Eni CEO Claudio Descalzi on the High-Stakes Race to Meet Energy Demand without Russian Gas
[MUSIC PLAYING] ADI IGNATIUS: Hi, I'm Adi Ignatius, the editor-in-chief of Harvard Business Review and this is HBR's is The New World of Work. Every week on the show, I talk to a business leader about challenges that they're facing in the global workplace. We try to make this interactive. So when the show gets underway if you have questions for our guest, please put them into the chat.
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You can find it wherever you get your podcasts. And if you like this content, you'll like this as well, conversations with business thinkers, with business leaders about how to solve problems in the workplace. All right, so my guest today is Claudio Descalzi who is the CEO of the Italian energy giant Eni.
He'll be joining us from Milan. Claudio joined the company way back in 1981 as an oil and gas field engineer. And over the years, he's developed a truly global perspective on the business, having served as director of the company's Congo and Nigeria operations and as executive vice president for Africa, Middle East, and China. He became Eni's CEO in 2014.
Welcome, Claudio. CLAUDIO DESCALZI: Thank you. Good morning-- good afternoon for me, yes. ADI IGNATIUS: Yeah, well, yes, good afternoon for both of us. So I want to jump right in and I want to start with Russia's invasion of Ukraine. We've all watched with horror on a personal level.
But, obviously, this has profound impact on European energy markets. And I'd like, let's start with what you're seeing in terms of the impact on Europe now. You know, we're over a year into this thing. - Yes, I think that the war, the war now and before and after also the pandemic, we can say that it was a very, a wake-up call for the world, but especially for Europe. Because we discovered that the gas demand, and also hydrocarbons in general, but mainly all the gas is elastic.
It's already at the same level. We can say that in the last 20 years, we have always the same kind of level of gas demand in Europe, in Italy. And that is a different-- we had before a different vision. Because we thought about renewables and other vectors that can replace and reduce the gas consumption. At the end is not like that.
So a wake-up call, that means that we have to continue to supply gas. We have to invest in infrastructure. And, especially, we have to accelerate the transitions and with a larger spread of energy vectors. So that was quite important and clearly create big impacts. I talk about gas price, electricity price, price of gasoline.
And when 150, 170 billion cubic meter, I talk about the gas-- the Russian gas practically disappear in a few months, it's not an easy task to replace it. ADI IGNATIUS: Yeah, no, I can't imagine. Quickly, if you just joined us, I'm speaking with Eni CEO Claudio Descalzi. If you have questions for Claudio, please put them into the chat. We'll try to get to them later. All right, so let's talk specifically.
I mean, you talked about, there are a number of responses to this. And one is to diversify away from carbon. But another is replacing supply in the short term.
And talk about how Eni has responded. You know, why don't we start in the short term to try to acquire, develop, whatever it is, oil and gas to make up for the shortfall. CLAUDIO DESCALZI: So what happened last year after the war, we started immediately working in the country where we already worked. So we did what we had been done for years to invest in gas, invest in the gas development, and work with our hosting country to be able to replace Russian gas.
Big effort, we work with the government. We work with our national partners. They talk about the national companies. And in nine months, eight months, we have been able to finalize a lot of contracts.
And the first target was to replace at least 50% of the Russian gas in this-- for this winter and fill our storage facility. And that was successful in terms of filling the storage facility and also replacing 50% of the Russian gas. And the second point is to replace 80% of the Russian gas for the winter '23-'24 and 100% by '24-'25. So in 2 and 1/2 years to be able to replace all the gas and gas to Italy that was enough for Italy, clearly, where we have all our main operation in the downstream.
So our retail, all the gas and power, so all our clients where we have the B2C and B2B contracts. And that was a very, I think, successful try. We have been successful. And so now we have to continue to invest to replace it, but, at the same time, also to invest on other energy sources as we did in the past. ADI IGNATIUS: So 100% replacing them by 2024, I think you said. So what does that mean in terms of future diversification of supply? I mean, are you are you foreseeing a world where Italy, say, simply will not be buying Russian oil and gas maybe ever? CLAUDIO DESCALZI: I think so.
