Italy’s Eni SpA saw its natural gas sales drop by almost a quarter in the third quarter of 2022 compared to year-prior levels, but soaring commodity prices led it to another high profit period as it progresses efforts to replace Russian imports and optimize its LNG business.

The firm’s natural gas sales plummeted during the third quarter as it saw continued impacts from a lack of Russian gas to re-export to the European market. Gas sales were reported at 13.33 Bcm in 3Q2022, a 22% decrease year/year from 17.14 Bcm. Its liquefied natural gas sales also decreased, falling to 1.8 Bcf in the quarter compared to 2.9 Bcf in 3Q2021.

The major slightly raised its guidance for earnings from its global gas and LNG portfolio to around $1.77 billion for the full year based on increased prices during the quarter. However, CFO Francesco Gattei said the revised guidance also “incorporates lower Russian volumes than previously planned and a weaker market environment as experienced in October.”

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Management said Eni was still navigating the impacts of having less overall gas to market in Italy, “particularly at the spot market and in the wholesale and industrial segments,” combined with lower sales to France and Turkey. It was able to partially offset its drop in LNG sales with more volumes traded to Germany, Belgium, the Netherlands and Luxembourg.

Italy, which imported around 10% of its gas supply from Russia last year, briefly had flows from Gazprom PJSC through Austria halted at the beginning of October while the Russian company fought with regulators. Flow resumed after Eni promised to post a $19.8 million contract guarantee for Gazprom, which was demanding Austria accept its payment in rubles.

As its sales volumes fell, Eni’s average price for natural gas continued to rise over the quarter as global markets remained tight. Its average realized price for natural gas in 3Q2022 was reported at $9.08/Mcf, a 43% increase from $6.33/Mcf in the year prior. It also was an almost $2 increase over 2Q2022.

Cristian Signoretto, deputy COO of natural resources, said the firm is progressing toward substituting 50% of its marketable gas volumes previously supplied by Russia by the start of winter. After that, Eni will try to increase that ratio to 80% by the winter of 2023-24 and fully replace Russian gas by 2025.

‘Reshaping Of The Portfolio’

While Eni might have some short-term hiccups as it transforms its gas portfolio, Signoretto added a turn from Russian gas is accelerating its value chain investments and, ultimately, its profitability.

“This reshaping of the portfolio is going to push much faster our substitution of third-party gas with equity gas because we are basically importing more of our equity gas or equity LNG through Italy,” Signoretto said.

He added that Eni already has realized large cost savings for its increased volumes of LNG needed to meet demand by using the Panigaglia terminal on Italy’s northwest coast. By using the Snam SpA-owned regasification hub and avoiding pricier terminals in Spain, Signoretto said Eni has been able to retain more value from its imported gas.

In August, Eni acquired the Tango floating LNG (FLNG) unit with plans to deploy it to the Marine XII block offshore the Republic of Congo. The 0.6 million metric ton/year capacity vessel is part of Eni’s plans to leverage its developing assets to shore up gas supply, according to the firm.

Natural gas production held near Eni’s previous guidance at 4.58 Bcf/day in 3Q2022. It was a 2% drop from 4.68 Bcf/d in the year-ago period.

Signoretto said the firm has already been seeing contributions from its recent framework agreements for an additional 6 Bcm/y of gas supplies from Algeria, with the country sending around 2.5 Bcm during the quarter on top of its already contracted volumes. Eni also saw added volumes from the startup of its Coral Sul project in Mozambique and increased activity of its assets in the United States.

Eni’s production issues outweighed its gain during the quarter as the impacts of its force majeure in Nigeria declared after major flooding is expected to be more severe than originally estimated. The company previously saw setbacks at its assets in the country in April. It also reported reduced production from Norway and unplanned issues from its operations in  Kazakhstan’s offshore Kashagan oil field.

Combined production in 3Q2022 was reported at 1.58 boe/d, a 7% decline from 1.68 million boe/d in the year-prior period.

Eni reported 3Q2022 net profits of $5.73 billion ($1.65/share), which soared over a year-prior net profit of 1.18 billion (32 cents).