The following is a condensed and edited interview with Eni CEO Claudio Descalzi from Bloomberg Businessweek.
How have you responded to the sharp decline in crude oil prices?
Fortunately we had a strategy to own conventional assets, which means a very low cost and very low break-even price. At the moment we have one of the lowest in the industry, because our technical cost is lower than $20 per barrel. And the breakeven is now at $27 per barrel. Last year it was $45. We don’t control the price, so we have to work on what we can control. The price of oil dropped about 60 percent to 70 percent, and costs dropped only by between 25 percent and 30 percent. So we have to work on that.
If we’d made different choices—complicated projects or tar sands or Arctic projects—life would be quite difficult.
How are you keeping costs low?
Everything starts with your assets. We have assets—for example, our natural gas discovery in Egypt, or our discovery in Mozambique that is a giant one, or in Congo, where to drill a well takes three or four weeks. If drilling a well takes two months, three months, four months, the cost is very high. When we have to manage and run a field for 30 to 40 years—I’m talking about Africa—your operating costs play a very important role. So I think that we’ll really be focused on cost, on efficiency.
You once referred to OPEC as playing the role of the central bank of oil. Has OPEC abdicated that role?
I think that OPEC still has a role, because they’re deciding—when you decide to do something or not to do something, you’re running things. It’s clear that now the situation is changing, because the market is rebalancing. We have very low spare capacity—the lowest spare capacity ever, 2 percent, and all the spare capacity is in Saudi Arabia. The industry cut more than $200 billion of investment, and we also cut exploration. And when you cut exploration, you break your cycle.
What does that mean for prices?
That means higher prices. That’s a very scary issue, because it’s an issue about energy security and also access to energy of a billion people. Africa could double its population to more than 2 billion in 2030. And Africans already don’t have access to energy. Clearly we need a regulator. I mean, can you imagine that a financial system can live without the Fed or without the central bank in Europe? It cannot.
What would be the mechanism for setting up such a regulator?
I think that what they’re trying to do, Russia and OPEC, is freeze the production target. That’s a start. It’s clear that we have to find a price that’s good for customers and for producers. Maybe $100 per barrel is too much, but maybe $40 per barrel is not enough to justify big investments.
Do you endorse the Paris 2015 climate goals for emissions?
Absolutely yes. I believe in the need to face climate change, reduce fossil fuel—and I put coal and oil and gas all together. We need to find the right balance.
Europe was the only one in 2008 to make a strong commitment to cutbacks in fossil fuel use. But Europe only represents 10 percent of worldwide emissions. If you put together the U.S. and India and China, they represent the big bulk of the emissions, and there is not a clear commitment to reductions. If you look at the COP21 [the United Nations Climate Change Conference] report, nobody wants to talk about coal. Nobody wants to because India, China, the U.S., and Europe, they’re using coal. If you want to reach the 2-degree target, you have to remove coal, and you have to put together renewables and gas.
That’s feasible, removing coal?
Something is feasible if there’s the will to do that. If you want to transform a coal-fired power plant into a gas-fired plant, it’s feasible. We cannot rely solely on the market when you think about health.
What are you doing to reduce carbon?
In our facilities in Africa, we replace the internal consumption of gas with solar, and we free up gas for the host country. Why? Because it’s very easy. We are close to the grid when the grid exists. We can produce hundreds of megawatts, and the remaining electricity that we are not using for our facility we sell to the market at a reasonable price.
In parallel, we start with this huge program of renewables at our sites, and that is mainly focused in Africa. Africa is a paradox, because they have twice the reserves of the U.S. but they don’t practically have access to energy. Just 50 percent, generally speaking, and in the sub-Saharan region we have 600 million people without access to energy. And they use coal, or they use wood. So cooking and eating is causing a lot of death. It’s a tragedy.
Africa represents 15 percent of the total worldwide population. They use just 3 percent or 4 percent of worldwide energy.
How might your recent discovery in Egypt affect politics in the Middle East?
Egypt will be completely self-sufficient. At the end, they’ll also export energy. It will create stability in Egypt. They can create cash flow selling gas and promote their own development. Then they can aggregate. They can create a hub with Israel, with Cyprus, in the future with Libya. They can be one of the solutions for European energy security.
You think it’s plausible that Israel would be able to work with Egypt?
These countries need each other. They can share facilities. They can work together. When energy puts people together, it’s very positive. That could be a very positive case for friendship.
Why did you choose a career in the oil and gas industry?
That is a good question, because after 36 years you forget. (Laughs) I started in R&D, and then I started traveling and getting a strong passion to develop projects. It’s not easy to explain what happens when you are abroad and you are in a very difficult situation. You are developing something, an offshore project or a project in the forest. Or you are drilling a well with no real probability of success. And then during the night or during the day, the reservoir becomes bigger and bigger. It is a matter of passion.
Where did you have that experience?
In Angola, in Libya, in Congo, in Nigeria and Italy, as well as with the big discoveries in U.K. You remain close to these people, because you’ve got something with them that is very extraordinary. You are discovering.