Eni CEO Claudio Descalzi on the High-Stakes Race to Meet Energy Demand without Russian Gas

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0:59ADDY IGNATIOUS, The Editor-in-Chief of Harvard Business Review, and this is HBR's 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 guests, please put them into the chat and we'll try to get to as many as possible. Before I introduce my guests, though, I want to read a word from our sponsor, Unisys. Where some see barriers, Unisys sees breakthroughs. Unisys pushes what's possible across the digital workplace, app modernization, cloud, and beyond.

1:35Unisys, keep breaking through. I also want to make a quick plug for our top podcast. That is the HBR IdeaCast, hbr.org slash IdeaCast. 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.

2:27He became NE's CEO in 2014. Welcome, Claudio.

2:33Claudio Descalzi:Thank you. Good afternoon for me, yes. Yeah, 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. you know we've all watched with horror on a personal level but obviously this has profound impact on European energy markets and I'd like you know 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 wake-up call for the war, but especially for Europe, because we discovered that the gas demand and also hydrocarbon in general, but mainly on gas, is inelastic.

3:28Claudio Descalzi:It's always 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. 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, it's not like that. So, a recap 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 issue big impacts i talk about gas price electricity price price of gasoline and, you know, when 150, 170 billion cubic meter, I talk about the gas, Russian gas, practically disappear in a few months.

4:39Claudio Descalzi:It's not an easy task to replace it. Yeah, no, I... Propel Fitness Water. With Gatorade electrolytes, zero sugar, and vitamins, Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade Electrolytes. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes.

5:17Listeners of this show will get a$75 sponsored job credit at indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. I can't imagine. Quickly, if you just joined us, I'm speaking with NECEO Claudia Descalzi. If you have questions for Claudia, 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, 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.

6:05Claudio Descalzi:So what happened last year after the war, we start immediately working in the country where we already worked. So we did what we had been done for years. So invest in gas, invest in the gas development and work with our Austin country to be able to replace Russian gas. Big effort. We work with the government. We work with our national partners. We 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 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.

7:06Claudio Descalzi:And the second point is to replace 80 % of the Russian gas for the winter 2023-2024 and 100 % by 2024-2025. So in two and a half years to be able to replace all the Russian gas to Italy, that was an effort for Italy, clearly, where we have all our main operation in the downstreams, our retail on gas and power. So all our clients where we have the B2C, a B2B contract. And that was a very, I think, successful try. We were being 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. So 100 % replacement by 2024, I think you said.

8:05So what does that mean in terms of future diversification of supply? I mean, are you foreseeing a world where Italy, say, simply will not be buying Russian oil and gas maybe ever?

8:20Claudio Descalzi:I think so. So that is our assumption, because clearly now 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 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 is mainly Africa and North Africa and some Middle East. So that is something that the diversification, I think, is one of the most important things, diversification for us, geographical diversification.

9:18Claudio Descalzi: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... Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade Electrolytes. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more.

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10:15Claudio Descalzi:Kind of technology and energy sources to be able not to rely on your gas and add more sources, not just gas. I think that is essential, it's crucial, critical for the future. Yeah, so I want to come to non-carbon sources of energy in a second, but I just 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.

11:09So 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? Yes.

11:25Claudio Descalzi: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 traveled. clearly I intensified and I travel much more than before because I travel at least, I visited each country at least four or five times in the last nine months. I went there because clearly we invest, as E &I, 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 Pai with Algeria and Libya.

12:17Claudio Descalzi:So we work a lot with Algeria to increase investment, increase production, and finalize contracts to send these guys in a fast track because we increase the infilling 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 helped us a lot. Algeria helped us really a lot. And we have been able very quickly to add more than five, six billion cubic meters per year to send to Italy through PI. That is very easy because we have already this PI with a lot of spare capacity.

