WSJ Quotes ENI Spa As Seeing Long Period of Low Natural Gas Prices – One of Several Reasons is German Decision to Keep Nuclear Plants

This does not qualify as a smoking gun because it does not include a specific anti-nuclear comment from someone who has a visible connection to finding, extracting, transporting, trading or marketing coal, oil or natural gas.

However, a recent article in the Wall Street Journal titled No Uptick Seen for Natural Gas Prices, ENI Says provides another lesson in energy market price behavior that adds evidence to the “motive” part of the age old “means, motive and opportunity” criteria in mystery novel crime solving. (Stated more clearly – no supplier of a commodity likes low prices and increased competition; no supplier of any influence or power passively accepts low prices and increased competition but instead takes whatever action possible to shift the balance between supply and demand into his favor.)

Gas prices are going to stay low for a considerable time—the next three to four years,” said ENI chief executive Paolo Scaroni. As a result, “we are looking much more carefully now at projects that were in the pipeline.”

ENI Spa is an Italian energy company that “operates in the oil and gas, electricity generation and sale, petrochemicals, oilfield services construction and engineering industries”. It owns part of a big LNG project in Egypt called Damietta LNG. Eni’s careful review of projects that were previously planned will most likely include deferrals or cancellations to reduce the probability of them coming on line at a time of low prices and adding to an already challenging situation.

During the interview, Mr. Scaroni did not limit his comments to actions that his own company would have to take in response to the low market price of natural gas; he also made some observations about external impacts that were driving the market. I found this particular segment to be intensely interesting:

Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.

Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe’s largest economy, he said.

To be sure, the article pointed to other factors that have shifted the balance between supply and demand to be more favorable to customers, which results in lower than desired prices for the suppliers. These other factors include hydrofracking drilling technology that frees up tight gas, the recession driven drop in manufacturing that consumes natural gas, and the reduction in the demand for LNG from Asia.

By the way, that drop in LNG demand from Asia is partially driven by Tokyo Electric Power producing more electricity from its nuclear plants than it did last year. That company is finally beginning to restore its seven reactor Kashiwazaki Kariwa power station back on line after more than 18 idle months following very slight damage from an earthquake.

Something tells me that the strategy rooms at Eni have included some conversations about the impact of nuclear energy successes on the profitability of their established businesses. The strategy conference rooms might even have hosted some conversations about various courses of action (COA) that can be taken to alleviate the problem.

Fortunately, those proposed COA’s have also included the potential that Eni’s long term solution as an energy supplier is to join the battle on the winning side. U.S. deal offers Eni chance to go nuclear -paper