TotalEnergies CEO Cracks Code: Hormuz Shipping Costs Lower Than Feared

The Strait of Hormuz has been a point of concern for global energy markets due to the ongoing Iran war, which has disrupted production, refining, shipping, and routes connecting them. The disruption has led to higher energy costs across various sectors, including transportation, manufacturing, food, and household budgets.

Recently, TotalEnergies CEO Patrick Pouyanne revealed a surprising estimate: moving a Very Large Crude Carrier (VLCC) through the Strait costs approximately $20 million for a round trip, including freight and insurance. This works out to about $10 per barrel.

This number is lower than many investors feared, suggesting that the shipping economics are looking better than expected. In fact, Iraq's state oil marketer, SOMO, has offered discounts of around $25 to $30 per barrel on Basrah crude for August cargoes loaded inside the Gulf, more than covering the estimated Hormuz transportation premium.

TotalEnergies' integrated model combines upstream production, refining, marketing, LNG, and trading. Its trading activities generated roughly $500 million in outperformance during the second quarter, according to the company's earnings call. The company has also authorized another $1.5 billion of share buybacks and returned substantial cash while navigating the crisis.