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Total's 95 theory

The French energy giant thinks conventional oil production will top out in a decade at 95 million barrels and is keeping its eye squarely on the oil sands

Globe and Mail Update

PARIS — For Total SA, it's all about 95. The French oil giant builds its business with 95 in mind, as if the figure were tattooed on its executives' foreheads. The figure refers to Total's belief, not shared by the majority of Big Oil players, that global production will top out at 95 million barrels a day after 2020. That's only about 10 million more than current production.

Many oil gurus refer to the top-output theory as “peak” oil. Total prefers to call it “plateau” oil, a subtle variation on the theme that suggests production, having reached 95 million barrels a day, will remain at that level for some time in spite of every effort to squeeze more from Earth's desiccated bowels (the peakists think production will fall relentlessly after reaching a peak, which may come well before 95 million).

Whether peak or plateau, the upshot is the same: Total thinks conventional oil production is approaching its practical limit. That's why Canada and Venezuela figure so large in the company's future. They hold the world's biggest reserves of heavy crude (known as “oil sands” in Canada and “extra heavy oil” in Venezuela). As the easy-to-pump conventional reserves dry up, the thick goo from the frozen north and tropical south will have to fill the gap to forestall a precipitous drop in world production.

At least that's Total's theory.

“We believe that, because of plateau oil, the oil sands are necessary to supply demand growth,” said Yves-Louis Darricarrère, Total's exploration and development president.

The company plans to spend as much as $20-billion (U.S.) over the next decade developing its Alberta oil sands portfolio, which was to include UTS Energy Corp., the would-be oil sands developer that in April rejected Total's sweetened $830-million (Canadian) takeover offer, valued at $1.75 a share.

Total has walked away from UTS, whose main asset was a 20-per-cent stake in Petro-Canada's Fort Hills project. But the French company is not giving up on the oil sands. It's just getting started, it says, leaving investors and analysts wondering what it will go after next to add to a portfolio that already includes northern Alberta's Surmont and Josyln projects. OPTI Canada, which has seen its shares triple in the past two months on speculation that it is ripe for a deal, is viewed as a likely target.

Total's belief in an oil production ceiling is not the only factor that sets it apart. Alone among the biggies, it's about to push into nuclear energy and is still keen on alternative energy even as competitors discreetly unplug their wind vanes and solar panels. The company is also a big believer in the chemicals industry.

Total, in other words, is preparing for the day when conventional oil will no longer dominate its energy production. If it's wrong, it will have spent billions on fantastically costly projects – heavy oil extraction, nuclear, solar – at the expense of profit margins. But if it's right, Total has a good chance of emerging as the energy company of the future, one with heavy Canadian content.

Crunching numbers

Among the biggies, Total seems to be a minority of one in its belief that oil production is close to topping out. “They are the only major to come out with the ‘cheap oil is all gone' [theory],” said Jim Buckee, the former chief executive officer of Canada's Talisman Energy Inc.

Exxon Mobil Corp., the world's biggest publicly traded oil player, thinks it's highly unlikely that production will reach a peak any time soon. Exxon's position is that that “peak oil” implies that 50 per cent of the oil resource base has been extracted, and that it's impossible to know whether a reserve is really half depleted. Additional drilling and better technology have shown repeatedly that “reserve growth” is possible.

For similar reasons, BP PLC (the former British Petroleum) also rejects the notion of peak oil.

But Total sees the oil resource map differently. It sees demand rising just as the big old fields are losing momentum.

Jean-Jacques Mosconi, Total's senior vice-president of strategy, rhymes off the numbers. The world consumes about 85 million barrels a day. At that rate, we will chew through the proven and probable reserves in 33 years.

The good news, he said, is that the exploration and enhanced-oil recovery, known as EOR, should add another 17 years of consumption. EOR uses methods such as water and carbon dioxide injection to boost reserve pressures. Add it all up and Total figures enough oil remains to keep the planet on the trot for 50 years from today.

The bad news is that, barring a global economic depression, Total expects rising prices because oil companies will struggle to produce more than 95 million barrels a day beyond 2020. The prolific oil fields that turbocharged postwar growth are shrinking.

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