France’s Symbolic Ban on Oil

The government of Emmanuel Macron was elected on a long-string of promises. One of which was to make France carbon neutral by 2050, which would entail weaning the country off the usage of hydrocarbons. It is a trend that has been replicated across Europe, but Macron wants to go even further. Legislation has been tabled that will end all oil and gas production within France by 2040. The proposal is still a bill at the moment, but given Macron's comfortable majority in the French National Assembly, it likely to become law.

When it does, it will be less drastic than it sounds.The law is symbolic. France produces only 15,000 b/d across its entire territory, representing less than 1% of its consumption. The current 63 drilling permits will be phased out once they expire, leaving production – which is concentrated in the Paris and Aquitaine basins, led by small-scale producers Vermilion Energy, Lundin Petroleum and Geopetrol – to dwindle down slowly. Some 1,500 employed by the industry and its annual €270 million in revenues will have more than two decades to adjust, with Macron pushing them towards clean energy. However, France's eight refineries – representing some 1.5 mmb/d of capacity – will continue to operate. Some might scale down or shutter by 2040, which is when France is also planning to ban sales of new gasoline/diesel cars, but imported crude will still continue to flow into France. It will be business as usual, for the most part.

It will have little impact on France's oil jewel, Total, which has no upstream operations within continental France. However, because France considers its overseas possessions part of the same country, Total may have to give up exploration in sites such as French Guiana's Guyane Maritime in South America. But that won't bother Total at all, given that it has been investing heavily into Africa, the Middle East and Asia, which are still energy-hungry areas.

This hollow statement, which is what it is, does indicate the direction that France will be pursuing - the complete abandonment of hydrocarbons. In July, Environment Minister Nicolas Hulot announced that coal would be completely eliminated from France's power production by 2022. Actual implementation may lag, but the country will get there. The risk to the energy industry is that this drastic stance could spread to other European nations. It will mean little if Germany, Spain or Italy adopt a similar no-drilling stance, but if the trend makes inroads in the UK or Norway, this could fundamentally alter the landscape in Europe. That same stance could extend downstream, upending entire supply chains and distribution networks. It seems unthinkable, but it could happen.

What this means is that European companies will have to hasten their transition from being oil-and-gas producers to being holistic energy producers. Forays in solar, wind and alternative clean energy sources will be on an accelerated path of growth in Europe going forward. That's where the money is, and the majors and supermajors of old will have to adapt to it.  France has provided a glimpse of what the future holds, with ample time to get there. Everyone involved in Europe's oil and gas industry had better start preparing for that.

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