Italy ENI's interest waning in oil sands, CEO says

By Muralikumar Anantharaman

CAMBRIDGE, Mass., Feb 26 (Reuters) - Italian energy company Eni's (ENI.MI) enthusiasm for the Canadian oil sands sector is waning, its chief executive said on Tuesday, citing high costs and environmental concerns.

"While a year ago, we would have told you that we are looking deeply into it, now we are somewhat cooling off," Paolo Scaroni told reporters after Eni entered into a research agreement with the Massachusetts Institute of Technology in Cambridge, Massachusetts.

Canada's oil sands are the richest petroleum deposits outside the Middle East and the target of more than $100 billion of investment, stretching Canada's labor supply thin and leading to multibillion-dollar cost overruns and delays.

"It's quite expensive, the production of a barrel of oil from oil sands. We are talking of prices which might reach $50 to $55 a barrel," he said.

In comparison, the average oil production cost in the United States was $6.83 barrel in 2006, according to the U.S. Energy Information Administration.

Unlike conventional oil, oil sands are deposits of bitumen, a heavy, viscous oil that must be converted into an upgraded crude oil before refineries can use it. They are mined or recovered by injecting steam into the ground.

Large volumes of natural gas are used to separate oil from sand, contributing to emissions blamed for causing climate change. Nuclear power has been proposed as an alternative.

"We see other issues, environmental issues, potentially there: the fact that gas is a scarce resource and this is a process which needs large quantities of gas," Scaroni added.

Eni is Europe's fifth-biggest integrated oil and gas firm by market value and its stance on oil sands contrasts with that of some other energy firms.

In January, India's biggest oil producer, Oil & Natural Gas Corp (ONGC.BO), said buying Canadian oil sands assets was a key objective and it was in talks with several firms about buying stakes for more than $1 billion.

Environmentalists are also taking aim at the massive oil sands in Canada's Alberta province. Canadian green group Environmental Defence said in a report this month that the oil sands are "the most destructive project on earth" and called on the federal government to intervene to clean up the mess.

When asked if he expected to be reelected as chief executive in April, Scaroni said: "I expect, yes. I'm not really focusing very much on this issue for the time being because it's totally outside my control." (Editing by Brian Moss and Jason Szep)