picked.

OPPORTUNISTIC INVESTMENT

Should they win it, it then remains to be seen if Total will seek to develop this new part of its business beyond opportunistic investments in countries where a nuclear offer can shore up its core oil and gas activities.

“Total is not trying to reinvent itself,” Terzian said.

“It brings (to Suez and Areva) a wealth of knowledge of the Middle East region and its energy needs, an ability to organise very large projects and a huge financing capacity.

“These people (in the Middle East) do not know Areva but they know Total and they know they can work with them.”

Suez Chief Executive Gerard Mestrallet told French newspaper La Tribune on Tuesday that it and Total had for now no other nuclear projects in view, but he did not exclude working together again if the opportunity arose.

Such opportunities could be limited to a handful of Middle Eastern countries seeking to develop a peaceful nuclear programme, said analysts who do not see at this stage Total looking at nuclear projects in Western countries except Canada.

“It could be envisaged tomorrow to use nuclear power to extract oil sands in Canada. Total has said it. Shell is looking at it too,” Terzian said.

Royal Dutch Shell has acknowledged that nuclear power may be needed to fuel the Canadian oil sands industry, which uses vast quantities of energy to produce oil products from heavy bitumen-soaked soil.

But Shell, which is one of the largest players in the industry, has hinted it was more likely to be a buyer rather than a generator of nuclear power in Canada.

(Additional reporting by Muriel Boselli in Paris, Tom Bergin in London, and Simon Webb in Dubai; editing by James Jukwey)

http://www.guardian.co.uk/feedarticle?id=7226950