Eni set to replace Russian natural gas imports as high prices support profits

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Italy’s Eni SpA saw its natural gas sales fall by nearly a quarter in the third quarter of 2022 from year-ago levels, but soaring commodity prices have led it to another period of high profits as it progresses in its efforts to replace Russian imports and optimize its LNG business.

The company’s natural gas sales fell during the third quarter as it suffered the continued effects of a lack of Russian gas to re-export to the European market. Gas sales were reported at 13.33 bcm in 3Q2022, down 22% year-on-year from 17.14 bcm. Its liquefied natural gas sales also declined, falling to 1.8 Bcf in the quarter from 2.9 Bcf in 3Q2021.

The major raised its profit forecast for its global gas and LNG portfolio slightly to around $1.77 billion for the full year based on the price increase during the quarter. However, chief financial officer Francesco Gattei said the revised guidance “also incorporates lower-than-expected Russian volumes and a weaker market environment like in October.”

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Management said Eni was still managing the impacts of having less overall gas on the market in Italy, “particularly in the spot market and in the wholesale and industrial segments”, combined with lower sales in France. and in Turkey. It was able to partially offset the drop in its LNG sales with more volumes traded to Germany, Belgium, the Netherlands and Luxembourg.

Italy, which imported about 10% of its gas supply from Russia last year, briefly halted Gazprom PJSC flows through Austria in early October while the Russian company battled with regulators. The stream resumed after Eni promised to post a $19.8 million contract guarantee for Gazprom, which demanded Austria accept its ruble payment.

While its sales volumes declined, Eni’s average price for natural gas continued to rise in the quarter as global markets remained tight. Its average realized price for natural gas in 3Q2022 was $9.08/Mcf, an increase of 43% compared to $6.33/Mcf the previous year. This was also an increase of nearly $2 from 2Q2022.

Cristian Signoretto, deputy director of natural resources, said the company was moving towards substituting 50% of its marketable gas volumes previously supplied by Russia at the start of winter. After that, Eni will try to increase this ratio to 80% by winter 2023-24 and fully replace Russian gas by 2025.

“Portfolio Reshaping”

While Eni may have some short-term hiccups as it transforms its gas portfolio, Signoretto added that Russian gas is accelerating its value chain investments and ultimately its profitability.

“This portfolio overhaul will accelerate our substitution of third-party gas with capital gas much more, because we are essentially importing more of our capital gas or capital LNG via Italy,” Signoretto said.

He added that Eni had already achieved significant cost savings for its increased LNG volumes needed to meet demand using the Panigaglia terminal on Italy’s northwest coast. By using the regasification hub owned by Snam SpA and avoiding more expensive terminals in Spain, Signoretto said Eni was able to retain more value from its imported gas.

In August, Eni acquired the floating LNG unit Tango (FLNG) with the intention of deploying it on the Marine XII block off the Republic of Congo. The 0.6 million metric ton per year vessel is part of Eni’s plans to leverage its developing assets to shore up gas supply, according to the company.

Natural gas production held close to Eni’s previous forecast at 4.58 billion cubic feet per day in 3Q2022. This is down 2% from 4.68 Bcf/d a year ago.

Signoretto said the company had already seen contributions from its recent framework agreements for an additional 6 bcm/year of gas supply from Algeria, with the country sending around 2.5 bcm over the course of the year. quarter in addition to its already contracted volumes. Eni also saw additional volumes from the start-up of its Coral Sul project in Mozambique and increased activity from its assets in the United States.

Eni’s production issues outpaced its gain in the quarter as impacts from its force majeure event in Nigeria declared after major flooding are expected to be more severe than initially expected. The company had already experienced setbacks to its assets in the country in April. It also reported reduced production in Norway and unforeseen problems with its operations in the Kashagan offshore oil field in Kazakhstan.

Combined 3Q2022 production was reported at 1.58 boe/d, down 7% from 1.68 million boe/d in the prior year period.

Eni reported net profit of $5.73 billion ($1.65/share) in Q3 2022, up from net profit of $1.18 billion (32 cents) a year earlier.

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