ENI has placed Africa at the heart of its energy transition strategy

By Valentin Grille

Posted on Monday, 16 May 2022 12:20
Côte d'Ivoire’s President Alassane Ouattara and ENI CEO Claudio Descalzi during a press conference on 10 December 2021 at the presidential palace in Abidjan. © Sia KAMBOU / AFP

The Italian oil and gas major ENI, which has a unique network and over 60 years of experience in Africa, is placing the continent at the heart of its energy transition strategy.

Claudio Descalzi met with many people in April, including President Abdel Fattah al-Sissi in Cairo, Bruno Itoua, the Congolese Minister of hydrocarbons, in Brazzaville, and Toufik Hakkar, the CEO of Sonatrach, in Algiers. As a matter of fact, ENI’s chairman and CEO have signed many contracts, always under the watchful eye of either Italy’s prime minister Mario Draghi, or Luigi Di Maio, the foreign affairs minister.

The 30%-state-owned Italian oil and gas company has assumed its role as an agent of the country’s energy sovereignty, at a time when Russian gas is expected to come to an end. Before the Ukraine offensive, Russian gas represented 45% of Rome’s gas imports.

“The current situation means that ENI must contribute to meeting Italian and European gas needs,” says Francis Perrin, director of research at IRIS. “Relations with African countries have taken a particular turn in the current situation. This is a good thing for ENI, which is counting on the contacts previously established with producer countries.”

Congo-Brazzaville, Mozambique, Egypt…precious African gas

In fact, this tour is perfectly in line with the strategy of the group, which wants to capitalise on African gas to ensure its own energy transition. On 18 March, ENI published new targets for reducing its carbon footprint. Its aim is to lower its CO2 emissions by 35% by 2030 and become carbon neutral by 2050. This tight turnaround should allow it to develop natural gas (LNG) to the detriment of oil, as it is expected to represent 60% of energy production by 2030 and 90% by 2040, according to the Italian energy company’s estimates.

ENI says it has 14 trillion cubic feet (14 TCF) of gas reserves to unlock in the short term, and 50 trillion (50 TCF) of reserves to exploit over a longer period. “ENI has many gas options. The Congo LNG project is an interesting one,” says Wood Mackenzie’s Greig Aitken. North Africa will also be there in the short term, while Mozambique will take over later.”

Egypt, where ENI produces 65% of its local gas (360,000 barrels equivalent per day), with its Zohr, Baltim SW and Nooros fields, is currently leading the way. Algeria followed with 5.22 billion cubic metres in 2020. In Mozambique, significant discoveries at the offshore Rovuma Coral project are expected to increase LNG production to 7.6 million tonnes per year when it goes into production.

In Brazzaville, the liquefaction terminal, which is due to be delivered in 2023, will produce 4.5 billion cubic metres per year. The project is of twofold interest: “Gas in Congo was historically associated with oil production,” says Aitken, “but gas can no longer be flared, so it has had to be stored until now. In the short term, with LNG, ENI will be able to produce more oil because it will no longer have to manage gas storage.”

Being more agile in black gold

Although oil production must be reduced, the transalpine major has not given up on renewing its portfolio of African oil fields. The discovery of Baleine – in Côte d’Ivoire, where it plans to invest $1bn in developing the field, which is rich in at least 1.5 billion barrels of oil and associated gas, from 2024 onwards – is proof of this. As is the more modest Zemlet El Arbi field (140 million barrels of crude oil), which was detected with Sonatrach.

“Bringing new fields into production is not in contradiction with an energy transition,” says Perrin. “Some fields are declining, others will stop. New ones will come on stream, but that does not mean that overall production will increase. The key is timing. ENI is banking on fields that are easy to operate, and close to existing infrastructure. “Exploration activities will focus on the lowest risk opportunities,” the oil company told us. “90% of them are located in basins that are already known, or in areas where we have solid geological knowledge.”

Another method of optimising black gold production is to launch specific subsidiaries. For instance, in Angola, ENI joined forces with BP in March to create a joint venture called Azule Energy. “By combining our portfolios, we expect 15% savings due to improved operational efficiency and optimised supply,” she says. The main point is that Azule will be able to raise third-party funds and finance its oil production at no cost to its two shareholders.

In the green sector, Africa is limited to land

The African continent will therefore be crucial in the process of transitioning to gas that the major has undertaken. But this importance is less obvious for the second part of its transition strategy: renewable energies. In 2025, 30% of investments will go to “new energies” (wind, solar, hydrogen, biorefinery). This figure will rise to 60% in 2030 and 80% in 2040. Like TotalEnergies, ENI has created a subsidiary dedicated to green energy called Plenitude. However, the company admits that it will remain confined to the more mature European markets.

“Plenitude is focused on countries where we can combine power generation with sales to end customers,” says the company. This model is not currently applicable to most African countries, where sales are managed by national companies. Therefore, it is possible that some of Italy’s investment will be leaked to African jurisdictions, at least in the short term.

“Africa will be an obvious growth market in the long term. ENI will need to produce 15 GW by the end of the decade and will need to do so for new markets,” says Aitken. Competition, which is already fierce in the UK and US, should lead the company to consider opportunities in Africa. For the time being, the continent’s potential is concentrated in the biofuels sector.

“Africa has significant potential in biomass, as well as in fossils,” says Perrin. Since ENI favours solar, wind and biomass, it is only logical that the latter should be an essential part of its strategy, given its positioning in Africa. The group, which has signed agreements in Angola, Algeria, Benin, Congo-Brazzaville, Côte d’Ivoire, Kenya and Mozambique to produce biofuels, notably from castor oil, is developing a biorefinery in Mombasa, a prototype for the future conversion of part of its upstream oil infrastructure. And it wants 35% of the biorefineries’ raw material needs to be covered by 2025. Although ENI has great ambitions, there is no doubt that the continent’s very high potential will enable it to achieve them. This will further strengthen the Italian major and Africa’s relationship.

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