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Corporate Strategy

Eni Fast-Tracks Gas Strategy to Supply Europe

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AP_443056040860-headquarters Eni
  • Eni’s portfolio is unique in that it has both pipeline and LNG options to bring additional supply of natural gas to Europe.
  • The company has reacted fastest among its peers to shift activity to gas-weighted opportunities where volumes could flow back into Europe, and particularly into Italy.
  • The gas push also fits Eni’s long-term strategy, which sees a greater role for gas as the company lowers its portfolio-level emissions.

The Issue

As Europe races to replace Russian energy imports, European companies like Eni are trying to offer options to governments looking for new sources of gas. Producers are both revisiting parts of portfolios that have been recently neglected and mulling fast-tracking new projects. Despite the potential for new opportunities, Eni and others will have to still weigh the financial and logistical challenges involved in getting additional gas to European markets profitably.

Replumbing Europe’s Gas Supply

The need for new sources of gas is especially acute in Italy, which depends on Russia for about 40% of its supplies. Eni has been quick to respond to the calls for diversified gas supplies and has a unique portfolio of projects that could deliver gas to Europe both through existing pipelines and as LNG. Eni CEO Claudio Descalzi estimated that the company has 50 trillion cubic feet of reserves that could be tapped over the next three years to increase volumes available for Europe.

“We started immediately interacting as soon as the war started … with countries where we produce,” he told investors in a strategy day presentation last month. “And that is important because we are talking about the possibility to produce our reserves in a fast track.”

Eni upstream head Cristian Signoretto estimated that the company could be producing an additional 50,000 barrels of oil equivalent per day by 2025 — or roughly 300 million cubic feet of natural gas — with less than a 5% increase to its $7 billion capital spending plans.

Descalzi told an industry conference recently that the increased gas from the projects “is for our country, for Italy.” But the gas push also fits nicely with Eni’s corporate strategy, which sees the fuel's share of the company's total production increasing from 52% last year to 60% by 2030 and 90% by 2040.

Pipeline Options

Eni’s portfolio includes a variety of fields and prospects that are linked directly to Italy or to the broader European continent by existing pipelines.

The company has a strong portfolio of natural gas projects in North Africa, although civil war in Libya and a lack of investment in Algeria has led production from the region to decline by more than 50% over the past five years. Continued unrest in Libya makes any increase in production there uncertain at best. There are opportunities to reverse the decline in Algeria but that will require jump-starting an upstream sector that has stagnated in recent years.

Descalzi visited Algeria’s Prime Minister Aymen Benabderrahmane and Energy Minister Mohamed Arkab this week to discuss how to increase volumes through the TransMed/Enrico Mattei gas pipeline, including fast-tracking the Berkine South expansion project. “We have spare capacity in the Algerian pipeline,” Descalzi told investors.

Outside North Africa, Eni has options for European indigenous production through both its own portfolio offshore Italy and its interest in publicly listed independent Var Energi offshore Norway. In Italy, the Cassiopeia project will bring roughly 160 MMcf of gas from the Argo and Cassiopeia fields offshore Sicily starting next year.

Var, which recently held a successful initial public offering, plans to grow production from 250,000 boe/d today to 350,000 boe/d by 2025, with gas making up about 37% of the total.

LNG Expansion

Eni has been investing heavily in its LNG portfolio, especially in Africa, and sees potential to boost supply both from new projects and existing facilities. The company has a goal of having more than 15 million tons per year of LNG within its portfolio by 2025, up from a little less than 11 million tons in 2021. “LNG is coming from some LNG that we have and that we are going to divert to Europe,” Descalzi said.

The Coral South floating LNG facility offshore Mozambique is due on line this year with capacity of 3.4 million tons/yr. Eni is an equity shareholder there, but BP – which has also said it would work to help backfill Russian gas in Europe - has contracted the entire offtake from the facility under a 20-year deal.

Eni is fast-tracking a unique LNG development tapping as much as 7 Tcf of reserves found offshore Congo (Brazzaville). The project will use floating liquefaction to bring on line a facility with 2 million tons of annual capacity by 2024. All of this will be sold into the red-hot spot market, where persistently high European gas prices are expected to continue to pull in flexible cargoes.

In Angola, Eni announced it was targeting the country’s first non-associated gas project through its newly formed Azule Energy joint venture with BP. Volumes from the project will help feed the Angola LNG plant, which was running at around 50% of its nameplate capacity of 5.2 million tons/yr in the first two months of 2022, data from investment bank JPMorgan shows.

In Egypt, Eni’s natural gas production has almost doubled over the past five years to nearly 1.5 billion cubic feet per day, driven by the massive Zohr discovery in the Mediterranean Sea. The increase has helped Eni boost volumes from the restarted Damietta liquefaction plant by more than 350% in the first quarter compared to the same period a year ago, according to JPMorgan estimates. Ship-tracking data shows most of the cargoes in the first quarter landed in Europe, including at terminals in Italy, Turkey and Greece. Eni plans to sell roughly 50 Damietta cargoes this year, assuming the facility is running at 70% of its nameplate capacity of 5.2 million tons/yr.

Eni Puts Its Foot on the Gas
Select Eni Natural Gas Projects Expected On Line, 2022-25
ProjectLocationProduction Capacity ('000 boe/d)Start DateWorking Interest (%)
Coral FLNGOffshore Mozambique106H2'2225%
Marine XII LNGOffshore Congo (Brazzaville)72202565
Berkine SouthOnshore Algeria49202575
A&E StructureOffshore Libya205202450
Melehia Phase 2Onshore Egypt50202576
CassiopeaOffshore Italy27202460%

Topics:
Corporate Strategy , Gas Supply, LNG Supply, Regional Integrateds
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