Morning, ladies and gentlemen, and welcome to the NE Strategy Conference Call Q and A Session, hosted by Mr. Claudia Discaulci, NE CEO and Top Management. I would now like to hand the conference over to Mr. Discasi to begin. Please go ahead, sir.
Welcome everybody to our strategy presentation. And I hope that you have the possibility to see our video and read all our press release. So now we are ready to answer your question. Thank you.
Thank you. Sir, one moment for the first question, please. Register our roster. Okay. The first question is from Mr.
Oswald Clint of Bernstein. Please go ahead, sir.
Thank you very much, Claudio and Massimo. Yes, Claudio, thank you. Very obviously very radical, very detailed plan today, which I guess has a headline of combining economic sustainability and environmental sustainability and obviously is very ESG friendly. I guess from our side at the moment, there isn't a lot of evidence that very ESG friendly corporate strategies actually do deliver better investment returns, at least from an equity perspective. So my question here is, could you perhaps give us the top three risks or 5 years of, let's say, fixing ENI and then some of the challenges you've had to overcome to just do the last 5 years.
That's the first question. And perhaps my second question is really around the indicated organizational changes and especially things like phasing away from hydrocarbon based refinery footprint in Europe, plus also some of the big impairments you had in the Q4. So I'm really thinking about, can you talk about or give us some indication of the magnitude of restructuring charges that investors may have to think about as you roll out this changed portfolio? Thank you.
Thank you. So I'd like to say, first of all, that this evolution or transformation of our business, we call it New A and E, is something that we started 6 years ago at the end of 2014. So it's not something that's coming overnight. And we work a lot from a technological point of view. So we have our technology that can maybe appear 1 of the risk, but this plan has been built.
And also from an engineering point of view, on the existing technology that we have developed. One evidence, one proof as we said during our video is the 2 biorefineries. The biorefineries, so we transform, we structure 2 existing refineries into biorefineries. And then we have the circular economies. The biorefineries just now is they are running.
They have a very good generator return because we talk about 15%. So the technological risk that can be seen as a possible risk At this moment, it's not. We are just possible upside with new technology that we are going to develop. Another no risk, I can say, is the flexibility, because we have our assets, not just in terms of technologies or competencies, are very flexible starting from the upstream. So the 3P reserves risk that we showed, very flexible with a very low average price, dollars 20 per barrel.
And so we have this flexibility to move in this area and move our CapEx in relation to the market. So that is an additional point. Clearly, we aim to increase our number of customers because the final aim is to each all customer with the product that are with no carbon footprint, with the low carbon, 0 carbon footprint. So the increasing of customers is a point that we already did. We start from a very good point.
We have almost 9,000,000 customers. And in a couple of years in 3 years, we want to reach 11. So we can grow gradually in the next 30 years to add more than 20,000,000 customers. That is a very important point for the scope 3 to reach everybody with new zero carbon products. One point that we have to work on is the growth of renewables.
The growth of renewables that we started as a brownfield growth when we did some good steps in the past. Now it's going to became in a different way and it's really linked to our retail and gas and power retail. So it's really the integration between the retail and the development of the new product that is not just renewables, but also biomethane, for example, that is another product that our Inigo De Lucha is selling is another important point. So risk are the regulatory framework. So the regulations, we have regulation in place, but clearly, we have to tailor make adapt to each single country.
In Italy, we had some good results in the transformation of our refineries. Now we have to work on the CCS because we have a big capacity in CCS that we have in Italy is one of the main one of the most important steps to be able to have a blue electricity, a blue hydrogen, because we can capture all the CO2 and create products that are carbon free. But we have the reservoir, we have the depleted field, we have the capacity. So we have to work and as we said, we are working up to 25, that is our day to be set up with the regulation for the carbon capture and sequestration. And we don't have risk from a capital point of view because in all our simulations, the capital are quite in line with the investment that remain in the last 6 years.
We don't see any peak of capital to develop this strategy from the point of view, from the secured economy, from the renewable point of view. So I think that is not a big risk. And for that reason, we have all the tools, all the technologies, our people very motivated because they participated in the last 6 years at this transformation. So I don't see big risk. And for that reason, we are very confident to be able to develop these strategies safely.
So the organization, so you said that we clearly all these transformations based on this big integration of all our businesses and is going to cover all the businesses. So we have to tailor made a new organization that can improve also in the best practices and the communications and all the standards this our business, our existing business that are going to be transformed. So in the before the end of the year, so in the next month, we're going to go to our Board, present a new organization and then we go public and we present to our investors and to our analysts the new organization. But so it's something that we are going to deploy during the 2020.
Very good. Thank you.
Osman Massimo speaking. So as far as the impairment, the impairment we made are mainly related to technical reason, some of them to some changed fiscal regime, royalties in Nigeria and in Italy and overall, they relate upstream and refinery. So nothing to do with the restructuring or something like this, but technical mainly technical reason.
The next question is from Alessandro Pozzi of Mediobanca. Please go ahead, sir.
Thank you very much. I have two questions. The first one is, you have some pretty significant reduction Can you talk sorry,
can you talk aloud because it's not easy to hear you. Can you talk about this?
Yes. Okay. Well, that's right. Okay. So you have some significant target reductions in CO2 emissions, especially in intensity.
