Is Eni Becoming Gazprom's European Twin?

by: Diego Stendardo September 25, 2008 | about stocks: E / OGZPY.PK    

Diego Stendardo

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Italian oil and gas major Eni (E) (30% state-owned golden share) has recently given clear signals it is aiming to become a European sibling to Russia's Gazprom (OGZPY.PK). Actually, some consider the Italian company to be Gazprom's Trojan Horse in Europe. Given the recent developments, this seems to be true. In fact, Eni has concentrated most of its business and acquisitions in the gas sector recently.

Let's review them:

  • November 2006: Eni's Paolo Scaroni and Alexey Miller, Gazprom's CEO, signed in Moscow a strategic agreement for the realization of common projects in the gas industry. Also, Eni has become Gazprom's biggest client, signing a contract for gas supplies to be sold in Italy until 2035.
  • April 2007: Eni wins a $5 billion criticized auction for bankrupt Yukos assets. The group immediately said that it would be handing over the bulk of the interests to Gazprom, in an agreement criticised by Yukos shareholders.
  • Robert Amsterdam, a lawyer representing Mikhail Khodorkovsky, the former Yukos owner, told The Times: "It looks like Eni is acting as a front for Gazprom." Despite the controversy, analysts said that the deal was a significant victory for Eni, which will add more than one billion barrels of oil equivalent to its reserves.
  • June 23, 2007: Eni's CEO, Paolo Scaroni, and Vice-Chairman of Russian Gazprom Alexander Medvedev signed in Rome a memorandum of understanding for the construction of South Stream, a 1000 kilometers (600 miles) long gas pipeline to transport Russian natural gas to Italy.
  • November 30, 2007: Eni buys for $3 billion, UK's Burren Energy plc, which owns assets in Turkmenistan, a former Soviet republic, that has some of the world's largest deposits of natural gas, with proven natural gas reserves of approximately 101 trillion cubic feet.
  • June 2008: Eni buys a 2.5 billion Euro ($3.9 billion) majority stake in Belgian natural gas distributor Distrigaz, thus setting a stronghold in northern Europe.
  • July 2008: Eni has signed contracts for selling 350 million cubic meters of natural gas in Russia beginning June 1, 2008 and ending in 2010. A company statement reports that its Russian subsidiary, Eni Energhia, stipulated the contracts with Tgk9, a company owning power plants in the region of Perm. The contracts make Eni the first European operator to enter the Russian gas downstream.
  • August 30, 2008: Italian PM Silvio Berlusconi and Russian VP Ivanov meet in Libya with Colonel Gheddafi. A $5 billion cooperation agreement is signed between Italy and Libya. Italian companies will build new infrastructures and in return Italy will receive more Libyan oil and gas. (Also read this article.)
  • September 2, 2008: Russian President Medvedev concedes an exclusive interview to Italian television RAI, stating that (unlike other countries) "Italy has maintained its traditionally balanced and reasonable position throughout this conflict, including during the recent European Union summit, and we are grateful to our Italian partners for this." This has upset the US.
  • September 11, 2008: Eni has reached an agreement on acquisition of all share capital of First Calgary Petroleum Ltd, a company headquartered in Calgary in Canada which operates in hydrocarbon exploration and development in Algeria. Note that Algeria is, along with Libya, a main competitor of Russia for the supply of natural gas to Europe.
  • September 22, 2008: Russia's Gazprom and Italy's Eni confirmed they have signed a memorandum of understanding to develop offshore gas for Venezuela's Delta Caribe West LNG Project. Eni and Gazprom have both also signed deals with PDVSA (Venezuelan state owned oil and gas company) to appraise the oil reserves in Venezuela's Orinoco Heavy Oil Belt.
  • September 24, 2008: Eni, which already owns 50%, says it is interested in acquiring the remaining 50% stake in Union Fenosa Gas, a large Spanish company dedicated to the production and distribution to end users of gas and electricity. This gives the company another stronghold, in Western Europe.

The picture looks quite clear to me: Eni is switching its core business from the oil sector, where it faces fierce competition in Europe from Total and RDS, to the gas sector, which is more fragmented and where it can rely on a strong alliance with Gazprom, clearly the number one gas company in the world. It is also rumored that Eni is mulling the spin-off of its oil marketing division and the Agip brand.