That is our assumption. Because clearly now, we are going we are signing and finalizing contracts in the country where we invested. So it's not easy to go and, you know, in a very short time to have this quantity of gas that happened because we continue to invest in these countries.
So we are ready, already invested in a diversification of our sources. I talk about North Africa, I talk about sub-Saharan Africa, and also Asia. But, clearly, for Europe, it's mainly Africa and North Africa and some Middle East.
So that is something that's, the diversification, I think, is one of the most important things, diversification for gas, geographical diversification. But I want to stress, again, that we are in the middle of a big transformation and transition. So we have also to diversify very rapidly all the different kind of technology and energy sources to be able not to rely only on gas, and add more sources, not just gas. I think that is essential. It's crucial and critical for the future.
ADI IGNATIUS: Yeah, so I want to come to non-carbon sources of energy in a second. But I just, I kind of want to finish this part. Because I've seen reports of you basically traveling around the world doing kind of energy diplomacy to try to solve this problem short-term and maybe long-term. And it's a theme that's come up on the show a lot, which is given the complex nature of the world and the breakdown maybe of cold world certainties, that you almost need to be informed by your own sense of the world, your own foreign policy, and then react accordingly.
So can you talk a little bit about how you've had to function as an energy diplomat or a globetrotting oil trader or whatever it is? I mean, it's been profound. Could you talk a little bit about that? CLAUDIO DESCALZI: Yes, I am. I don't talk about diplomacy because that is my job. I'm working in the energy sector. So I did what I know to do.
So I travel. Clearly, I intensified and I travel much more than before because I travel at least-- I visited each country, each country at least four or five times in the last nine months. I went there because, clearly, we invest-- we, as [INAUDIBLE] we invest more in the domestic market. So where we discover, we produce gas, we sell, and we sell to the country for domestic utilization. Clearly, we have additional gas.
We started from North Africa because Italy is connected through [INAUDIBLE] with Algeria and Libya. So we work a lot with Algeria to increase investment, increase production, and finalize contracts to send this gas in a fast track. Because we increase in filling wells. We increase activities. And they were, I think, our hosting country were really very, very good in that they understood the situation because of the very good relationship that we have with them. They help us a lot.
Algeria helped us really a lot. And we have been able very quickly to add more than 5-6 billion cubic meters per year to send to Italy through [INAUDIBLE].. That is very easy because we have already [INAUDIBLE] with a lot of spare capacity. In spite of the situation in Libya, we tried to increase production also in Libya. And then Egypt is close to Italy. We have a lot-- we discovered lots of gas.
So we finalized contract. In this case, it's LNG. So we have been able to saturate all the LNG facilities we have in Italy.
And then we work with other countries like Congo, Angola, Nigeria, Mozambique. And in Congo, we immediately we reacted very quickly. And we sanctioned two project, LNG projects that the first start in a record time less than 17 months. So by the end of 2023, we can start the first production. And then we have the second phase by the end of '24. LNG as well, Angola.
So all these missions, all these missions to these countries was to not just buy gas-- because you cannot go and say to African countries, knock on the door and say, I need gas. It's different. You have to invest. You have to invest in exploration that what we did, very successful, successful action in the past. And then you have to develop, put investment for developing. And then you can ask if we can share this gas.
So that was a very intense activity. And, fortunately, everything was good. And the result, especially the results were good. And but it's something that we are to continue to work. Because, you know, you have to assure the gas flow. And very, very strong and tough experience, very, very interesting.
And they had the opportunity really to stretch the system and understand our limits, their limits, and also the technological limits. And that was very good test for our company. ADI IGNATIUS: So I want to bring in a question from the audience now just while we're still on this topic. And this is from Elizabeth from Stockholm, who, she's asking, why didn't countries in Europe think to invest in this broader mix of oil and gas supply before the crisis hit? CLAUDIO DESCALZI: I think that, you know, the idea before, if you talk about gas especially, the idea was that, gradually, the gas went down in term of the month and could be replaced by other sources, renewables. That's clear renewable now occupy a large quota in the energy sector when we talk about electricity.