And the intensity, I think, is going to go down quite a lot after 2,035. I was wondering if you can maybe give us some color on the initiatives and the steps that you need to take to achieve that reduction in emission intensity. That's the first question.
So I'll start, say a few more about the intensity, then maybe Maximo can complete some of our colleagues, his colleagues. Clearly, the intensity is really in relation with the growth of our renewable and our products. So that our target in renewable that is achievable is to reach more than €55,000,000 loss of capacity. And that is one of the main reason why we are able to reduce to 55% renewables. The plan is flexible, clearly.
We have targets for each and investment and also the geography where we are going to we are going to develop this renewable that will be for the 70% in OECD countries and for the 30% in non OECD countries. But the strong increase of renewables, different kind of renewables is one of the reason of this good target for the intensity, reduction of carbon intensity.
So, Alessandro, the main drivers for the intensity reduction certainly
would be
the growing the renewable capacity, the switch from fossil product to product without any fossil content such as the biomethane and the hydrogen and the what we call the other blue energies that could be free of CO2, thanks to CCS initiative. You have seen that in our plan, we are projecting at least 10,000,000 ton per year of capacity of injection that will turn our gas production that we said will be the most important element in our hydrocarbon production by 2,050,
much
less CO2 productive on this respect. On top of this, the forestry initiatives will complement such a package overall in term of carbon sink. We are projecting something in the range of 14,000,000 tons per year, including the 10,000,000 ton I just mentioned from the CCS.
Okay. And my second question is on production. I believe you mentioned that it could plateau in 2025, followed by a flexible potential decline, especially the oil part of your production. I was wondering how should we think about the total production from Eni beyond 2025? And if there's any decline, sort of decline you may
have?
So we said that we reach our plateau, so that is peak or plateau, then we remain stable and then decreasing. So that is clearly related to the market conditions, market opportunities. Clearly, we are going to reduce our oil content and we are going to keep increasing our gas production. So the final target will be to reduce. So the value around the 2025 will be almost the same then we're going to reduce and the oil production will be reduced.
We cannot give we add the figures clearly because we run all the modeling with all the sensitivities. But because of the big flexibility we have, we don't like to give now exact figures. We are just to think about the flexibility we have, the tools we have and also the when we reach this plateau, we have CapEx that we have free CapEx that we can invest in the growth on the other business. So creating new returns on the growing bio and green business. So that is the model that we detailed with all the sensitivities.
But at the moment, that is what we can say.
The next question is from Jason Gammel of Jefferies. Please go ahead, sir.
Yes. Thank you very much. I just wanted to come back to the renewables business growing in the OECD countries. I would expect that that's going to be relatively competitive to enter those markets. And so I was hoping that you could elaborate a little bit further on some of the very specific skill sets and advantages that you would bring to be successful in these competitive markets?
And then my second question is around the hydrogen value chain. I'm assuming you could talk a little bit about what price of carbon might be necessary to make Blue Hydrogen and CCS in general competitive today?
Renewables, Guggenhosentino that is in charge of our division for renewable can give you some answer about your question.
Yes. Thank you for the question. So we expect, as you said, that the competition in the market, in the European market and in general in OECD countries will be very strong. However, we start from a very strong position because as you know, we have like more than 10,000,000 clients already in Italy and in France. And we expect to expand this customer base in the next year.
So we have a very deep knowledge of the European and in general the evolved markets, power markets. And we think that this will be a very strong advantage for our expansion. We have the competence now. We have a number of partnerships already in place for this. So we believe that we have all the elements in order to be successful for growth OECD markets in the next years.
Talking about hydrogen. So as long as we wait for, I would say, a technological evolution in producing green hydrogen, our expectation in next year is definitely related to the blue hydrogen production linked to the CCS project. And so and the first CCS project we have in mind is the one that we described in our presentation, the Ravenna project. Opportunity for us because of a lot of advantages, including the huge storage capacity in reservoirs that are very well known because we produce from these reservoirs for many years in the conventional area and close to the plant onshore that produce CO2, including the power plants. So all combined, the scale, the possibility to reuse existing facilities allow us to project a very competitive cost even these days in producing blue hydrogen.
Definitely, we will need some time in projecting it to get the authorization because authorization is still in place at European level, Italian level. But being the first project, I would say for planning purposes, we expect that the utilization process will take some time. So that's the reason why we believe that the start up of this project will take 4, 5 years before the execution. As executed, considering a capacity of reinjection of at least 5,000,000 tons per year is the corresponding amount of hydrogen that could be produced on a competitive way. That time, it would be in the range of 1,000,000 tons per year.
Very helpful. Thank you.
The next question comes from Alastair Syme of Citi. Please go ahead, sir.
Thank you. And thank you for the presentation. It's very thought provoking. Can I ask, Bobby, on Slide 36, you showed the future upstream returns of the portfolio? And you say in your scenario, you see 25% post tax rate of return.
And clearly, that reflects a business that's got a steep tradition in building this competency in upstream. The return that you think you can get by not investing in this, do you think they're even close to being comparable to the trade return?
Okay. So
definitely, the number that we are able to disclose on the existing upstream portfolio are the ones that you mentioned. On top of this, I would like to remind you when the production profile related to the existing 3P reserves that has been presented in the longer term strategy. And you are seeing that this portfolio is very resilient and flexible. Resilient because the breakeven is very low. So we'll be in a position to produce all of these reserves at the maximum Brent price of $35 while we'll be in the position to produce quite all the NPV by 2,030.
