LNG: a cornerstone of the evolving energy landscape and Eni’s role in it

LNG has ascended to a pivotal role in the global energy mix. Its ability to be transported across vast distances has made it a crucial tool in addressing supply-demand imbalances and geopolitical complexities. The recent energy crisis, exacerbated by underinvestment in upstream, post-pandemic recovery, and reduced Russian gas supplies to Europe, underscored LNG’s strategic importance.

Nowadays major trends are shaping the LNG market.

Firstly, global gas demand will continue to rise as there remains significant opportunity for gas to increase its share in the energy mix in emerging economies, due to: the necessity to curb carbon emissions and reduce environmental smog of more polluting fuels, on the one hand; and as a fundamental support to the energy transition, due to its ability to complement renewable sources to mitigate their intrinsic uncertainty and as a source of energy access security.

Global LNG demand is also increasing on the necessity to diversify gas supply sources to consuming markets and mitigate geopolitical implications of pipelines. Floating liquefaction and regasification technologies are enabling new countries to play a role in the global energy market. The availability of volumes on a FOB basis, in particular from the US, provides an alternative to the fixed destination model that was the preference of traditional producing countries. Lastly, the price signals are getting more liquid across the forward curve, allowing for more risk management activities by market participants.

Nevertheless, we also have to recognize and address the challenges that the LNG industry is facing.

While it has demonstrated resilience in weathering recent shocks, the industry faces the dual challenge of securing long-term investments to meet growing demand while offering buyers the flexibility to continuously adapt to the evolving energy landscape which is driven by consumer behavior and government policies. The growing emphasis on decarbonization is driving demand for LNG as a transitional fuel, but the speed and length of the transition are hard to predict thus creating uncertainties on the long-term prospect with a detrimental effect on the choices of investments with long term cycles.

In addition, being at the center of the global energy balance, the LNG market will be very volatile because not only is it affected by the typical cyclical pattern of a capital-intensive business, but also it imports volatility from behavior of other energy commodities, like the intermittency of renewable generation, and from weather-related patterns, such as heating and cooling demand.

As a consequence, if it’s true that in the short term the LNG market has proven capable of delivering the needed price signal to balance the market and allocate resources efficiently, in the medium/long term the uncertainty will continue to influence buyers and sellers alike, and flexibility in contracts will become more central along with the role of portfolio players in dealing with limited price signals on which to trust.

In such a framework, the management of volume and price risk is therefore the key issue. The industry has three ways to address this issue: by integrating along the full value chain, from production to consumption; by developing a diversified portfolio of sources; and by increasing size and consolidating market shares. These trends will help sellers to provide needed flexibility to buyers while mitigating the overall marketing risk.

Eni is adopting these three levers to consolidate its position in the LNG market. Our approach focuses on diversifying sources and suppliers. We are doing this by integrating along the value chain, by leveraging the strong relationships we have with producing countries and by diversifying the asset base and pursuing portfolio growth opportunities where synergic.

As a result of this approach and leveraging our upstream strengths - building on our exploration success such as in Indonesia and Mozambique, fast-tracking new developments - we aim to increase our LNG portfolio to more than 18 MTPA of contracted supply by 2027.

Furthermore, we seek to extract additional value from the LNG portfolio by exploiting the synergies with the gas business in Europe, which is still our anchor market, allowing the possibility to arbitrage between LNG and pipe and diverting gas and LNG in premium markets.