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    Eni Shuns Pipeline Spending, Tackles Gas Suppliers

Summary

Western Europe’s biggest gas importer has no intention of investing in Gazprom's latest pipeline ventures. Its priority is to get cheaper gas.

by: Mark Smedley

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Featured Articles, Security of Supply, Energy Union, Import/Export, Balkans/SEE Focus, Market News, Infrastructure, Pipelines, Blue Stream, Nord Stream Pipeline, Nord Stream 2, South Stream Pipeline, News By Country, Algeria, Italy, Netherlands, Russia, Turkey

Eni Shuns Pipeline Spending, Tackles Gas Suppliers

Italy's leading upstream player Eni, which is also Western Europe's largest gas import company and sold more than 90bn m3/y, has no intention of investing in gas pipelines that neither carry its own gas nor gas that it will market in Italy. It also provided an update on the status of its long-term gas contract renegotiations.

Eni is “not interested in investing” in Nord Stream 2 as the project was intended to supply gas in the north of Europe and was “too far from Italy,” Eni CEO Claudio Descalzi told a press conference in London following the company’s annual strategy presentation to analysts on March 18.

“Strategically, we invest in transportation systems only [if] they transport our equity production -- [whether for] oil or gas. We are not a transportation company. We are not going to invest any more in pipes that transport gas that is not ours.”

Descalzi also insisted that Eni is “not involved and not interested” in plans for a South Stream gas pipeline – another Russian pipeline system that would involve a subsea section under the Black Sea. Last month Gazprom, Italy’s Edison (part of the French EDF group) and Greek firm Depa signed an agreement to continue working on that project.

In the past the Italian group was happier to invest in such pipelines. Eni and Gazprom are 50-50 partners in Blue Stream’s subsea 16bn m3/y pipe under the Black Sea, which started flows in 2003 and even today carries most Russian gas currently imported by Turkey.

Descalzi also declared that Eni’s midstream Gas & Power division intends to renegotiate all its long-term gas purchase contracts within 1H 2016 to “fully align” them to market conditions.

Umberto Vergine, Eni’s midstream gas and power chief, gave journalists at the briefing an indication of how that was progressing with one major supplier, Dutch marketer GasTerra.

“Eni has three contracts with GasTerra. For the first, we agreed to renegotiations in 2012; this is the contract for which we are awaiting the outcome of the arbitration process, as we were not able to reach an agreement,” said Vergine: “We have closed an agreement on the second contract a few months ago, and we are progressing negotiations for another commercial agreement on the third [contract]. All this involves price and volume revision.”

Eni bought over 13bn m3/y of gas from the Netherlands in both 2013 and 2014. It originally bought about 6bn m3/yr, but the volume increased after Eni took over Belgian marketer Distrigas in 2009.

Since 2015 GasTerra has indicated that, because of a cap on how much gas may be produced from the giant Groningen field, it might not extend long-term contracts as they come up for renewal. Its 8bn m3/yr supply to the UK’s Centrica is due to lapse this year, but its supply deals to Eni do not.

CEO Descalzi was reluctant to say much about latest contractual talks with Algerian state Sonatrach.

“We just signed an agreement with the Algerian government on price and volume. We can’t disclose anything about this – it’s very commercial,” he told journalists in London. “We’re going to start discussing again, as we do every year. In October we [last] started discussions.”

In 2012 Italy imported bought more than 20bn m3 from Sonatrach – with Eni alone buying 14.45bn m3 that year. But such quantities have fallen by roughly half in recent years, not least because Sonatrach and its key Italian importers (Eni, Edison, Enel) have agreed to voluntary supply and offtake reductions. These enabled Sonatrach to divert more of its gas production to LNG plants so that it could supply world markets.

However prices both in and outside Europe are now very low, with spot prices globally for LNG below $5/mn Btu, and month-ahead gas at the Italian PSV hub at less than €14/MWh ($4.50/mn Btu).

Vergine also said that, overall, 70% of Eni’s gas purchase portfolio volume is indexed to [European gas] hub prices, with 30% remaining oil-indexed.

In recent years, the company has pushed to re-index its import contracts, either to hub indexation, or an oil-indexed level that is analogous. Vergine said that, despite the recent fall in oil prices, the price of hub-indexed gas has often fallen faster than oil-linked contracts.

 

Eni gas sales, bn m³

     
 

2015

2014

% change

Italy

38.44

34.04

12.9

outside Italy

52.44

55.13

-4.9

  of which rest of Europe

42.89

46.22

-7.2

  markets outside Europe

6.39

5.85

9.2

  equity E&P sales in   Europe/US Gulf

3.16

3.06

3.3

Worldwide gas sales

90.88

89.17

1.9

Source: 2015 annual results, publ Feb 26 2016

   

 

 

Supply of gas to Eni, bn m³

         
 

2014

2013

% change

 

2012

Italy

6.92

7.15

-3.2

 

7.55

Russia

26.68

29.59

-9.8

 

19.83

Netherlands

13.46

13.06

3.1

 

11.97

Norway

8.43

9.16

-8

 

12.13

Algeria (incl LNG)

7.51

9.31

-19.3

 

14.45

Libya

6.66

5.78

15.2

 

6.55

others*

13.25

11.62

na

 

14.21

Total Supply to Eni

82.91

85.67

-3.2

 

86.69

available for sale

82.46

84.78

-2.7

 

85.06

available for sale by Eni affiliates

3.65

5.78

-36.9

 

7.53

E&P volumes

3.06

2.61

17.2

 

2.73

Total Available for Sale

89.17

93.17

-4.3

 

95.32

Source: 2014 Annual Report, publ 2015

       

* includes UK, Qatar, Hungary, other gas and LNG; ** difference   between total supply and available for sale is due to offtake/input to   storage, network losses and similar

 

 

Mark Smedley