Why I'm stressing the flexibility and the timing cost? Because definitely, as we are a capital intensity company, definitely we have to look forward and see the signal from the energy market. By definition is expected to be an evolving market in the medium, long term. So that's the reason why we are preparing ourselves to have a different shape in our portfolio, retaining our position in the strong upstream businesses, but preparing to in the position to supply our customer with different products. On this respect, definitely the new businesses will have different characteristics in term of how capital intensive they are.
And definitely the portfolio we are reshaping today is definitely less capital intensive versus upstream. And because of the apology of these businesses itself and the geography too, I assume that even the risk associated with the new businesses would be different. So all this should be included into such a comparison between what we see today in the existing upstream portfolio and what could be the return for additional investment. On top of this, so this refers to the evaluation of the future businesses business by business. So for planning purposes, we are using what you can see on the market in term of expectation, in term of return from renewables.
For we are experiencing a 15% return in our biorefineries. So I'm talking about the internal rate returns that are double digit too, not only single digit. But what is most important is that the evolution of the portfolio is designed in our strategy. We'll have an additional value that is the integration. So the portfolio we are designing will be much more integrated than the existing one because every new business or the businesses today already present that will take an additional growing weight in our portfolio will be developed in a very strict relationship with the others.
So the renewables together with the clients is an example. Refinery plus chemical is another one. The strict link between the new gas development together with CCS, together with power to be served to our clients, CO2 free are another one. So what we really expect from this kind of evolution in our portfolio will be an additional value from this integration.
Just to complete what Massimo said that he's I think he touched all the main points. You have to see to this new energy, not looking at the single internal rate of return on the different business. It's a completely different situation. We have to look at the powerful, at the strength of a company that can really lean together and stay together and creating new strong alliance and free much more power from this integration. And that means that we are reducing cost, capital invested.
We are reducing the risk, but we are not reducing the return on capital. We are increasing the return on capital. So that is something that with the time we can go deeper. But the strength of this plan that is an industrial plan that takes advantage of all the different strengths and opportunity of each single business that now we put together. We are on the value chain.
So if you compare the 'twenty three is not comparable, the new business at the end of the day, considering also the carbon tax that in the future we are going to have that we much, much more resilient, less costly and really looking forward for a new way.
So Paul, can you just pick up on that?
Because the point about carbon tax, if you're taking it a view on the future, because also on that Slide 36, you've got the impact, the returns impact from the IEA sustainable development scenario. So to erode the return from mid-20s to mid teens, which is where you're saying that the renewables portfolio completes, You're essentially implying that the sustainable development scenario must increase by 10 fold. Is that the implication?
Yes. So the impact we are showing in our sensitivities refer to the existing project. And the existing projects definitely are really very well, I would say, resilient and protected also because of the duration of the production profile. But definitely, the more we go distance towards 2,050 and the higher would be the risk
of a deeper
and heavy higher impact from CO2 certificate that could cost definitely much, much, much more. So this is the risk some way we cannot ignore and we have to deal with. But just to conclude, definitely, what we are doing, are talking about a 3rd year planning exercise that is quite difficult one, definitely. But definitely, it's not because it's difficult that we are not going through such an exercise. And the result that we can see up to now performing this calculation based on the element that we described give us a lot of for it because if you remember the principle that we put at the very beginning of our presentation that include the solidity in our balance sheet together with the progressive remuneration policy.
What I can say that we are testing such principles even using a stressed scenario such as a scenario of $50 Brent and a $5,000,000 BTU, the gas cost from now to 2,050. And on this respect, I can say that the principle so the exercise gives us reasonable expectation that the principles can be met.
The next question is from Mr. Massimo Bonisoli of Equita. Please go ahead, sir.
Good morning. If I may comment, it's a very impressive plan. I have two questions. One of the key success factor of VNI over the past few years was the ability to explore and discover hydrocarbons. How do you expect to continue to create value through these unique assets at ENI?
And the second question is considering the very recent gas price drop, are you considering the eventual delay of the gas project in Mozambique? And if you can remember us the economics of gas in terms of the key of the project?
So exploration is there, that will be there, is our strength. Exploration is not just our strength. Also the capability to fast time to market and fast time to value. And that is linked to our development and engineering and technology. So exploration will be more focused on we are going to have more optionality.
We can be more focused on area where we are even more sure to not just get gas, but also able to connect very quickly and give value to this gas because one of the aim is to, in any case, work with our equity shrinking the 3rd party gas. So exploration will be there. It's very powerful to the path to open new countries. And for sure, we are not going to make a strong capital for any weaker that is clearly a very important point for all our people. Our coral projects is on its way.
We already sold the gas, so it's robust and will be ready by the end of 2022. For the rest of the big unitized area, Exxon is working. I think that's yes, they are working for the FID by the end, I think, of this year. Clearly, what you said about the gas price is a very important point. So what we want from this project is a strong cost reduction because with this, we need a cost of this project to be reduced to be able to have a price that can't reach the market making money.
So I think that the only point now is to be able to reduce cost on the Mamba project that is in the end of the joint venture, but especially in end of the operator and that we are helping them to go ahead with this strategy.