But then when you need it to feed, you need to fill refineries on [INAUDIBLE] plants or steel or other heavy industry, how to abate the industry is not easy. You need to change processes, to invest. And before getting to hydrogen, before getting to a renewable that are not able to give a continuity to this kind of very heavy industry, so I think that we, in general, in general, I think that we thought-- or at least some people thought that we can, I think, avoid the gas. The gas was not in this [? taxonomy. ?] Just now is marginally in the [? taxonomy ?] of Europe.
And so for that-- the reason they said, it was a wake-up call. Because we understood that there is something that we need. There is a big ground, the ground gas consumption that we need. And the other things that we understood that the transition is a transition.
It's not something that can happen overnight. You have to add a lot of different sources and, especially, decarbonize through different kind of technology your activity. And that's because the energy security is an issue. And we don't have-- we don't have in Europe a energy security plan like in Italy. So we thought that energy was something we gave that for granted. We have gas from Russia.
We have gas from Norway. We have some LNG. There is no problem. But we need them to invest. And I think that now we understood that, it's really crucial, the environmental sustainability is a major pillar. But then we need something else.
We need another pillar that is energy security and then additional pillar that is competitiveness. Because when the gas price is so high and the price is so high, all our industry in Europe suffers a loss of competitiveness. We pay gas [INAUDIBLE],, we pay those five to seven times what your price in the US. You can imagine which kind of competition between our industries.
So I think that we discovered is a hard discovery that we did. And I think that now we can get back in the right track. ADI IGNATIUS: OK, so let's talk about as things balance out. I mean, you've talked about really the key thing for an oil and gas company, you know, the sort of energy trilemma that you face.
So it's sustainability. It's supply. It's competitiveness. So right now, you're just trying to make up supply that's missing to make up for the Russian gap. But going forward, you know, how do you think about the transition? You're known as an oil and gas company.
You're becoming, more broadly, an energy company. What is the transition that Eni has launched? And talk about some timelines. Like where do you need to be in the future to truly be a diversified energy company? CLAUDIO DESCALZI: So when I think about transition for our company-- and we're not talking now for Europe-- but our company transition is a transformation of our company that we started in 2014. When I became CEO, I immediately face very low prices, a big pressure for me for the environment to really to reduce emissions. So I immediately thought that the transition is something that we have to face from a cultural point of view, from a technological point of view. So we thought immediately to transform our company.
Years before, we started looking at the scope 1, scope 3, so the emissions that we produce during our activity. Immediately, we try to thought about a company that take-- that can take care about scope 3. So that means that you have to transform your industrial process. Because our aim is to reach our customers with clean product. We have more than 10 million customers for electricity and gas in Europe. Then we have at least 1.5 million customers every day,
every day for mobility. So that was a wonderful opportunity to say, we transform ourself. We're going to sell water. We're going to sell green products-- so green electricity or blue electricity, biogas. We're going to sell decarbonized products, bioproducts for mobility. So that started, I think, yes, nine years ago.
So it's not something that started overnight. So it's a transition in the company. It's a transformation of the company to reach which kind of target.
Scope 1, scope 2, scope 3 reduction net zero. So we pass through different objectives, presentation to the market. Now in the last couple of years, we present our company a net zero by 2050. And we define also intermediate targets to be able to be followed by our shareholders, our stakeholders and remain, stick to our target so we have target 2030, 2035, 2040, 2050.
And all the company together is moving on that way. ADI IGNATIUS: So net zero by 2050, does that-- do you envision that-- are you counting on future technological innovations that will help you get there or on making hard choices right now and in the coming years? CLAUDIO DESCALZI: The hard choices I saw we made nine years ago. So I, in our plan, the net zero by 2050, is done with the technology we have developed up to now. We invested-- technology was one of the main transformation of any in the last nine years. We invested more than 7 billion euro. In 2014, we had 150 researchers.
