Claudio Descalzi, CEO, Eni, speaks exclusively to Pipeline Magazine’s Julian walker about the company’s Middle East operations and the wider development of the global power mix
How will the agreement with ADNOC impact on Eni’s activities in Gulf Cooperation Council?
Since 2018, in just 16 months Eni has stipulated agreements in the Middle East (UAE, Oman and Bahrain), with a total of 16 agreements, strengthening its interest in the area.
The agreements with ADNOC have been achieved thanks to our leadership in technological innovation and scientific expertise.
We have expanded our presence from exploration to development and producing assets in the upstream business. Looking at refining, in January 2019, Eni concluded one the world’s largest ever transaction in the refining business by acquiring a 20 per cent equity interest in ADNOC refi ning, one of the major down-streamers in the Middle East. This achievement is a landmark, strategic result for us, as it increases Eni’s overall refining capacity by 35 per cent, which becomes 40 per cent from 2024 thanks to the projects included in the current investment plan for Ruwais. Thanks to the geographical position of ADNOC’s facilities, located near assets producing all types of crudes, Eni recognised it as an ideal choice for trading activities.
Therefore, as we pride ourselves on the collaboration with our host countries, we are confident that our company will further strengthen its presence in such an important region by consolidating long-term strategic partnerships while working on our projects.
Does the partnership indicate an increased focus on the Middle East as a region?
The reinforcement of the partnership with ADNOC confirms Eni’s strong interest in an area that has almost half of the world’s proven reserves, which is characterised by low developing and operating costs.
Starting from Eni’s agreements with ADNOC in March 2018 for the acquisition of a stake in two off shore producing concessions in UAE, Lower Zakum and Umm Shaif, we have stipulated 16 agreements in 16 months, achieving not only a geographical diversification of our portfolio, but also a business diversification.
From 2010, when we only had production in Iraq, we are now present in the UAE, Iraq, Oman, Lebanon and Bahrain, and have secured a remarkable result by acquiring the most extensive exploration acreage in the region amongst the IOCs.
In addition, our partnership with ADNOC Refining will increase our refining capacity by 35 per cent and enable trading activities thanks to the geographical position of its facilities, located near assets producing all types of crudes.
We are now present through the whole value chain, from exploration to development, production, refining and trading. These strategic developments made our business more resilient.
What has been the major area in which new technologies have impacted the company?
Technology deployment is one of the main strategic lever of Eni’s operational model. Our proprietary technologies cover all our value chain and are so ingrained in every aspect of our company that it would be difficult to choose one area over the other. Eni’s Research and Development has produced, so far, 7,300 patents and over 350 projects, and in the period 2019-2022 we envisage an investment of about US$1 billion in this sector.
Moreover, in addition to its seven research centres, Eni can rely on a strong network of collaborations at international level.
The application of our technologies ranges from operational excellence, which includes health and safety, asset integrity, cost optimisation and efficiency, to renewables, decarbonisation and the circular economy. These are core areas for Eni through the energy transition.
Technology, research and innovation are extremely important to our business because they represent our calling card for accessing the countries where we work.
They are supported by a high computing capacity ensured by Eni’s Green Data Center, which hosts Eni’s main information processing systems and uses sophisticated proprietary algorithms for seismic imaging for more accurate subsoil models, reducing risks during the exploration and development stages, while accelerating time-to-market.
Looking at the green business area, just to mention a few example, we are the first in the world to have converted two traditional refineries into green bio-refineries, thanks to our Ecofining proprietary technology.
We have also developed technologies in the field of circular economy, to convert organic and inorganic waste into new energy products. To capture and store CO2, we developed a technology that fixes the gas biologically, through microalgae, or mineralises it for cement production.
Moreover, we are expanding our focus in the renewable sector with the development and installation of systems that produce energy from wave power, the largest untapped renewable source in the world, with extremely high energy density, high predictability and low variability.
Our commitment to the research and application of technology is the driving force that boosts Eni into the future of the energy sector.
Has the company been agile and flexible enough to accommodate changes?
In the past five years, anticipating a downturn, we have been rapidly delivering a strategy of transformation. Our strategy was not defensive and based only on cost cutting, but proactive, involving the entire organisation, all its businesses and its business model.
Eni has grown organically, both diversifying geographically and reshaping our businesses quickly, so that today’s Eni is more flexible, faster, more efficient and more valuable, thanks to the large contribution from explorational successes and the fast-track development of our discovered resources.
In the last five years we have achieved exceptional results. By leveraging the quality of our portfolio and low cost development we have increased our production by 16 per cent. We have also increased our exploration acreage by 37 per cent, entering new areas and reloading our portfolio.