Thank you.
The next question is from Biraj Borkhataria of RBC. Please go ahead, sir.
Hi, thanks for taking my questions. 2, please. The first one on your renewables target, the 15 gigawatt ambition by 2,030 still looks quite substantial. Could you just confirm whether that's a gross or net target? And also, can you comment on how you're seeing the opportunity set today and the level of returns for the various elements of that like solar and wind?
And then the second question, just going back to Alastair's comment on Slide 36. The majority of your CapEx is still going to the upstream going forward. And with those very low breakevens that at some point should result in a higher return on capital. So could you just outline what return on capital you expect to generate by the end of the planned period in 2023? And just confirm that's higher
than the cost of capital. Thank you.
Renewable then Massimo for the economic part.
Yes. So the 55 gigawatts is certainly a very challenging objective for us. But
there are at
least four main reasons why we strongly believe that this objective can be met. First of all, we will have a very significant geographical expansion with respect to the curve because we will expand in Europe, especially in France, in Greece, in Spain, in the UK, in the Balkan region. We will expand a lot of activities in the U. S, in Australia. And also we have a number of projects in non OECD countries.
So, the wider spread distribution of our projects. That's the first point. 2nd point, we will concentrate on large scale projects in order to get the materiality for our business. And 3rd point, we will also leverage on selected M and A opportunities of pipelines, for example, or assets or developers, for example, in order to accelerate this growth. And last but not least, we will leverage on a number of partnerships like the one that we recently signed in the U.
S. With Falco Renewables, but also in Italy with Casa Depository and Precipity and with other technological and providers or developers. So we believe that this comprehensive set of tools will allow us to grow very significantly in the next years along the plan.
As long as your complex question about return. So I can give you some guidelines. So you mentioned the end of the plan. I understand the end of the plan. At 2023, the overall return I can quantify is in term of Roache.
And Roache, I expect at the time, will be in the range of 11%. Definitely it's a mix between different results from different businesses. The highest definitely would be at the retail without capital invested or very low capital invested, while the others may be growing such as the renewable will have a quite low return. In terms of projects, so in the next 4 years, definitely, the most important projects are the upstream ones. So the number we already released about projects are the more relevant to figure out which is the expected return from investment.
On the longer term, in 2,050, as we presented, the shape in our portfolio will be slightly different, including the combination between highly capital intensive businesses and less capital intensive businesses. So in terms of return, let's say, ROACE doesn't make a great sense. What I can tell you in terms of indication that comes from our planning assumption today that if we measure the cash flow from operation now versus the net capital invested. And we compare what we have in our end today and what we envisage in 2,000 and 50, for example, or in 2,035 in terms of mid date all along evolution, I do not see significant differences. I mean, by definition, the cash flow from operation expected from businesses less capital intensity will be lower, but will be lower also the capital invested.
So the ratio would remain more or less unchanged, giving us the possibility to confirm what I just said in terms of principle. So our solidity of our balance sheet together with the respect in our progressive dividend policy.
That's very helpful. Can I just confirm that the 11% return on capital is based on your assumptions in the slide deck, correct? Yes. Okay, perfect. Thank you.
The next question is from Mr. Thomas Adolff of Credit Suisse. Please go ahead, sir.
Good morning. Sorry, I'd like to discuss corporate returns again, and thanks for clarifying the 11% target for 2023. And then just to clarify, the longer term number that you talked about, did you say that 11% should stay more or less around that level for the 2,050 plan? And I wondered, as the business also shifts quite dramatically away from the more capital intensives and perhaps also the more risky business of exploration and production, how should one think about the shift in the cost of capital of the business as well? Secondly, perhaps a little more specific question on the near term and medium term production.
I can see that in 2020, you only expect a small increase in production. And despite the fact that you've acquired Exxon's Norwegian assets, which in theory should add about $100,000 per day net to ENI. Then also when I look out to 2025, you now have a target of 2.3%. This time last year, you presented 2.4%. And again, this year, you have the Norwegian asset deal.
Last year, you didn't. So if you can perhaps talk about the changes to this plan versus the plan you had a year ago. Thank you.
Just to clarify, the 11% I gave is the ROACE we expect in 2023 for the whole group. And talking about future return, I said what I said. So I made reference to the expected cash flow from operation versus the capital employed. Yes, I said that some new businesses, definitely retail Gas and Power Business is growing from €10,000,000 to €20,000,000 of clients in 2,050, together with, I would say, a bigger marketing, what we call today marketing oil that tomorrow will be marketing of different sources of fuel together with services, renewables that definitely are much more capital intensive. The other business such as the hydrogen production that are less capital intensive, the mix would be overall less capital intensive.
And you correctly mentioned the risk that definitely should be lower. So the cost of capital should be lower for a lot of reasons because of the geographical spread that will be much higher than today. Because of the differentiation in our portfolio. It will be lower because the new businesses we are entering or we are expanding are less risky than the upstream for what reason, for industrial reason, for geographical reason and whatever. So definitely, we expect an overall advantage also in term of cost of capital to supply capital for this investment
plan. The upstream question is on production.
Okay. Regarding 2020 production, we have to say that we have a lower equity production in Libya because of a contractual trigger on the contract of Area D, where we have a reduction in our cost recovery from 40% to 30%. And this reduction basically almost offset completely the increase of production that is due to the ExxonMobil non operated asset acquisition in Norway.
