Unity Through Gas Pipelines

A little over a month after Libya’s National Transitional Council had taken control of the eastern part of the country, Paolo Scaroni, chief executive of Italian energy company Eni SpA, boarded a helicopter from a carrier anchored in the Mediterranean Sea. His destination was the port city of Benghazi, where a meeting had been arranged with forces fighting Libyan dictator Moammar Gadhafi.

“It was a fairly risky situation,” he recalls. “But I was very well protected by the Italian navy. At that time the NTC had been created only a couple of weeks before and it was pretty early on, people were still thinking Gadhafi might win.”

The visit was important. Not only is Eni one of Europe’s largest oil companies by market value, it is also the largest foreign producer in Libya of both oil and gas.

The meeting, Mr. Scaroni says, was an opportunity to get in touch with the putative new leadership of the country and assure a good relationship.

“Halting production was unthinkable,” he says. “Our presence in Libya goes back long before Gadhafi but we have established a good relationship with the NTC, which goes on today.” Even so, the conflict reduced production, hitting profit. Adjusted fourth-quarter net profit for the year fell 9.5% to €1.54 billion ($2 billion) partly due to the fall in Libyan output. Eni doesn’t disclose exactly how much of its business is accounted for by its operations in Libya.

But Mr. Scaroni doesn’t appear ruffled. Eni has experience of working with difficult regimes, such as Iran, he says. Moreover, production, he says, is now almost back to pre-revolutionary levels. “Gas is where we were and oil will take a few more months,” he says.

Easygoing and candid is Mr. Scaroni’s style.

When we meet, not far from Eni’s Central London offices, it is a few weeks before he is to fly to Houston to deliver the keynote address at IHS Cambridge Energy Research Associates’ annual CERA Week conference, a sort of Davos for the energy world.

The speech is an opportunity for him to talk about the future of the gas market. In February, Eni announced a giant gas discovery off the coast of Mozambique, which he says will involve an investment by Eni of upward of $50 billion in the next eight to 10 years that will transform it into a reliable energy producer for the Asian market.

 

But he argues the investment decisions he has to take for the Mozambique operations are made more difficult by the fact that there is no single price for extracted gas.

 

“The exact same molecule of gas is sold for less than $3 per million British Thermal Units in the U.S.; €10 per mbtu in Europe and around $15 per mbtu in the Far East,” he says. “The question everyone is asking is when and at what level will these prices converge? This is not just an intellectual question; for people like us [Eni] we have to make investment decisions worth tens of billions of dollars, so we need to know what the gas price will be 10 years from now. It is crucial.”

He believes the answer is that the price will even out over time, through a combination of geographical arbitrage and price-driven demand.

Central to this will be the outcome of the shale gas revolution, the energy supply based on the ability to extract natural gas from shale rock. Hailed as a possible solution to the West’s energy problems, it has also been touted as a supply that could make the U.S. energy-independent by 2030. Mr. Scaroni argues that if the price of gas remains so low, compared with oil, then it isn’t hard to see an incentive for investing in fuel switching.

 

“At the moment, transportation is primarily fueled by oil, while heating and energy is based on gas, but shale could change that.” He adds the caveat that while the potential is undoubtedly strong, particularly in the U.S., elsewhere the picture isn’t as clear.

“In the U.S., property ownership includes the rights as to what lies beneath the ground,” he says. “This isn’t the case in the rest of the world where the government owns what is below, so the incentive for extraction isn’t as high unless you own what is underneath.”

Big-picture themes are what Mr. Scaroni is good at. Naturally outspoken and speaker of four different languages, speeches, articles and conferences are his forte. Unlike many chief executives, he isn’t afraid of chatting off-piste, so our conversation drifts from the crisis in the euro to the decline of the British Empire and the lessons it could have learned from the Roman Empire.

It comes as no surprise that he has addressed the European Parliament on the theme of energy policy and why he believes Europe should have an integrated, linked gas-distribution network.

“Each European country, with the exception of the U.K., in the last 40 years has developed a network to import gas but we cannot move gas from country to country.”

He explains that if Europe were to integrate its pipelines the results would be spectacular, freeing the movement of gas from Western to Eastern Europe and reducing dependency on imports from Russia.

“From the point of view of security of supply we could pass a winter without Russian gas,” he says. “Think how politically relevant it could be. It is much more important than [the] Nabucco” gas pipeline linking Asia to Europe.

 

Listening to him speak on energy policy, one might assume he had spent his working life in the industry. Not so. He spent six years at U.K.-based glass-company Pilkington, where he restructured the company, taking out £300 million of costs and doubling pretax profit. In the summer of 2002 he left Pilkington after a call by Italian Prime Minister Silvio Berlusconi inviting him to take over power company Enel SpA. His diverse career continued with a stint as chairman of Alliance UniChem, where he oversaw the merger with British retailer Boots. And today he holds a number of nonexecutive positions, including deputy chairman of the London Stock Exchange.

With such a broad résumé are there commonalities to be found in running different businesses? He points to Xavier de Villepin, father of former French Prime Minister Dominique de Villepin, who mentored him at the beginning of his career, at French glass maker Saint-Gobain.

It was Mr. de Villepin who gave him his first position as a boss and taught him the principle of motivation. “He [Mr. de Villepin] said to me everyone who goes into your office should come out more motivated than when they went in.”

Mr. Scaroni says he pays a lot of attention to tailoring the general concept of motivation within each organization he works for. There are many different ways, but by far the most important is to set out the strategic direction of the company and explain how everyone can contribute to those goals.

“I often say if I can get the doorman of our office in Angola to think that he gives a small contribution to reaching our global goals then I shall have success.”

He’ll be in 66 in November but says he has no plans for retirement. “I once wrote that I would never retire,” he says. “That was when I was 56. I might change my job but to retire to the country, like they do in Britain, this is not exactly what I am planning to do.”

(Source: Wall Street Journal)

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