To The Moon

4.2.2 Critical Minerals

Global clean energy investments crossed the US$1 trillion milestone in 2022, propelled by favorable policies and open trade of energy resources and critical minerals. This growth in renewable energy is driving a surge in demand for critical minerals, with lithium demand tripling between 2017 and 2022 and cobalt and nickel demand increasing by 70% and 40%, respectively, during the same period. However, as investments in renewables pick up pace, especially against the backdrop of a shifting geopolitical landscape, they heighten the reliance on these minerals and underscore the urgency to strengthen their ownership and supply chains. This imperative may be particularly notable for nations with ambitious clean energy targets and substantial import dependence.

4.2.3 Technology Adoption

The oil and gas industry has often been at the forefront of adopting cutting-edge technologies to bolster operational efficiency, curtail costs, and advance safety and sustainability measures. In recent years, artificial intelligence (AI) has emerged as a transformative force for the industry, with applications across the oil and gas value chain, from initial resource exploration to the intricacies of refining processes. Among applications, AI-driven predictive maintenance is instrumental in achieving many objectives, including cost reduction, heightened productivity, and the assurance of operational reliability for the industry.37 The industry now stands at the threshold of a new AI frontier—generative AI.

4.3 Competitor Analysis

The competitor analysis enables a more comprehensive understanding of TotalEnergies’ competitiveness and the overall positioning of other companies. The following is a comparison of TotalEnergies’ key competitors and selected ratios.

Figure 4

4.3.1 Market Capitalization

Compared to its competitors (Saudi Arabian Oil, Exxon Mobil, Chevron, Shell, and PetroChina H), TotalEnergies has a lower market capitalization of 145 billion euros, which ranks it sixth out of 11 companies. However, its market capitalization is still higher than that of its competitors: BP, Petroleo Bras Pfd, Equinor, China Petroleum Chemical H, and Eni. TotalEnergies will likely offer higher growth potential due to its strategic business decisions and transition to renewable energies, which is not the case for its competitors. Hence, TotalEnergies has more room for expansion, innovation, and market share gains, which can attract investors seeking growth opportunities.

4.3.2 Net Debt/EBITDA

TotalEnergies has a net debt/EBITDA of 0.7, implying that TotalEnergies can cover its debt obligations within a few years. This reduces net debt as the primary cause of concern for investors. Indeed, since the net debt to EBITDA ratio measures a company’s net debt relative to its EBITDA, a lower ratio implies less credit risk. In contrast, a higher net debt to EBITDA ratio signifies that the borrower might be at risk of default, e.g., unable to meet periodic interest payments or mandatory principal repayments on time.

4.3.3 P/E and EV/EBITDA Ratio

Compared to its competitors, TotalEnergies has one of the lowest P/E ratios at 6.7x. It also has a lower P/E ratio than the industry average (11.78x). This may suggest that the company’s stock is relatively less expensive than its earnings. However, the company’s P/E is still ranked seventh among its 11 competitors. Furthermore, at 3.3x, its EV/EBITDA ratio is also lower than its competitors, ranking sixth out of 11 companies and industry average (5.73x). Both ratios indicate that TotalEnergies’ stock may be undervalued, and the company may be relatively more valued than its peers.

1. Investment Thesis

5.1 Capitalizing on the Energy Transition

In the years to come, the need for energy transition has become even more urgent.

Compounding crises underscore the pressing need to accelerate the global energy transition. Events of recent years have accentuated the cost to the global economy of a centralized energy system highly dependent on fossil fuels. Oil and gas prices are soaring to new highs, with the crisis in Ukraine bringing new levels of concern and uncertainty. The COVID-19 pandemic continues to hamper recovery efforts, while citizens worldwide worry about the affordability of their energy bills. At the same time, the impacts of human-caused climate change are increasingly evident around the globe. The Intergovernmental Panel on Climate Change (IPCC) warns that between 3.3 and 3.6 billion people already live in settings highly vulnerable to climate change.

The International Renewable Energy Agency (IRENA) proposed 1.5°C pathway positions with electrification and efficiency as key drivers of the energy transition, enabled by renewables, hydrogen, and sustainable biomass. This pathway, which requires a massive change in how societies produce and consume energy, would cut nearly 37 gigatons of annual CO2 emissions by 2050. These reductions can be achieved through 1) significant increases in generation and direct uses of renewables-based electricity; 2) substantial improvements in energy efficiency; 3) the electrification of end-use sectors (e.g., electric vehicles and heat pumps); 4) clean hydrogen and its derivatives; 5) bioenergy coupled with carbon capture and storage; and 6) last-mile use of carbon capture and storage.

Figure 5

Today, renewables-based electricity is now the cheapest power option in most regions. The global weighted average cost of electricity from newly commissioned utility-scale solar photovoltaic (PV) projects fell by 85% between 2010 and 2020. The corresponding cost reductions for concentrated solar power (CSP) were 68%; onshore wind, 56%; and offshore wind, 48%. As a result, renewables are already the default option for capacity additions in the power sector in almost all countries, and they dominate current investments. Solar and wind technologies have consolidated their dominance over time and, with the recent increase in fossil fuel prices, the economic outlook for renewable power is undeniably good.

Therefore, as mentioned previously, TotalEnergies is dedicated to bringing vast and reliable renewable energies to the world. For example, the company aims to reach 100GW of gross production capacity of renewable energy by 2030 to be among the world's top five in renewable energies. Moreover, TotalEnergies has a portfolio of controllable power generation from gas-fired power stations (CCGT). Eventually, this capacity will be decarbonized, either through its supply (biomethane or low-carbon hydrogen) or through the sequestration of its emissions. In terms of storage, TotalEnergies is relying on the expertise of Saft, which is also taking advantage of this fast-growing market. The company aims to deploy 5 GW of storage capacity worldwide by 2030. Indeed, by 2030, the company aims to supply almost 10 million customers and sell 130 TWh. TotalEnergies is also targeting 150,000 recharging points for electric vehicles. TotalEnergies offers long-term purchase contracts for its industrial customers from its solar and wind farms and distributed solar generation solutions.

Similarly, TotalEnergies has been multiplying its renewable energy projects over the years. For instance, following a first Renewable Power Purchase Agreement (CPPA) signed at the end of 2022, TotalEnergies has signed a second CPPA with LyondellBasell, a world leader in petrochemicals, to supply a total of 275 MWac (358 MW) of green electricity from the Cottonwood Bayou and Brazoria Solar farms in Texas. This means that under a new 15-year CPPA, TotalEnergies will supply 125 MWac (163 MW) from its 325 MW Brazoria solar power plant southwest of Houston, scheduled for commissioning by the end of 2025. And under the CPPA signed in 2022, the Group will also supply 150 MWac (195 MW) to LyondellBasell from its Cottonwood Bayou solar power plant (455 MW capacity), located south of Houston, scheduled for commissioning by the end of 2024. These CPPAs are indexed to market prices via an "upside sharing" mechanism, under which the companies will share any potential upside linked to rising market prices over the contract's life. They follow other CPPAs signed by TotalEnergies with Amazon and Saint-Gobain in the United States, demonstrating the Group's ability to supply competitive renewable electricity to support the decarbonization of leading players in their sectors. For LyonellBasell, these contracts will play an important role in reducing its scopes 1 and 2 greenhouse gas emissions. As for TotalEnergies, they are in line with its market exposure strategy and contribute to the objective of profitable growth for its Integrated Power business. Therefore, these contracts reinforce the global leadership of TotalEnergies, which is already the world's number one player in solar energy, both in terms of operational capacity (13 GW) and development (>25 GW), in addition to being in the Top 5 for hydrocarbons.