Okay, perfect. Thank you.
The next question is from Mr. Van Hodee of Kepler Cheuvreux. Please go ahead, sir.
Yes. So hello. Thank you for taking my question. I saw in your disclosure that your greenhouse gas emission intensity in terms of ton of Q2 per 1,000 BOE on an operating basis it was down sharply minus 9% 2019 versus 2018. Would you be able to disclose same number on an equity basis as opposed to an operating basis?
And then I have also a follow-up question on your net 0 greenhouse gas emission target for upstream scope 12. Can you disclose what would you use in terms of a reduction, meaning which way do you believe you would be able to get to net 0? So which percentage will come from CCUS? Will percentage will come from reduced flaring or whatever kind of indication you could get to us? Or what would be, I would say, carbon offset inside this net zero target by 2,030 in upstream?
Thank you.
Sorry, I'm checking if we have available already available the 9% in equity terms. Probably not, probably not. So I'll let we'll let you know, right? So
for the upstream, okay. Okay. So Alexander is going to answer for the upstream.
So for the upstream, the reduction in terms of CO2 emission intensity and total amount as well will come from certainly efficiency, 1st of all, operations. So reduced full consumption for our operation, lowering to the lowest possible the flaring and methane emissions. And then certainly, we will have a component of CCS for sequestration of CO2 and then forestry as well.
Just to give you a few figures about Filos, a very important element in this achievement clearly is the methane emissions. And this year, we reached 6 year in advance 80% of methane emissions. That is one of the most important element. We confirm our reduction of the gas rate by 2025. The 2 countries where we are still flaring gas also if you reduce this Nigeria and Libya.
And clearly, we wanted to do better, but it's the 2 countries at the moment are not easy, especially the access for Libya is not easy. But we've seen that with the work we are doing now offshore, we will able to reach these 2 targets. And then as Sam said, CCS is another important component and offset with the forgery that the 2,030 accounts for 20,000,000 ton per year will be the rest step to close our carbon free for the upstream.
Okay. Thank you.
The next question is from Mr. Roberto Ragnari of Banca Ini. Please go ahead, sir.
Yes. Good morning. Thank you for taking my question. I have a question on green chemicals and green chemistry and one question on the E and P. My first question is on green chemistry and relating and it's also referring on the last news and press release on the acquisition of 40% of the FEAM project.
I believe it's going to the right direction of recycling raw materials and producing final products. In that way, you basically are going to enhancing your recycling and your green strategy. And in addition to that, you also capture the margins to the retail market and in the retail market of these products. My question relating to this is, if you are developing further projects or if you are going to develop also complete other M and A actions in this field? This is my first question.
My second question is on P and P and relating to the gas versus oil mix in the future. Reducing oil and enhancing the gas production, could you do you think that this change of mixture and aducanbia portfolio could lead to some price risk average price risk for hydrocarbon production given the price the current gas price reduction in the past few months? And if I may, the very last question is still on green chemistry. Referring to the CO2 capture, is there any technology available on the market or you are starting for the capture the chemical capture of CO2 and from this capture to produce also chemicals from specialties? Thank you very much.
We answered by Daniel Ferrai, CEO of Versalis and then I will try to answer to the other question.
Thank you, Claudio, and thank you, Roberto, for the question. Basically, the our entry into Fin project is marking 1 of the 3 pillars of the new developments of Versalis. You have heard this morning about continuing to create efficiency in our existing units. You have heard about the move into renewables, which is becoming more and more prominent. And clearly into bioproducts and bioplastics in future.
And then the third one is the specialization of our polymers. Now, Fin Project is an interventional company specialized in molding and components. So basically, it's the move of Versalis into a formulated business. Why we are doing that? Because the margin in that business is clearly on the high end of the double digit, completely different from the one we have today with our intermediates.
We try to deploy as much as we can through these new channels. They go into application, which goes from cables, into piping, into fashionable items, furniture. When I think about the sustainability aspect you mentioned, I think about also piping for the movement of hydrogen in future in a sustained way in terms of polyethylene and reinforced fibers. I think about the encapsulant for the solar panels. So there is a lot of new elements adding to the portfolio of Versalis.
They are an international company. They have about 5 or 6 sites outside Italy in very interesting countries where we are not in like Vietnam, India, China, Mexico, so interesting growing market. And clearly, they have the renewable possibility. So they can blend and they can manufacture products based on renewable materials and on recycled materials that we are very much into, both mechanical and chemical. And to answer your second question, whether we can we are studying in addition to the many technologies that as a group we are looking at in terms of carbon capturing.
There are niche technologies where you can make ethylene or propylene carbonates with CO2. These are clearly different in terms of sizing to the rest of the products we are talking here. But there are specialty products that goes into cosmetics or solvents application. So I think we do have research in this field, and we will update as soon as
we have some results.
Thank you, Daniel. And also for the demonstration of integration and this change of technology between the different businesses. Talking about the gas, clearly, if you look at the gas now, the gas is depressed, something that we forecast and will be depressed for next 2, 3 years before then we saw that we know that after the digestion of all the Australian gas and also some gas that new LNG from the U. S, the gas market will grow. We have a positive view for the future.
