Competition rules force ENI to diversify internationally

A gas deregulation decree will require ENI SPA to grant other companies access to its gas pipeline network, which amounts to 99% of the Italian network. In anticipation of the order, ENI has already done a great deal of diversification, and will greatly decrease its market share in Italy.


A gas deregulation decree will require ENI SPA to grant other companies access to its gas pipeline network, which amounts to 99% of the Italian network. In anticipation of the order, ENI has already done a great deal of diversification.

In a parliamentary hearing in Rome Oct. 13,Vittorio Mincato, CEO of Italian company ENI SPA, said: "ENI will reduce progressively its market share in Italy, immediately by 25%, and up to 40% by 2010."

The network will be managed by a new independent company, open to new entrants. The value of the operation is estimated at 10 billion euros.

While reducing its investments in Italy, ENI plans to expand abroad, Mincato said.

Indeed, ENI has already done so. Recent significant projects include the Blue Stream Pipeline, which will transport gas from Russia to Turkey, and the acquisition of a third of the equity of Portuguese energy company Galp Petroleos e Gas de Portugal (OGJ Online, July 14, 2000). It 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 during the hearing in Rome. "We have sold 6 billion cu m (bcm) and we are negotiating the last 2 bcm."

ENI confirms it is still interested in buying some of the big power generation plants that Enel SPA, the ex-Italian monopolist for electricity, should sell next year. Meanwhile, it 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 gas surpluses in Spain by selling gas to Iberdrola power stations. Moreover, ENI is buying 49% of Iberdrola Gas, a marketing and trading company, which aims at supplying 15-20% of the Iberian market. ENI will later decrease its share of Iberdrola Gas to make room for Portuguese GALP.

The Iberdrola agreement follows ENI's July agreements when it became the second biggest shareholder of Portuguese GALP (33.4%), after the State of Portugal (34.81%). Iberdrola, which earlier this week said it agreed to merge with Spain's Endesa SA, itself has a 4% stake in GALP. Thus a Mediterranean alliance seems to emerge both in the natural gas and electricity sectors.

"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 reach 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. Methane 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 about future agreements with the German group Eon, Gros Pietro Oct. 5: "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 company sources, ENI is in touch with five European groups including Belgian Tractebel SA.

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