So people in R&D now, we have 1,500. We have seven research centers, more than 73 agreement-- agreements with academia, with the research centers at universities worldwide. And it's a proprietary technology, I mean, that we built. We built our technology. All the bio refineries-- that is one of the main issues.
So [INAUDIBLE] bio refineries, so you don't use oil. You use bio oil. It's made with our technology.
We transform. We have been the first to transform the traditional refineries, refineries in bio refineries. Venice, so in the North of Italy, in the South of Italy, we have a third one. We are expanding this business also outside Italy. And so there are choices has been made.
And if you want to go through this transformation and through this transition, you have to make hard choices. And the technology are there. Clearly, there is in acceleration in new technology for the future. So I think that we can also improve these targets.
But we have a company that is ready from a cultural point of view to incorporate and have new technology and use these technologies. That is a very important step. It's not easy. You know, we are an oil and gas company. We are reservoir engineers, drillers, developers that are used to do different kind of job.
Now they are ready and open to work with new technology. And that is really a critical, a crucial point for a big company like our company. ADI IGNATIUS: So I talked to some ESG investors and told them I was going to be having this interview. And to some, it's like unless you're willing to stop oil and gas exploration, development, and acquisition, it's hard for outsiders to view the company as climate responsible.
How do you respond to that? CLAUDIO DESCALZI: Now, first of all, I think that the Russian war in Ukraine and after the pandemic we discovered that we cannot stop oil and gas, that is the issue. Then if you use gas, you have to-- you had to do that in a very efficient way. What I mean, that you have to really take care about emissions.
You have to take care about gas flaring. So you must have target to reduce gas flaring. You have to be to take care about methane emissions, that is really one of the main topics if you want to use gas. But the reality that there is no way at the moment to stop oil and gas. Because we, as I said, we have to think about-- you call it the trilemma-- but you have to think about environment first.
So environment, but also energy security in a growing world with people that want to stay better, not worse. We have to be able to satisfy all of that. Clearly, if you use, you use hydrocarbon, you have a refinery or you have a power plant or you have a chemical plant, clearly, you have to capture during the transition, you have to capture the emissions. So you can produce without emitting emissions. So the carbon capture is a now important technology.
But and then there are other things that we have done, clearly, to be sustainable. Because, also, the capital allocation is another important issue. ADI IGNATIUS: So I know you've invested in fusion and probably significantly in fusion technology. Talk about your expectation for that. I mean, to what extent has that technology arrived as a significant, soon-to-be significant source of alternate energy? CLAUDIO DESCALZI: Fusion in the last period, in the last couple of years, three years had a very strong acceleration.
We are working on fusion with MIT since 2015. Then we incorporate the company with them. We are a major shareholder with a 19 or more or less 19% in [? CFS. ?] And in 2021, we had a very important breakthrough. We are not just shareholder, we also, we have with our engineers, with the supply chain, so we are with them.
We have a breakthrough in term of superconductor to contain the plasma, so a very high temperature superconductor. And that was a very important step that gave us the possibility to go through our first pilot-- pilot in 2025. And our hope is to have the first commercial industrial plant in Boston-- so in this area-- in the 2030s. So I believe a lot that we can success. We had other breakthrough also recently with different kind of technology. But I think that that is the real, I think, breakthrough from a technological point of view that can accelerate especially in the electrical sector the 2050 target.
And we are investing that. And, you know, we raised capital very quickly for the pilot plant, more than $1.8 billion in 10 days. So there are a lot of interest a lot of people that believe that can be a success. ADI IGNATIUS: So there's some questions that have come in about the cultural transformation that has to happen at Eni as well as you go through this kind of energy, energy transformation. I mean, here's one from [? Ajaz ?] in Saudi Arabia who's asking, what are the top people challenges that you face in trying to lead this transformation? CLAUDIO DESCALZI: So when you decide, as you call it, tough choices, clearly, it's top-down process. And in all these company, you know, the top-down processes is not easy.