So the gas will be also in all the different scenario, the only hydrocarbon that will grow to 2020 to 2,050. So the gas is a good component of the carbon of also our production. You have to remember that our cost in term of development and the operating costs are very low. The market gas market is growing. So that is also one of the reasons, not just the carbonization, that is essential that gas will be much more resilient than oil in the future.
Let's remember that in the North Sea country, the oil production is very flat and all the growth is coming from outside, while the gas is growing everywhere. So you don't have to look at today, but you have to look at the future. And that is what we did in our presentation and in our study.
The next question is from Lydia Rainforth of Barclays. Please go ahead, madam. Thanks and good afternoon, gentlemen. Just one question, if
I could. If I come back to the 55 gigawatts target for 2,050, I'm just wondering if
you can talk us through
a little bit more how you got that and why you think that is the right number, both just in terms of scale or whether it was designed from a top down, this is what you wanted in terms of CO2 emissions reduction?
Yes. So as I said before,
I mean, we have a comprehensive plan behind this 55 megawatts. It's not just an objective or an ambition that we set, but this is there is an underlying plan for that, which is based on geographies, it's based on technologies, it's based on load factors, it's based on a number of points. So from the materiality of this plan, we are fairly sure about it. And how to get there, as I explained before, it's a mixture of geographical expansion and partnerships, M and A and other elements like this. And in terms of for the other point, I'll leave Maximo to answer.
Definitely, Luca the very beginning, we said that one of the most important characteristic of this plan is flexibility. So definitely, we probably we can get even more than 55 in order to complement such an exercise. But flexibility means that we have a lot of tools to get to the final result in term of balance sheet solidity, progressive remuneration, getting to the CO2 reduction result that we are announcing today. So these tools, the balance between the different businesses inside the portfolio definitely will shift. Maybe that could change going ahead because this would be the good of this flexibility.
So all this lever we have to modify our portfolio, getting the best opportunities ahead of us. Some of them we see now, some of them maybe will appear in the future. So this is the good. So this is the way the reason why we believe that we can feel ourselves comfortable about the final result, even if the way we can get there can could change from now to the next 20 years.
Thank you very much.
The next question is from Martin Ratz of Morgan Stanley.
I wanted to ask you 2 questions. I know it's a bit more than normal, but I hope they'll be all right. The first I wanted to ask relates to Slide 19, where you talk about the reduction in carbon emissions. So on the right hand side, it shows a reduction a planned reduction in intensity of 55%. And on the left hand side, it then shows a reduction in the absolute emissions of 80%.
And I guess one way to get to an absolute reduction of 80% is through a reduction in intensity of 55%, but then also a reduction in total energy sold also again of another 55%. And I was wondering if this is a correct interpretation of this chart or whether there's something funny with the math here. Because in that scenario, the chart seems to suggest that by 2,050, Eni will sell 55% less energy than it does today, and that does seem quite a large decline. The second thing I wanted to ask also relates to well, relates to the same chart. I was wondering why you decided to include an absolute emissions target.
I do know that a lot of people are asking for it. But from our perspective, it also prevents you from doing a lot of from doing M and A. And in a world where oil demand at some point peaks, I would still say there's nothing wrong with M and A driven growth. But when you have an absolute emissions target, that becomes very, very difficult. So I was wondering how you see that trade off.
And then finally, I wanted to ask you about your commodity price assumptions. Admittedly, they seem very high to me. And now forecasting these things are by no means easy, so I don't want to make too much of it. But the reason why I ask this is that most of the majors present sort of deflationary sort of breakevens, as in breakevens tend to come down over time, driven by technology, cost savings, all these things, and that's also what you're presenting today. But then at the same time, show rising commodity prices.
And it seems that there is a sort of a degree of inconsistency there. How can you model rising oil price assumptions whilst modeling fallen breakevens at the same time? I was hoping that you could give your view on that.
So Martin, Ignacio speaking. So you're asking which are the lever that will allow us to reduce our absolute emissions by 80%. Certainly, the action we are envisaging in term of reducing oil or in absolute term, reducing the amount of hydrocarbon we handle based on our methodology to measure the emission that I don't know if you had the chance to go through the methodology that definitely could be worth. In the afternoon, I'd like to remember all of you that there will be a workshop on this respect. Our methodology includes all the hydrocarbon we deal with, including the hydrocarbon to supply our refineries acquired from 3rd parties, the gas we acquired from 3rd party to supply our customer or to be sold on the hub.
So definitely, this volume will be reduced over time with the replacement of additional
sources.
Karl, you want to highlight that we are going to reduce, shrink the 3rd party gas that we are buying. And we're going to increase our equity production. So don't I don't want any misunderstanding that, that is important component that from the absolute point of view, so that is when you put the absolute, it's reducing drastically our scope 3. Because in our methodology, we put our charge also the 3rd party gas that we buy from a 3rd party and we sell to a 3rd party. The other big component is the transformation of all our refining sector in Italy.
That is the reason why we are able to reduce so drastically the absolute and why that is a positive point in our strategy because this kind of asset, so this kind of configuration portfolio allow us to do that. We wanted to also to anticipate the absolute value of reduction requirement.