Actually it looks as if the Russian giant is behind most of Eni's recent moves, particularly the acquisitions in the gas business in the four corners of Europe and in northern Africa, and I wouldn't be surprised if Gazprom acquires (or discloses) a big stake in the Italian company in the near future.

Disclosure: Long Eni.

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This article has 6 comments:

  •  
    Sep 25 10:22 AM
    The Italians have had a history of industrial co-operation with the Russians going all the way back to the Fiat built Togliati truck and tractor plant that upset Italy's NATO partners in the 70's. So, in some ways, nothing new here.
    My one question is: Can Eni make money off this arrangement and if yes, how much?
    Reply | Link to Comment
  •  
    Sep 25 10:49 AM
    Future Gazprom expansion in NG,LNG,CNG probably will come from its 50% ownership in GAZPROM NEFT..NBB ADR GZPFY.PK.... [as per Putin desires] I have bought in the Russian stock market closure [2 days] & see this as worldplay top marketing company of the future---comments?????
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  •  
    Sep 25 10:58 AM
    Well, Italy has had a poor energy policy in the past 30 years and is largely dependant on foreign oil and gas supplies. Both Eni and Gazprom are partly state owned enterprises, so it's not just money here, but politics as well. Although Italy has been a strong ally of the US for the past 50 years, things are going to change in the future; new superpowers , the BRICs, are beginning to eat into US's supremacy; also the recent financial crisis has made a big dent in the US economy and Bush will soon be gone, while Putin is still there and Berlusconi knows this. Also peak oil is a menace and gas, at least until renewable energies become widely adopted (but my guess is that it will take decades to completely replace hydrocarbons), is the only ready to use alternative to generate power. Nuclear power plants take years to build and Italy won't have a working plant for the next 10 years at least.
    So it's not just a question of money; of course Eni will get its share, i can't quantify how much, too many variables, but the point is that our country's economy has been lagging these past years, and high energy prices an oil dependancy are big obstacles. So Italy is trying to mend all the mistakes it made in the past decades and it is not a coincidence that now Eni it is trying to get hold of oil and gas reserves in risky places like Angola, Venezuela and Libya. Russian gas is too important for Italy and the russians know this so, in exchange for their supplies, they're exploiting this situation buying strategic assets to sell their gas in Europe wearing Eni's mask.
    Reply | Link to Comment
  •  
    Sep 25 02:23 PM
    I'm shocked by the ignorance.

    It is a well known fact that Berlusconi is an FSB agent as revealed by Litvinenko.

    Italy is part of the Eastern Block and a puppet state of Russia.

    Therefore Eni is a subsidiary Gazprom.
    Reply | Link to Comment
  •  
    Sep 25 03:55 PM
    Lalo... I too bought Gazprom (OGZPY) and MTL for the same reasons. I expect the Russian market to be a bit rocky, but both comapnies look good for the log run and seem to be at a bottom... If anyone can call a bottom these days... And Putin's actions seem to have caused most of the deterioration. Medvedev is busy giving photo-ops with MTL right now to boost the market again. We'll see....

    jegan ;-)
    Reply | Link to Comment
  •  
    Sep 26 02:17 AM
    Another update...

    A2A, Iride in gas sales joint venture with Gazprom
    Reuters - 25/09/2008 18:53:56
    MILAN, Sept 25 (Reuters) - Russia's Gazprom has signed a joint venture deal for gas sales on the Italian market with utilities A2A and Iride (IRD.MI), the companies said in a joint statement on Thursday.

    The companies also signed a long-term gas supply contract for an initial volume of 900 million cubic metres per year, which could be increased.

    The contract starts on Oct. 1, 2008 and runs to 2022 and could be extended for another five years. Gazprom will have 50
    percent of the joint venture while A2A and Iride will divide up their half, giving Iride 30 percent of their share and A2A the rest.

    Gazprom will appoint the chairman of the joint venture while the Italian utilities will appoint the managing director.

    Another group of Italian utilities, Sinergie Italiane, was also working on creating a gas sales joint venture with Gazprom before the summer.

    Ascopiave joined Enia and Blugas in the venture along with three small northern Italian utilities and in July they were looking at a venture with Gazprom.

    (Reporting by Jo Winterbottom; editing by Elaine Hardcastle)
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