Because normally in our company, it's a bottom-up and there is a selection of all the different kind of proposals. In this case, it was top-down. So the challenge is really to create an inclusion to be able to create a movement to give passion to the people to make them understand that the transformation of the company is necessary, that the transition is necessary. So you have to talk to them.
But it is not enough. You have to involve them in the transformation. They must be part of the transformation. For that reason, when I said at the beginning that we add 150 people in R&D, then we pass-- you jump to 1,500 or even more. Because the engineers, all the technicians that work in operation, when also working in R&D and work on the new-- the new technology, and then move again on the field to apply it. So I think that this involvement-- so a key word is involvement.
A key word is create a movement like a startup. You need a lot of energies, but you have to be interested to your people. Your people are the first resource that you have to be successful. It's been 90 years of, like before we talk about the shuttle diplomacy around the different countries of Africa to gas supply.
And the same stuff I did-- we did with my management team inside the company. We are in more than 60 countries. You can imagine. So you need really to create this passion and movement and motivation and curiosity about what you are doing.
And you transform-- then you transform yourself and this movement transformed the company at the end. ADI IGNATIUS: So I want to ask, you know, from your perspective, a CEO perspective, how you're expecting the economy to play out in 2023. I mean, I'm probably older than you. But we've both lived through these cycles, these sort of boom and bust cycles. And I think most people are feeling we're in for a pretty rocky 2023, at least for a while. But I'm interested in your perspective in terms of economic growth, in terms of layoffs, in terms of innovation.
What are you seeing for 2023? CLAUDIO DESCALZI: So innovation, I'm sure that we're going through innovation and technology. Everybody's investing because everybody's-- everybody-- most of us are looking for breakthrough technology to be able to grow and to be the first, so to anticipate all the issues. From an economic point of view, it depends on China, if really China can start again growing. Another critical point that we are experiencing before with COVID and now with the war is the supply chain crisis. So we risk to go to from a globalization and we're already experiencing that and to go to the deglobalization, a partial deglobalization.
And that can clearly create problem in terms of cost. So that is breaking down any possible growth. I think that the growth in the energy system in Europe and the capacity of Europe to replace Russian gas is another big point. Because if you are able to replace Russian gas without paying a very high price, that creates a positive, a positive move for Europe to grow. Because the energy price is something that can really slow down the economy Europe. Europe is a big market.
Clearly, if it's Europe is slowing down, there is an impact on in worldwide. So I'm positive because my natural instinct really to be positive. I think that we have the potential, the energy, the vision to improve ourselves and to overcome all the different orders.
Clearly, we need leadership. And we need political leadership. And we need, as we talked about before, about inclusion and creates positive movement inside a company. We have to do the same inside the different states, the different countries. And that is in the end of the politician that they have to understand that peace is much more important than war. And if we care about the welfare and the we care about people, we have really to work together.
And that is a critical point. So '23 is, I think, it is-- will be still a transition year from different kind of aspects. But I am positive looking forward. ADI IGNATIUS: Yeah, well, that's a good-- that's a good place to end off. I hope your life gets a little less hectic. But I appreciate your spending time with us today.
Thank you for being on the show. CLAUDIO DESCALZI: Thank you so very much. ADI IGNATIUS: All right, that was Claudia Descalzi, who is the CEO of the Italian energy giant Eni.
Thank you all for joining us. Our guest next week will be Ian Bremmer, who's the president and founder of the Eurasia Group, which is an influential political risk research and consulting firm. He also runs GZERO Media, a company dedicated to providing intelligent and engaging coverage of International Affairs. We'll be talking about global risks and how the business world can best prepare for political and economic disruption in 2023. We're going to be broadcasting that live from Davos from the World Economic Forum. So join us live next Wednesday, January 18 at 11:30 AM.
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