But in terms of scenario, we are assuming, I don't know if our scenario will be too high or too low. We will see. But what is the most important, I believe that in all respect, figuring out, which is the return in our upstream project, even if we have to measure the expectation in the longer term, we are providing a lot of sensitivity. So any way you would be in the position to measure how resilient, how flexible our existing asset or if the assumption we are using in measuring our expectation in the longer term. I mentioned a $50 barrel flat scenario together with a $5,000,000 btu gas price.
So this is the answer, Martin. No one knows, but we are giving to you a lot of information in order to assess exactly how resilient is and will be our portfolio.
Okay. And anything on sort of doing M and A whilst having an absolute target for emissions?
No M and A. There is no M and A for reaching these targets.
Okay. Thank you.
One moment for the next question please.
Thank you for your questions. If there are no further questions, we can end the call now.
Sorry, sir. We do have a few questions registered.
Okay. We'll take them.
Okay. The next question is from Mr. Lucas Herriman of Exane. Please go ahead.
Gentlemen, thanks. And thanks very much for the opportunity to ask a question. 2, if I might. The first, can I just ask what comes first, customers and demand or supply? And I was just thinking about the model you're building and the important spending on to calling off
Excuse me, can you talk please repeat your question and try to talk louder because we are not able to capture your question. Excuse me.
Okay. Thanks, Claudio. Claudio, the first question is what comes first, demand or supply as regards to renewables business and the build out, in other words, customer or facility? And I ask not least because the weight of your customers at the present time is still is very Italian focused
and yet the expansion of
the Renewables business sounds as though it's more broadly focused. And the second question I wanted to ask was about the financial frame and the importance of buyback or returning capital to shareholders as you move towards the middle of this decade. As clearly as you move away from targeting growth of 3% or 4% per annum in your hydrocarbon business and the amount of capital that's going to go into that business is going to fall away and should fall away quite materially. I mean, we already see that in the numbers that you've given us out through 2023. At the same time, you've been growing your dividend after allowing for buyback at somewhere around 3% in absolute terms per annum.
How does all of this sit financially with the model that you're looking to build 2025 onwards? In short, the question Claudio is how do you start to allocate capital
Okay. Thank you. So Sal, first question. Alberto Queries that is in charge of the Resolute will answer.
Thank you for your question. As you correctly say now, our presence in AGL is mainly in Italy. We have a strong presence, however, in France and in Greece where we are growing. I think the first concept is that we are looking for synergies. We believe we certainly believe that in the future, going forward towards 2,050, it will be very important to provide green energy biogas to our customers.
Because of that, I would say that the growth of renewables is driven also by customers. We are well coordinated. I always talk with Luca in order to see which are the countries where we can grow both in renewables and in customers. We have a strong know how in not only gas and power, but also all the high value services like demand response, like electric vehicles recharge. And we believe that in the future to be present in this ecosystem with renewables will be very important.
So we will grow together in those markets that we believe are promising.
And just one sorry, Alberto, just one point about your question about demand and supply. I think in few years, if you are not able to deliver green products, you are going to lose your customer. So that is an essential part of the integration. All are able to deliver to supply in all different countries. And as we told you, 70% would be in OECD countries.
So we are able to deliver this kind of different kind of product without CO2 to expand the scope 3. You are not able not to grow your customer, you're going to lose very quickly. So that is one of the major reasons.
Term of capital allocation, I believe that the best way to answer qualifying our model is to mention again flexibility because we just fixed some pillars in our strategy forward. So we are saying production is going to plateau from 2025, and then we envisage a decline, a flexible decline, mainly in oil. How deep would be the decline? The answer because of the flexibility is we don't know. So it will depend on the existing market demand, a lot of other competition from different businesses in which we would like to enlarge by definition our presence because we believe that a much more balanced portfolio exposed to even different energy sources could be a very good move on this respect, seeing such an evolution in the market looking forward.
So the decline will take place because we announced also the reduction in our footprint as a fixed target. So definitely, we are stating such a target to respect it as we can. So in term of allocation, how fast would be the reallocation from Upstream to the other businesses, it will depend on flexibility. Based on what we see today and the quantities in different businesses we announced today, could be reasonable to project in 2035, a 5050 capital allocation. So 50% upstream together with CCS and 50% the other businesses.
The question part is, if I think that you've been growing at 3%, 4% per annum or adding broadly 80,000 barrels per annum, And I think that the cost of maturing those barrels, assuming a reserve life of something like 10 years, it says that $3,000,000,000 to $4,000,000,000 worth of capital should be falling out of your upstream spend. That is a huge amount of money as regards reinvestments into a project finance renewable model. Where did it go?
No, but this okay. I said that the I'm not saying planning this strategy that the amount of CapEx will remain the same. We are saying that some businesses in which we are entering in are less capital intensive. So could be reasonable to project a lower amount of CapEx looking forward. So this is not a matter of allocation of the same more or less, EUR 8,000,000,000 we are spending today.
That is the amount of CapEx we are projecting from now to 2,033, a period in which the composition in our portfolio would remain more or less the same. So definitely, one of the possible effects of the strategy would be a reduction going forward in the amount of CapEx we are going to spend annually.
Okay. Thank you.
The next question is from Irene Himona of Societe Generale. Please go ahead, madam.
