*is its limited presence in downstream justified-why? *is its vertical integrati

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*is its limited presence in downstream justified-why? *is its vertical integration into gas justified-why? *is Eni's Italian nationality an advantage-why? Case 15 Eni SpA: The Corporate Strategy of an International Energy Major By May 2012, Paolo Scaroni had been CEO of the Italian energy giant Eni for seven years. His strategy had deviated little from that of his predecessor, Vittorio Mincato (CEO from 1998 to 2005). It comprised two major thrusts a commitment to organic growth strategy with a particular emphasis on oill and gas exploration and production CE&P;) vertically integrated approach to Eni's natural gas business through linking a Eni's gas fields in north and west Africa and gas supplied from its alliance partner, Gazprom, to its downstream gas business in Europe by pipelines (and, more recently, liquefied natural gas). The strategy had achieved some notable successes. Since 2000, Eni had grown its petro leum output and reserves by more than most of the other majons, revenues had increased almost fourfold, retum on capital employed had averaged 148% over the ponod, and in tems of market capitalization Eni was Europe's tenth-most-valuable company In his strategy presentation on March 15, 2012, Scaroni committed Eni to a con- inuation of this strategy During 2012-2015, capital investment would rise to 15 billion annually, of which 75% would go to E&P.; The target was for petroleum production to grow by more than 3% each year during 2012-2015. Eni would continue to grow its natural gas business. The majority of Eni's increased petroleum output would be natural gas; downstream, Eni would grow its sales of gas to European business and retail customers by 1896 and 28% respectively; Eni would continue to invest in pipelines, including the proposed South Stream pipeline (a joint venture with Gazprom, EDF, and WintershalD from Russ?a to Austria and Italy However, in pursuing this strategy, Scaroni recognized that Eni would face some strong headwinds. Expanding upstream production was becoming increasingly chal- lenging: exploration was moving to technically challenging frontier regions such as the This case was prepared by Robert M.Grant. 02012 Robert M. Grant

Explanation / Answer

Yes, Limited presence of Eni in downstream is not justified. Eni has little international success in downstream company. Downstream companies profitability depends on domestic market dominance it has. If domestic market has more number of competitors then profitability decreases. Hence it is not worth of extending heavily to downstream business. Having said this, Eni has dominant downstream business in Italy. Yes, Eni’s vertical integration is justified. Gas production, storing and transportation is difficult task and requires expertise. Eni who is one of the leader in gas production has that expertise, hence it should concentrate on vertical integration. Moreover vertical integration helps in time of difficulty. When one business faces difficulty, it can switch to others. Yes, Eni’s Italian nationality an advantage because Positioned in Italy, the company has a geopolitical advantage over many of its competitors. Italy is near to African continent which has large reserve of gas. Eni can easily build pipeline into African continent and pump gas thereby have vertical integration of business.

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