September 18, 2013 / 1:27 PM / 5 years ago

Italy's Eni aims for top five spot in energy trading league

* Eni presence felt in many European crude markets

* Aims for profits comparable to trading desks at peers

* Trading to aim to maximise value from new projects

By Dmitry Zhdannikov and Stephen Jewkes

LONDON, Sept 18 (Reuters) - The trading desk of Italian energy firm Eni is fast emerging from the shadows of established peers as it begins to rival oil majors BP and Shell in some of their favourite markets.

In the three years since moving oil and gas trading to London and combining operations previously in Amsterdam, Milan and Brussels, Eni’s desk has grown from mainly serving its refiners into a much more diversified player.

This month, Eni bid aggressively to win the rights to trade oil from Russian major Rosneft, gaining access to crude in the Baltic Sea.

It was an unusual move for a company whose main refineries are located in the Mediterranean.

But as Eni starts large oil projects in new countries, such as Kazakhstan, and works on big liquefied natural gas projects in East Africa, trading is set to gain further prominence.

“In 2010, we said ‘we have a unique set of assets, we are the only large oil company that is also Europe’s largest natural gas company,” said Marco Alvera, CEO of Eni Trading and Shipping and in charge of Eni’s new midstream business unit.

“We have a lot of storage, we have a good deal of optionality. We don’t need to buy assets that much. We need to start extracting value from the flexibility we already have,” he said. “Our main effort is asset optimisation”.

Eni is expanding trading at a time when Wall Street banks are drastically reducing their commodities desks under regulatory pressure, which has prompted an army of traders to defect to industrial majors and trading houses.

However, oil majors and trading houses face their own pressures, including probes by EU authorities.

Trading around Eni’s operations can be equally challenging and appealing given their scope. It is the largest buyer of Russian, Algerian and Libyan gas and one of the biggest buyers of Russian Urals oil. With output of 1.8 million barrels per day from assets around the world it can fulfil over 15 percent of Europe’s oil demand.

“We are No.1 in natural gas in Europe and probably have a top 6-7 position among global majors in terms of equity oil production. As a trading organisation we definitely deserve to be up there in the top 5,” said Alvera, who named Shell, BP, Total, Statoil and EDF as the company’s main peers.

BIGGER THAN SINGLE-DIGITS

Oil majors have different attitudes towards trading. Exxon Mobil, the biggest oil firm by market value, is the most conservative and uses its desk mainly to serve its downstream operations.

In contrast, trading desks at BP and Shell are separate profit-generating units, which on a good year can earn up to $3 billion through a combination of successful trading and bets on market directions.

“We minimise the proprietary trading part and we try to hedge almost everything we do. We don’t take basis risk nor do we take directional risks. We tend to do trading around the assets,” said Alvera.

Like other trading desks, Eni doesn’t disclose its profit targets: “We want it to be industrially relevant to the rest of the business. So it’s not going to be something in the kind of single-digits millions”.

Traders say Eni had to offer a very large premium at the Rosneft tender to outbid rivals. Alvera said that still doesn’t mean the desk took a big directional bet as its refineries are mainly built to run on Urals.

“...We try to trade around that. You would still not see a speculative directional bet,” he said, adding that stricter global regulations were limiting such activity: “I think the market has become a little more cautious on that, anyway.”

Building a large position in Urals, the dominant grade in Europe, could be useful as Eni and its partners in one of the world’s largest oil fields, Kazakhstan’s Kashagan, are launching output which will become a major source of new crude for Europe.

“We are long industrially again, so I wouldn’t expect to be aggregating other volumes or aggressively bidding for other people’s volumes. But we aim to maximise the value of our own equity there,” said Alvera.

The industry believes Eni employs over 400 people in trading, making it a sizeable desk though still smaller than the 3,500 traders and support staff at BP’s oil and gas trading.

With the Italian government as a major shareholder, Eni is more constrained than some peers and privately owned traders such as Vitol in splashing money on star traders.

“We are trying to develop a team culture where we don’t need to have the superstar single-handed trader who performs very well and then leaves if he gets a higher offer.”

“We want to develop a platform that sticks with us for the next 10-15 years,” said Alvera, added that with some banks pulling out of commodities, hiring costs were dropping. (Writing by Dmitry Zhdannikov; editing by Jason Neely)

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