In light of our upcoming European Autumn Gas Conference in The Hague, we asked Maria Rita Galli, SVP Portfolio strategy at ENI for her thoughts on how to ensure prosperity in times of lower oil prices and whether energy security in Europe will be achieved through regulatory action or market forces.
Gastech News: How can gas players ensure their future prosperity in times of lower oil prices?
Maria Rita Galli: In today’s gas industry, it is fundamental for gas players to have the ability to choose projects that enable higher efficiency. It’s important, in particular when it comes to the upstream side, to look for initiatives that are characterized by the possibility of bringing the reserves to production in a very short time frame, at controlled costs.
So, for ENI for instance, the decision has been to focus on exploration, not only on super giant fields but also in near fields that are close to our existing operations, to be able to bring the new reserves into production within a very short amount of time and maximize the synergies with the existing infrastructure. This, on the upstream side, helps to ensure the control of the cost, and to mitigate the risk associated with the volatility of prices and low price scenarios. When it comes to mid-stream players, they are more interested in margins. It’s normal that in low energy scenarios and low price scenarios, margins tend to squeeze, so again efficiencies, cost control, the ability to select operations in the most rational manner and try to cut those businesses that are not necessary to the core of the company are crucial.
The downstream market is probably less impacted by the absolute level of the prices because it’s more regulated, therefore, part of the general concept of efficiency and cost control is in a way less impacted. Then there are of course the opportunities, and the opportunities in lower energy scenarios are those given by the chance of promoting even more the use of gas in the end user sectors, given the attractive level of the cost for consumers. So, it’s important for gas players to think about promoting the development of demand, and taking advantage of a disadvantage by turning low prices in opportunities for higher demand and stabilizing the market for recoveries, and in particular secure an outlet for new discoveries.
Gastech News: Will energy security in Europe be achieved through regulatory action or market forces?
Maria Rita Galli: I would say necessarily all of them. We cannot simply think that the security of supply can be managed only through regulatory actions, because regulatory actions cannot overcome the fact that market forces need to ensure that all the players have an economic incentive to bring new gas resources or to commit to buying new gas resources for the market. Otherwise, no one can be obliged by regulation, and certainly it is important to announce the proper functioning of those market forces, because in a way what we are assisting at is this liberalization process and the sometimes negative consequences that many players suffered associated with the liberalization process.
The interest in committing new long-term supply contracts by the market players is very low. It’s very low because the risk is high. What remains on the shoulders of the mid-streamers is huge. Of course, integrated companies are better placed because they have a stronger incentive to place their resources. So, the regulatory environment is also necessary to rebalance these situations because otherwise more and more people will tend to rely on the availability of gas and the existence of liquidity, which in reality is not a give: it’s just a consequence of the players ensuring through supply and long term contracts, that the market has sufficient resources and liquidity. So, the two need to co-exist.
Join the Conversation: Do you agree with Maria? Will energy security be achieved through regulatory action or market forces? Share your comments below.
Maria Rita Galli, SVP Portfolio strategy at ENI, is a member of the European Autumn Gas Conference Executive Advisory Board. This year’s conference theme is “Beyond COP-21: Rethinking European Gas without the Global Energy Mix”. Find out more about the 2016 EAGC Conference in The Hague, 15-17 November 2016.
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