State-owned oil and gas firms that face deregulation, privatization, and other changes at home continue to diversify their asset portfolios internationally.
In the case of Italy's ENI SPA, it is the pressure of a rapidly deregulating energy sector in Europe that spurs such diversification.
But other state companies, such as Algeria's Sonatrach, feel a growing pressure to better emulate the financial performance of their publicly traded brethren and thus are encouraged to also emulate the latter's business strategies.
ENI looks abroad
A gas deregulation decree will require ENI to grant other companies access to its natural gas pipeline network, which accounts for 99% of Italy's gas grid. In anticipation of the order, ENI has already done a great deal of international diversification.
In a parliamentary hearing in Rome earlier this month, ENI Chief Executive Officer Vittorio Mincato said, "ENI will reduce progressively its market share in Italy, immediately by 25%, and up to 40% by 2010."
The ENI network will be managed by a new independent company, open to other entrants. The value of the operation is estimated at 10 billion euros.
But ENI has already made significant investments outside Italy. The most recent international projects include investment in the Blue Stream pipeline project, which will transport gas from Russia to Turkey (OGJ, Apr. 17, 2000, p. 42); and the acquisition of a third of the equity of Portuguese energy holding company Galp Petroleos e Gas de Portugal (OGJ Online, July 14, 2000). Also, ENI signed a gas and electricity cooperation agreement with Spanish company Iberdrola SA Oct. 5, and on Oct. 19, it signed agreements with several companies to study linking the Yamal-Europe Pipeline with Slovakia.
Meanwhile, in Italy, ENI is selling shares of its earlier "take-or-pay" contracts.
"The project to sell to Italian operators the Libyan gas in which ENI has invested $5 billion is almost over now," Mincato said. "We have sold 6 billion cu m (bcm) and we are negotiating the last 2 bcm."
And ENI confirms that it is still eyeing some of the big power generation plants for purchase that are due to come up for sale next year from former Italian electricity monopolist ENEL SPA. ENI aims at increasing its own power generation capacities with gas-fired combined cycle generation "as a way of selling the gas that we own and that we are not allowed anymore to put on the market," Mincato said.
Under the Iberdrola agreement, the Spanish utility will buy 10% of ENI's EniPower power generation subsidiary, thus getting reinforcements for its future Italian operations in the power generation sector.
ENI will also find an outlet for its surplus gas in Spain by selling gas to Iberdrola power stations. Moreover, ENI is buying 49% of Iberdrola Gas, a marketing and trading company, that aims at supplying 15-20% of the Iberian market. ENI will later decrease its share of Iberdrola Gas to make room for Portugal's Galp PGP.
Through its agreement in July, ENI became the second biggest shareholder of Galp PGP (33.4%), after the state of Portugal (34.81%). Iberdrola, which is due to merge with Spain's Endesa SA, holds a 4% stake in Galp PGP.
"Iberdrola is a partner with more experience than us in power generation, and it will help us in increasing the power generation capacity of EniPower, from the present 1,000 Mw to 5,000-7,000 Mw in 2005," ENI's Chairman Gian Maria Gros Pietro said in Madrid, adding that his company "is now very close to reaching its target of selling 10 bcm of gas per year outside Italy."
The cooperation with Iberdrola will allow ENI to develop joint ventures in Europe and South America. In Spain, ENI will supply Iberdrola-through its Snam subsidiary-1.5 bcm/year of gas for 15 years, starting in 2002. Gas will be supplied to the Castellon and Castejon combined-cycle power stations in Spain.
According to the Italian financial press, ENI is also looking to beef up its operations in other European markets.
When asked in early October about future agreements with the German group Eon, Gros Pietro said, "The German market is important but difficult to enter. We are interested in industrial agreements with suitable partners; I can't say more."
According to sources within the company, ENI is in touch with five European groups, including Belgium's Tractebel SA.
Abdelhak Bouhafs, general manager for Algeria's Sonatrach, disclosed that the firm is discussing an association in two gas fields in the Gulf of Mexico with Anadarko Petroleum Corp., Houston.
Bouhafs revealed that Sonatrach also is discussing a joint-venture project with two South African companies to develop gas fields in Angola. For that scheme, he said, Sonatrach is suggesting the export of gas in the form of LNG, to get around transportation difficulties.
Bouhafs also said Sonatrach had submitted a joint offer with an Indian firm for exploration on two blocks in Iraq. Iraqi authorities expressed a willingness to quickly conclude the contracts related to the exploration of these blocks, he said, and also regarding the development of a field already identified.
In addition, Sonatrach, France's Entrepose SA, and the international group Consolidated Contractors Co. have qualified to tender for a pipeline project in Oman, Bouhafs said.