TotalEnergies' LNG Gambit: Navigating Oversupply and U.S. Risks with a Low-Cost Strategy

In the ever-shifting landscape of global energy markets, TotalEnergies has emerged as a master tactician, recalibrating its liquefied natural gas (LNG) strategy to navigate the dual challenges of U.S. project risks and looming global oversupply. As the third-largest LNG operator and a leading U.S. exporter, the company is now pivoting toward low-cost, high-margin projects in Mozambique, Papua New Guinea, and Canada, while scaling back on riskier ventures in the United States. This recalibration is not merely a defensive maneuver—it is a calculated bet on the future of energy, where cost efficiency and decarbonization will define winners and losers.

The Mozambique Pivot: A $20 Billion Bet on Low-Cost Growth

TotalEnergies' most consequential move is the resumption of its $20 billion Mozambique LNG project, a venture that was paused in 2021 due to security concerns. Now back on track, the Rovuma Basin project will feature two liquefaction units with an initial capacity of 13 million tons per annum (mtpa), expandable to 43 mtpa. This project is a cornerstone of TotalEnergies' strategy to secure low-cost LNG production, leveraging Mozambique's abundant gas reserves and relatively favorable infrastructure costs.

The project's $14.9 billion in senior debt financing—including a $4.7 billion loan from the U.S. Export-Import Bank—signals confidence in its economic viability. Once operational, Mozambique will become the second-largest LNG producer globally, targeting high-demand markets in Asia and the Middle East. For TotalEnergies, this represents a strategic shift away from the volatile U.S. LNG market, where rising construction costs, steel tariffs, and geopolitical uncertainties have eroded margins.

U.S. LNG: A Market at a Crossroads

TotalEnergies' decision to forgo participation in NextDecade's fifth train at the Rio Grande LNG facility in Texas is emblematic of its broader reassessment of U.S. projects. While the company remains a key player in U.S. LNG—owning stakes in Cameron LNG and the Energia Costa Azul project in Mexico—it is now prioritizing projects with shorter timelines and lower capital intensity.

The U.S. LNG sector faces a perfect storm: soaring construction costs, labor shortages, and a global market teetering on the edge of oversupply. The International Energy Agency (IEA) warns that global LNG capacity could surge to 700 mtpa by 2030, far outpacing demand growth. For investors, this raises a critical question: Can U.S. LNG projects, with their long lead times and high costs, compete in a market where only the lowest-cost producers will thrive?

The Low-Cost LNG Playbook: Partnerships and Innovation

TotalEnergies' strategy hinges on three pillars: strategic partnerships, technological innovation, and carbon reduction. In Canada, the company has secured a 20-year supply agreement with Ksi Lisims LNG for 2 mtpa of LNG, while in the Dominican Republic, it is set to deliver 400,000 tons annually starting in 2027. These deals provide stable, long-term offtake while diversifying its geographic exposure.

Technologically, TotalEnergies is pioneering low-carbon liquefaction processes, such as the DIESTA air cooling system, and investing in carbon capture and storage (CCS) initiatives. The Marsa LNG project in Oman, a joint venture with OQEP, is being developed as one of the lowest carbon intensity LNG facilities globally, with a 300 MW solar farm powering its operations. These innovations not only reduce emissions but also position TotalEnergies to meet the growing demand for cleaner energy.

Carbon Credits and the Green Premium

TotalEnergies is also leveraging carbon credits to offset its emissions, committing $100 million annually to build a portfolio of 50 million carbon credits by 2030. This approach aligns with its broader goal of reducing Scope 1+2 emissions by 40% by 2030 and achieving net-zero by 2050. For investors, this green premium could translate into a competitive edge as regulators and consumers increasingly demand decarbonized energy.

Risks and Rewards: A Calculated Gamble

While TotalEnergies' strategy is compelling, it is not without risks. The Mozambique project, for instance, faces security challenges and political instability in the region. Additionally, the global LNG market's oversupply could drive prices below breakeven levels for higher-cost producers, squeezing margins. However, TotalEnergies' focus on low-cost projects and its ability to secure long-term offtake agreements mitigate these risks.

For investors, the key is to assess whether TotalEnergies can maintain its cost advantage while scaling up production. The company's recent decision to double its Q1 2025 carbon credit spending to $2 million and its investments in clean hydrogen and biohydrogen units suggest a commitment to balancing growth with sustainability.

Conclusion: A Model for the Energy Transition

TotalEnergies' LNG strategy is a masterclass in navigating the complexities of the energy transition. By prioritizing low-cost, high-margin projects, embracing technological innovation, and securing long-term offtake agreements, the company is positioning itself to thrive in a world where energy security and decarbonization are equally critical. For investors, this represents a compelling opportunity to bet on a company that is not only adapting to the future but actively shaping it.

As the global LNG market grapples with oversupply and geopolitical headwinds, TotalEnergies' pivot to low-cost growth offers a blueprint for resilience. The question for investors is not whether the energy transition is inevitable, but whether TotalEnergies has the agility and vision to lead it. Based on its current trajectory, the answer appears to be a resounding yes.