Thank you very much. Congratulations on a radical plan to decarbonize without stranded resources. I had a number of questions. Firstly, Massimo, you just referred to the following capital intensity. So by 2,035, when renewables begin to step up, what could that €8,000,000,000 current annual CapEx be reduced to, please?
Secondly, you gave us a sense of the 15% return in the biorefineries today. What level of returns can we expect for the new future integrated renewable projects? And my final question is on the Loais refinery, which is the only conventional asset to be retained. Talking about near term, can you talk a little bit about whether you are overcoming the challenges of getting the project to increase the flexibility of the crude feedstock and whether you still expect dividends to start flowing in 2020, please?
About how many money we are going to allocate by 2,035 in Renewables, I correctly understood, Irene. So I said that today, what we can envisage in 2,035 would be a fifty-fifty capital allocation, where in the remaining fifty percent, we include the renewables. I don't want to give you a lot of details from now to 2,035. But what I can tell you is that having in mind the amount of gigawatts we are projecting by 2,035, in our planning exercise, we are not projecting any significant cost reduction for renewable projects. So we are just assuming what is the consensus on this respect.
So you can definitely come out with a reasonable number to be allocated to renewable from 2025 to 2,035 to grow up from 5 to 15 gigawatts of capacity. And then which kind of return we do expect from renew from so we said 15% from biorefineries, and we cannot there is no reason to imagine something different because that's the market we see even in the next year. I don't know if Pino would like to elaborate a bit more.
Thank you, Massimo. Just a few additional words. Our IRR for the by the current biorefinery, we expect it to repeat also in the other market, in the other geographical areas, where we expect it to develop in the next future. Our strategy is to develop the biorefinery in the areas where we have the opportunity to collect feedstock or where the biofuel market will grow, taking into account also the future development of biojet. That will be a very challenge for the decarbonization of the aviation.
In terms of return from the other businesses, so mainly renewables or biomethane. So talking about the renewables, that probably is the most important. So we said that our expectation from renewable these days in the range of 8%, 12%, targeting brownfields because what we have done up to now has been to develop capacity in places in which we already own the land. We have some synergies that allow us to have a higher return from the investment even unlevered. But definitely, you noticed that what we are announcing today is a bit different.
We are announcing a much bigger expansion in term of renewables that, by definition, cannot be reached throughout brownfield project only. So the expectation on this respect should be for planning purposes, definitely lower than the range around 10 field 4. So for planning properties, we're assuming something in the range of 7% unlevered. And then definitely, you can add all the additional advantages, leverage, but most important, the value to generate energy in integrated way. So the most important contribution on top of the 7% that is a sort of floor on this respect will be integration between the generation of this renewable energy throughout the chain to keep our clients to extract additional value from our clients that will have a churn rate that will be definitely lower.
As Carvio said before, probably in Europe in 10, 15 years' time, we will lose clients if not if we do not provide them renewable energy. So this is the definitely the plus we can see. And overall, that's the reason why we expect a return that would be higher than 7%. And final wise?
Otherwise, we will continue with the project of the CFP, CFP Plus. That they have the goal to increase the flexibility on the feedstock, the efficiency and the possibility to increase also the yields and the capacity of the refinery. With in our strategy, where we consider to maintain in the long period the only waste out of Europe as a traditional refinery, This is a unique opportunity because of the fantastic position inside the technology content, a possibility to improve the efficiency of these sites. In the mid to long term, we will develop project for the CCS or CCS U. That is another good opportunity because it's all concentrated in only one vehicle and in a country where is also in progress projects like this.
If I can just very quickly, Marcin, I'll go to the first question on capital expenditure. In the plan by 2,035, what sort of level of group CapEx, if you can indicate, are you seeing, so compared to the EUR 8,000,000,000 currently?
No, Irina. I don't want to give you an absolute number. Please accept the proportion that is a good guess about what we are planning today.
Okay. Thank you.
Gentlemen, at this time, there are no questions registered. Mr. Discasse, would you like to make any closing remarks, sir?
Thank you for the opportunity. Now I want to reiterate what we have said this morning also during this conference call. We had and we have developed an industrial project that is in the transformation. We clearly, we did that because we felt the need to transform our company because any will not be the same in 10 years, 15 years, 20 years. There is all the market that is changing.
All the customers are changing. The needs, the requirements are different. And we work in the last sphere really to be able to make an evolution in our business. I think that the technology is one of the main key to transform your our business and generally your business. For that reason, we invested a lot in R and D and in technologies.
And we are applying our technology. That is a very important strength because that is another important component of flexibility. But we have to remember that under all these figures, there is a clear plan in terms of CapEx, in term of our cash flow, in term of EBIT. So and in term of a different kind of sensitivities For that reason, there is the flexibility that we run with different kind of prices. We start from our portfolio.
Our portfolio is very flexible because as I told you a lot of, we're considering all the different kind of products that we buy, that we sell. So all our package, we have this big possibility because we can reduce drastically through our equity reducing the 3rd party gas and with the transformation on verifying. So I think that we are really building a new any. We don't want to think I don't want that you think that we are depressing the upstream. It's on the contrary, what we built in the last 6, 7 years in the upstream with exploration is giving the flexibility to really modulate our CapEx to reduce our CapEx at the end of the day, so give more value to our shareholders and shareholders.
So thank you very much, and we'll see you very soon to explain in details all the good and big work we have done. Thank you.
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