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Eni plans oil, gas production 'plateau' in 2025 under energy 'evolution'

Highlights

Sees gas making up about 85% of total production in 2050

Eni targets 80% cut in net GHG emissions by 2050

To convert all Italian refineries to biorefining sites by 2050

  • Author
  • Robert Perkins
  • Editor
  • Alisdair Bowles
  • Commodity
  • LNG Natural Gas Oil
  • Topic
  • Energy Transition Environment and Sustainability

Italian energy group Eni expects its oil and gas production to "plateau" in just five years under a major shift to renewables energy and cleaner fuels which it hopes will slash its carbon emissions.

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Under the plans, Eni said its upstream production growth will average 3.5%/year up to 2025, with subsequent "flexible decline" mainly for oil afterward. Gas production will make up about 60% of total production by 2030 and rise to 85% in 2050, Eni said.

Oil and gas production will plateau at around 2.3 million b/d of oil equivalent in 2025, Eni said, up from around 1.9 million boe/d expected in 2020.

Reporting fourth-quarter and full-year 2019 earnings Friday, Eni said its oil and gas production averaged 1.87 million boe/d last year, up 5% on the year. In the fourth quarter of 2019, oil and natural gas production averaged 1.92 million boe/d.

"The strategy we announce today represents a fundamental step for Eni," CEO Claudio Descalzi said in a statement. "The result will be a portfolio that is more balanced and integrated and will be stronger for its adaptability and competitive shareholder remuneration."

Eni's long-term strategy builds on an existing goal to reach net-zero emissions from its own exploration and production operations by 2030. By 2050, Eni said it now plans an 80% reduction in net Scope 3 carbon

emissions of its energy products sold and a 55% reduction in emissions intensity compared with 2018.

CLIMATE PRESSURE

Eni's ambitious long-term strategy comes on the heels of BP's plan to become a "net-zero" carbon emitter across its business by 2050 as pressure mounts on oil companies to shift to cleaner energy and offset their emissions. Rival Shell plans to cut emissions from its products by 50% by 2050, and Total and Repsol have also net carbon reduction targets.

Key to Eni's net emission cuts will be the progressive expansion of Eni's installed global renewables power capacity to 3 GW by 2023 and more than 55 GW by 2050, mainly in OECD countries, it said.

With investments of Eur2.6 billion over the period, the renewable power push will include gas-fired plants with CO2 capture and storage projects.

Downstream, Eni said it plans a major expansion of its biorefining capacity to over 5 million mt/year, with the conversion of its existing Italian refining sites through new plants for the production of hydrogen, methanol and biomethane from waste materials.

In the long term, the Ruwais refinery in the UAE will be the only traditional refinery in operation, Eni said.

Eni said it plans to grow its retail power and gas activities to a customer base of over 20 million by 2050, with a complete transition to biofuels and renewable products by 2050.

"I think in a few years if you're unable to deliver green products, you're going to lose your customers so that is an essential part of the integration we are able to deliver," Descali said while presenting his plans.

CAPEX SLIDE

As a result of Eni's drive to cut its carbon footprint, the company expects its capital spending to fall over the coming decades, Chief Financial Officer Massimo Mondazzi said.

Last year, Eni's capital investment totaled Eur7.7 billion ($8.4 billion), nearly all of which was focused on the company's upstream oil and gas division

"Some business in which we are entering are less capital intensive so it's reasonable to project a lower amount of capex going forward," Mondazzi said in a strategy presentation.

By 2035, Eni expects that half of its capex will be focused on its upstream division together with associated carbon capture projects with the remaining 50% going to finance renewable energy and other parts of the business, Mondazzi said.

Expected average returns from the new renewables projects, mostly wind and solar, will be in the range of 7%-12%, he said.

Eni, which replaced 117% of production with new oil and reserves last year, said it did not expect to write off any of its existing proven reserves as stranded assets in its shift to cleaner energy.

The company, which has made a string of major gas finds over the last decade, said it expected to produce 85% of its existing 3P reserves by 2035 as a result of its "resilient and flexible" oil and gas assets which have an average $20/b breakeven.

Eni's net proven oil and gas reserves stood at 7.27 billion boe at the end of 2019, representing a reserve life index of 10.6 years at current production.

LOWER CASH BREAKEVEN

In the medium term, Eni said it plans to grow its LNG portfolio through the development of new markets and integration with upstream. Contracted LNG volumes are expected to reach 16 million mt/year by 2025.

Eni said its four-year investment plan on "high-value, short-payback" projects provides for investments of around Eur32 billion by 2023. The investment target, however, includes a "high level of flexibility," Eni said, with around 60% of investments not yet committed in 2022-23.

Assuming a Brent oil price at $60/b, Eni expects its operating cash flow will grow by more than Eur3 billion by 2030 compared with 2019. Part of the boost will come from a $10/b reduction in Eni's breakeven oil price for cash neutrality to $45/b in 2023, it said.

For the fourth quarter of 2019, Eni reported a 62% slide in adjusted net earnings of Eur546 million, missing a Eur680 million market consensus figure for the period on sharply weaker refining and chemical results.