Russian gas: France pays for its past mistakes

Russian gas: France pays for its past mistakes

This week, the multiple sabotages of the NordStream gas pipelines in the Baltic Sea have further increased the tension in the European gas and energy market. Every day Europe’s dependence on Russian gas feels a little stronger. In a study by the organization BusinessEurope, we learned that “70% of European fertilizer production has stopped or slowed down, while 50% of total aluminum production capacity has been lost. There is a real danger that companies, and in particular energy-intensive industries, will permanently relocate outside of Europe.” In Germany, panic wins over businessmen. The German chemistry, flagship of the automobile industry, is on the verge of a total cessation of its production.

In France too, concern has increased a bit in recent days. If EDF (finally) has a new CEO, the revival of the nuclear fleet (which has been largely closed in recent months) cannot be done with a simple snap of the fingers, without offending the government, which imposes the national electrician a schedule that can’t really be kept. At Medef, the time has come to give Volodymyr Zelensky a standing ovation. This Thursday, Geoffroy Roux de Bézieux told France Info that he was “very concerned” about the situation of companies in the face of rising energy prices. “We were talking about the “wall of bankruptcies” during the Covid crisis, it did not happen, but there we will have bankruptcies,” warns the chief of chiefs.

Luc Rémont, the man from the Elysee who must save EDF and the French nuclear industry

Enjoying the Russian Eldorado in the 90s

On the gas front, how did France get there? We don’t say it enough, but it is the result of strategic choices made in the past by our governments and economic leaders: in the early 1990s, the Elf and Total groups, then the two French hydrocarbon giants, they are gradually moving away from their favorite areas (Africa, Middle East), to take advantage of the Russian Eldorado after the fall of the Soviet Union. As a result, in the mid-1990s, France, in both gas and oil, preferred to look to Moscow rather than Algiers.

However, under Balladur, the Minister of the Economy, Edmond Alphandéry, had begun negotiations with Algeria. But in the face of French procrastination, it was the BP group (soon to become BP Amoco) that in 1995 won the contract for the In-Salah gas megaproject from the state-owned company Sonatrach. In a few years, France will be completely supplanted, both in gas and oil, in Algeria by American companies!

These options that favor the Russian source of our hydrocarbons, therefore, are not new. And the colossal investments made by Total in Russia under the presidency of Christophe de Margerie reinforced during the years 2000 and 2010 this link between France and Russia in oil and gas. The story is already known: in Russia, Total allies itself with Novatek, number 2 in gas after Gazprom. The French major comes to take control of almost 20% of the capital of the Russian group, and invest billions in the Yamal gas field in Siberia, which allows Russia to export its gas also by methane tankers and no longer only by gas pipe. In the Mediterranean, in Libya, in Mozambique, Total has made the most of its alliance with the Russian company Novatek in recent years to fight against the other large companies in the sector that are mostly… Anglo-American.

Systemic risk for TotalEnergies

This explains why the current head of TotalEnergies, Patrick Pouyanné, intends to stay in Russia as long as international sanctions do not prevent him from doing so. During a recent media intervention, the CEO of the oil group denounced the hypocrisy of the situation, explaining that many international groups, such as GAFAM and Apple, had maintained their activities in Russia.

For TotalEnergies, however, this link to Russia is a systemic risk, since it represents almost 24% of its proven oil and gas reserves. Thus, since the beginning of the war in Ukraine, the French group has multiplied the announcements of agreements with Qatar or Algeria… But these new contracts will not be able to replace Russia overnight.

Already because Algeria, due to lack of investment in recent years, cannot immediately increase its production. In addition, France has to face particularly tough competition: in the spring, the Italians signed a gigantic contract with Algeria. France must also accept the infrastructure: existing gas pipelines connect Algeria with Italy and Spain, and not France, which had made the historic decision to transport Algerian gas by methane tankers.

Among the other alternatives to Russian gas, the situation is not very bright either. First of all, it is not US LNG, produced from shale gas (and therefore very expensive), that will be able to completely replace the gas supply to France. So if a new gas pipeline between Norway and Poland was opened this week, the gas fields in the North Sea are slowly being depleted.

As for Qatar, although TotalEnergies recently announced a new contract, all the world’s majors are also present there. The competition is also fierce there. And then the small emirate must reach an agreement with its neighbor, Iran, which shares with it its huge gas field. However, in recent years, Iran has concluded numerous gas supply contracts with… China. This means that France in the world gas market is now a “dwarf”, to use the words of an energy specialist, disappointed and very worried about the coming winter.