13:04Claudio Descalzi:In spite of the situation in Libya, we tried to increase production also in Libya. And then Egypt is close to Italy. We discovered a lot of gas so we finalized contract and this case is lng so we have been able to saturate all the lng facilities we have in in italy and then we work with other countries like congo angola nigeria mozambique and in congo we immediately we react very quickly and we sanctioned two project lng project that the first starts in a record time less than six uh 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 this all these mission all these uh missions of these countries was to not just buy gas because you cannot go and say to african countries know the door and say need gas it's different you have to invest you have to invest in inspiration that what we did very successful successful um action propel fitness water with gatorade electrolytes zero sugar and vitamins propel hydrates better than water to help you get the most out of your workout and get back to your best self.

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15:00Claudio Descalzi:In the past, and then you have to develop, put investment for development, and then you can ask if we can share these guys. So that was a very intense activity. And fortunately, everything was good. And the result, especially the results were good. But it's something that we have 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 I had the opportunity really to to stretch the system and understand our limit their limit and also their technological limits and that was very good test for our company 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 You know, 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?

16:06Claudio Descalzi:I think that the idea before, if you talk about gas especially, the idea was that gradually the gas went down in terms of demand and could be replaced by other sources. renewables that clear a renewable now occupy a large quarter in the in the energy sector but we talk about electricity but then when you need to feed you need to feed refineries a money plant or steel or other heavy industry how to obey 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.

17:04Claudio Descalzi:So I think that we, in general, I think that we thought, or at least some people thought, that we can, I think, avoid the gas. gas was not in the taxonomy, just now is marginally in the taxonomy of Europe. And so for that reason, I said it was a wake-up call, because we understood that there is something that we need. There is a big ground gas consumption that we need. And the other things, 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 kinds of technology your activity.

17:57Claudio Descalzi:And that's because this energy security is an issue. And we don't have in Europe an 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 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, you know, suffer a lot of competitiveness.

18:56Claudio Descalzi:We pay gas, we pay those. Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast.

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19:45Claudio Descalzi: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. Okay, so let's talk about, you know, 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?

20:31You know, you're known as an oil and gas company. You're becoming more broadly an energy company. What is the transition that NE has launched? And talk about some timelines, like where do you need to be in the future to truly be a diversified energy company?

20:50Claudio Descalzi:So when I think about transition for our company, and we're not talking now for Europe, our company transition is a transformation of our company that we started in 2014. when I became CEO, I immediately faced a very low prices, a big pressure for the environment to really 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 one, scope three, so the mission that we produce during our activity.

21:38Claudio Descalzi:Immediately we tried to thought about a company that can take care about scope three. So that means that you have to transform your industrial process because our aim is to reach our customers with clean products. We have more than 10 million customers for electricity and gas in Europe. Then we have at least 1.5 million customers every day for mobility. So that was a wonderful opportunity to say, we transform ourselves. We're going to sell what? We're going to sell green products, so green electricity or blue electricity, biogas. We're going to sell decarbonized products, buy a product from mobility.

22:29Claudio Descalzi: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 one, scope two, scope three, reduction, net zero. So we passed 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.

23:25So 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?

23:40Claudio Descalzi:The hard choices I said we made nine years ago. So 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 A &E 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 70 agreements with the academics with the research centers, the university worldwide. And it's a proprietary technology. I mean that we built our technology. All the biorefineries, that is one of the main issues, so hard to abate biorefineries.

24:43Claudio Descalzi: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 in biorefineries. Venice, so in the north of Italy, in the south of Italy, in that we have a third one. We are expanding this business also outside Italy. And so there are choices that have been made. And if you want to go through this transformation and through this transition, you have to make our choices. And the technology are there. Clearly, there is an acceleration in new technology for the future. So I think that we can also improve these targets.

25:33Claudio Descalzi:But we have a company that is ready from a cultural point of view to incorporate and have new technology and use this technology. 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 jobs. 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. 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.

26:25How do you respond to that?

26:28Claudio Descalzi:No, 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 do that in a very efficient way. What I mean is that you have to really take care about emissions. You have to take care about the gas flaring. or you must have targets to reduce gas flaring. You have to take care about methane emission. That is really one of the main topics if you want to use gas. But the reality is that there is no way at the moment to stop oil and gas because, 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.

27:30Claudio Descalzi: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 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 another important technology. But then there are other things that we have done, clearly, to be sustainable, because also the capital allocation is another important issue. So I know you've invested in fusion, and probably significantly in fusion technology.