In the gas and power sector we have structurally transformed the business, optimising its cost position with the renegotiation of gas procurement contracts and reducing logistics costs, and increased our LNG contracted volumes by 63 per cent.
In downstream, the break-even margin was halved to a value of around $3/bbl and, thanks to a repositioning of the business, with the entry into the Abu Dhabi refinery, we will be able to further reduce this value.
But alongside the continuous strengthening of traditional business, we have combined the development of new businesses, with renewables and the circular economy as part of our decarbonisation strategy.
Over the past five years the company has reduced its upstream emission intensity by 20 per cent and we have grown in the field of electricity production from solar and wind energy.
Overall we have achieved our best earnings and financial results of the last 12 years, with a growth of free cash flow in 2018 of more than double compared to 2014, and a debt reduction at the end of June 2019 of 43 per cent compared to 2014, recording the lowest leverage since 2006.
Our company has a long history of transformation, and our flexibility is one of the reasons we are a solid and resilient business that thrives even in the choppy waters of unstable markets and geopolitics. What Eni stands for today is different to what Eni represented five years ago, and again different to what it will be like over the next decade, and so on.
Our strategy is forward looking and our vision is long-term; we strive for the sustainable future of energy.
What do you think the future holds for oil and gas?
Companies working in the energy sector in the next twenty years will have to supply about 25 per cent more energy to a population in continuous growth and at the same time will have to reduce CO2 emissions by 45 per cent, to limit the rise in temperature to well below 2° C, in line with the Paris Agreement.
Energy transition represents the answer to these global challenges. It requires a gradual change of the energy paradigm towards a low carbon future, leveraging innovative tools and a change of habits that goes from an increase in efficiency in the use of existing resources, to the construction of new models to reduce emissions based on consumption.
This transition will, however, take time and will still have to take into account that oil and gas will continue to play a leading role in meeting the growing energy demand, with a stable share in the energy mix of 53 per cent in 2040, compared to 54 per cent in 2017. Natural gas can be an opportunity for strategic repositioning for its lower carbon intensity and represents the ideal partner to integrate renewable sources, which, even in the assumption of the Sustainable Development Scenario (SDS) of the International Energy Agency (IEA), will not satisfy more than 16 per cent of world energy demand by 2040. At the same time a technological breakthrough will need to be pursued to overcome current limitations of renewables.
Eni is aware of these scenarios and sees providing the global population with efficient and sustainable access to energy resources while simultaneously fighting climate change as the main challenge facing its sector. We are adopting an integrated strategy that combines financial stability with social and environmental sustainability.
How are you incorporating sustainability into the company’s methods of working?
Eni has adopted a business model focused on creating long term value for its stakeholders and shareholders, based on a systemic approach which organically combines the industrial plan with the emerging trends of sustainability, inclusive development and the ambition to lead the company to become carbon neutral in the long-term.
Eni’s business model is directly and indirectly linked to the achievement of the 17 Sustainable Development Goals (SDGs) of the UN Agenda 2030, and this is also reflected in Eni’s corporate mission.
Last September, we launched our new mission, which further emphasises Eni’s ongoing transformation and defines our commitment towards a “just” energy transition, by putting in the middle values regarding access to energy, climate change, environment protection, respect for human rights and partnerships with local communities.
Eni’s worldwide presence makes the company fully aware of today’s challenges: the new mission sets out the principles that will help face those challenges. A few weeks ago we even formally committed not to perform oil and gas exploration and development activities within the boundaries of natural sites included in the UNESCO World Heritage List. This no-go commitment reflects Eni’s ambition to be part of the solution to the challenges the world is facing today and help deliver on the Sustainable Development Goals.
The company’s business model, which focuses on long-term investments both in operational and in social terms rather than on short-term profit priorities, gives the highest recognition to those principles.
What areas are you looking to expand into in terms of markets and resources?
Fossil fuels are still necessary, but the portfolio diversification into renewable energy and the circular economy is fundamental.
The worldwide demographic increase and improving living standards will lead to an exponential growth in waste. Therefore, it will be vital to dispose of this waste in a clean and useful way. In the next 20 years Eni will look at different ways, with a continuous focus on technological deployment. New energy such as electromagnetic fusion, that we are currently investigating, together with other solutions to decarbonise the energy mix (e.g. CCUS, renewables, circular economy) could be part of the future clean energy scenario. We have been able to foresee and implement changes, rather than just react. The company’s ability to change is vital, and this ability draws on technologies and people who know how to develop both traditional and new business.
This interview first appeared in Pipeline's December issue