Eni looking to expand U.S. energy trading

LONDON Thu Nov 7, 2013 7:37am EST

The logo of oil company Eni is pictured at its San Donato Milanese headquarters near Milan February 5, 2013. REUTERS/Stefano Rellandini

The logo of oil company Eni is pictured at its San Donato Milanese headquarters near Milan February 5, 2013.

Credit: Reuters/Stefano Rellandini

LONDON (Reuters) - Italian oil major Eni (ENI.MI) is looking to expand its trading operations in the United States and will study assets currently offered for sale by rivals, a senior executive said.

"As to the United States, I think we are subscale there," Senior Executive Vice-president Marco Alvera, who oversees trading operations, told the Reuters Global Commodities Summit.

"Our Houston office is performing well, it's mainly there to sell the equity oil and gas we produce. It has the potential to develop into more of a regional office to support our activities in South America," he said.

Eni is one of the largest buyers of gas in Europe and with output of 1.7 million barrels per day is bigger than U.S. oil major ConocoPhillips (COP.N) although its output has traditionally been more focused on Africa and the Middle East.

Several trading assets have been offered for sale over the past year in the United States, including by Wall Street bank JPMorgan Chase & Co. (JPM.N), which is looking to exit the commodities business due to tighter regulations. Hess (HES.N) is also selling out of trading unit Hetco.

Alvera declined to comment on specific assets and acquisition targets.

"I think it's our duty to at least look at those books," he said. Trading house Gunvor told the Reuters Summit this week it is looking at JPMorgan's business.

"I think to be a global player, which is our ambition, growth in North America is going to be a big part of our future, starting from a small base. I would not exclude right now any growth, which is not only hiring people, but also buying into some positions," said Alvera.

WINNING BUSINESS BACK

Alvera, who began his career at Goldman Sachs (GS.N) in the 1990s, said that as part of its expansion strategy Eni's trading division wanted to rival banks in some of their traditional commodities trading activities, such as hedging.

"As the market becomes more liquid, especially on natural gas and power, as it becomes more sophisticated in developing specific hedging expertise and volatility trading expertise, the first step is to regain control of our flows," he said.

"This is a very profitable business because not only you save on fees and commissions, but also because you make some interesting money if you monetize this properly."

Eni is the largest gas buyer from Russia, Libya, Norway and Algeria and hedges those activities through fuel oil and crude oil as gas is indexed to those fuels in long-term contracts.

"Typically we would go in the market and just hedge through a third party ...What we do now is that we execute in the market directly without offloading it to a bank," Alvera said.

He said the second step would be to take this activity to Eni's existing customers.

"I would not say we will go to third party customers and offer hedging solutions. But if we have a customer who is already buying a commodity from us, we may as well build the commodity contract in a way that will effectively offer him a hedge or a contract that is more similar to what he needs industrially."

He said that would increasingly become a norm in Italy and southern Europe where gas and power markets were becoming more liquid: "Before some of these guys would just buy the commodity from us and then go to a bank to do their hedging".

PRICE AND REFINING WEAKNESS

Alvera said he believed global oil prices could drop sharply if output from Iraq, Libya or Iran was to return to the already well-supplied market.

"We have seen that when Brent drops, it drops quite rapidly... I think 2014 is going to be a very interesting year because a lot of situations could result in more production. And this is production that's very easy to bring on line from an industrial perspective."

He also said he expected more refineries in Europe to close down: "I think the future is very bleak. There will be huge products flows coming from the Middle East, Asia and certain products from the U.S., as well."

"Not only a lot of European refineries are subscale, they also have to cope with higher costs of electricity and natural gas to function. The good news is that capacity is coming off."

(For other news from Reuters Global Commodities Summit, click here)

(Follow Reuters Summits on Twitter @Reuters_Summits; Additional reporting by Peg Mackey, Alex Lawler, Dmitry Zhdannikov, Christopher Johnson, Simon Falush, Claire Milhench, Ron Bousso; writing by Dmitry Zhdannikov; editing by Jason Neely)