Eni Inks LNG Supply Deal

Italian energy giant Eni SpA ( E - Analyst Report ) signed an agreement with Japanese and South Korean energy companies for shipments of liquefied natural gas (LNG).

Per the agreement, Eni intends to transport 1.7 million tons of LNG, or 28 cargoes, to the South Korean energy company Korea Gas Corp. (KOGAS) and Japan's Chubu Electric Power Co. This first ever joint purchase transaction that involves several Asian countries covers a period between May 2013 and December 2017.

Asian LNG prices are generally steeper than prices in the U.S. and Europe as Asian purchasers hardly ever get into group bargaining deals.

As for the current deal, Eni said that it would ship the LNG as per the requirement of each party. Chubu Electric secures approximately 14 million tons of LNG annually while KOGAS procures over 30 million tons positioning them as the world's No. 4 and No. 1 purchasers of the fuel, respectively.

In 2012, Eni inked a deal to sell 3.3 million tons of LNG, or 49 cargoes, to the Japanese market. Following the Fukushima Daiichi nuclear disaster in 2011, Japan needs more natural gas supplies in order to cope with the mounting energy deficit. While these sale agreements would aid the Asian countries to meet energy requirements, it will also benefit Eni to strengthen its LNG footprint in the region.

The strengthening of the global economic scenario also offers Eni ample long-term visibility. The company aims to enhance the flexibility of its plants, along with optimizing the production cycles, while reducing costs and utilizing its proprietary technology.

Last month, Eni entered into a Heads of Agreement (HOA) with US-based Anadarko Petroleum Corporation ( APC - Analyst Report ) for the development of natural gas reservoirs in offshore Mozambique.

Jointly, Eni and Anadarko also planned to build a common onshore LNG liquefaction facility in the Cabo Delgado Province of northern Mozambique. The facility is expected to be in operation by 2018 and expand to a 10-train 50 million tons per annum (mtpa) export facility.

Eni holds a Zacks Rank #4 that is equivalent to a Sell rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.