snam.it

Diversification and cross-border interconnections at the core of the EU Internal Energy Market European Energy Forum Strasbourg 12th April, 2016

National Production

Import

Power generation

Industrial

Residential & Commercial

Trasporto e dispacciamento

Rigassificazione

Distribuzione

SUPPLY INFRASTRUCTURE SALES TO END USERS

Transportation network

Storage

LNG Regasification

Distribution Network

Snam: An integrated operator with a leadership position in the regulated gas infrastructure in Italy

Snam is a key gas infrastructure player .. 2

Transportation • Regul. Revenues: €m 1,912 • EBIT: €m 1,165 • RAB(1): €bn 15.1 • Network: 32,534 km • Market positioning: 94% of

the Italian market

Distribution • Regul. Revenues: €m 1,063 • EBIT: €m 469 • RAB(1) : €bn 5.7 • Network: 56,717 km • Market positioning: 33% of

the Italian market

Storage • Regul. Revenues: €m 454 • EBIT: €m 319 • RAB(1) : €bn 4 • Capacity: 9 storage sites (16 bcm) • Market positioning: 95% of the

Italian market

Regasification

• Regul. Revenues: €m 18 • EBIT: €m 1 • RAB(1) : €bn 0.1 • Capacity: 1 LNG plant (3.5

bcm)

2015

Source: Snam, Annual Report

3

Snam: shareholding structure and geographical break down

..with a well diversified shareholding and international investors’ structure

Benchmark on EU gas demand and uses (2014, TWh)

Source: Snam elaborations on Eurogas Statistical Report 2015

Italian gas system highlights

• 3rd market by gas demand in Europe and Snam is the national Transmission and Storage leading player

• Significant share of demand driven by electricity generation Italy ranks 1st in EU by installed gas power generating capacity (ca. 22%)

• Balanced primary energy mix with a growing role of renewables (16%, 2014), natural gas (35%, 2014) as the primary source in the energy mix supply in the medium term

• Highly diversified gas supply thanks to 5 interconnections / import pipelines and 3 regasification terminals, with an historical role of Algerian and Russian gas import

• TAP is due to ship volumes from Azerbaijan to Italy by 2020 The route is the first realization of the EU Southern Corridor strategy

Italian gas market key drivers and EU benchmark

Based on a solid footprint in the Italian gas market .. 4

* including heat plants

Italian regulation

EU gas market framework

Italian gas market framework

EU regulation

Investment plan in italy

International strategy

5

Supporting sustainable growth

Exploiting high-quality investment opportunities in Italy

Focusing on main European gas corridors to integrate gas markets leveraging its diversified and valuable asset portfolio

Selective investments

Efficient cost management in the context of a growing asset base

Operational efficiency

Preserving a solid and efficient capital structure

Financial discipline

Driving value creation for all stakeholders Attractive returns

.. with a strategy consistent with EU and Italian political and legislative framework

Key Pillars of Snam’s Growth Strategy

Source: Snam elaboration on public data

(IT)

(FR)

(NL)

(DE)

(ES)

(UK)

(DE)

(FR

(DE)

(BE)

(DE)

(AT)

(PT)

(AT)

(UK)

(DE)

(DE)

Gas Connect Austria OMV Gas Storage

Storage

Transport (Pipelines length, km)

Storage (Capacity, bcm)

LNG (Capacity, bcm)

32,300

32,300

11,800

12,000

10,100

7,900

7,300

5,000

4,200

4,100

2,200

2,000

1,375

1,137

200

--

--

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

15.9

10

0.4

--

3.4

0.2

--

2.7

--

0.7

4.4

2.4

0.2

--

--

6.5

2.7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

3.5

15.5

12

--

40.7

19.5

--

--

--

9

--

--

7,9

--

--

--

--

1

2

3

4

5

6

7

8

9

1…

1…

1…

1…

1…

1…

1…

1…

6

Stake: 40,5%

Stake: 84,47%

Stake: 15,75%

Taking advantage of the 3rd EU Energy Package ..

Snam position within the gas infrastructure sector at EU level

TIGF Interconnector(UK)

• Bi-directional flow capacity provides flexibility and diversification of supply sources to UK and Continental Europe, via a 235 km subsea pipelines, and terminals and compression systems in Bacton and Zeebrugge

• Essential link between major gas hubs of North-West Europe

• Represents a leg of the East-West EU corridor, through 5,000 km of transmission network,14% of France gas transmission grid

• Contributes to French gas area unification through strong transportation investments

• Provides a competitive storage offer - through 5.7 Bcm of storage volumes (20% of French capacity) - with a wide range of products

PEG South

PEG North

PEG TIGF

United Kingdom

Netherlands

Belgium

France

Bacton

Zeebrugge

TAG • Pipeline bringing Russian gas from

Austrian/Slovak border (Baumgarten) to Italy (Arnoldstein-Tarvisio) with 3 lines worth ca. 380 km/each, 5 compressor and 2 metering stations

• Already developed reverse flow capacity to manage substantial flows towards East European countries

• Incremental role for South Eastern Europe

Austrian/Italian Border

Slovakian/Austrian Border

2012

7

.. Snam has progressively developed its presence in Europe ..

Overview of Snam participated companies

2013 2014 2015

TAP

• Pipeline project for connecting Shah Deniz 2 gas production to European markets, through the Italian gas network (approx 870 km, 10 bcm/y)

• Fundamental project for the opening of the Southern Corridor contributing to diversification of sources and security of gas supplies

Greece

Albania Italian system

South – North gas interconnections (South Western Europe)

1

South – North gas interconnection (Central Eastern and South Eastern Europe)

2

Southern Gas Corridor (Caspian region)

3

Interconnection plan of Baltic energy market 4

1

4

2 3

Snam initiatives along S-N corridor

• 2011 – Development of reverse-flow capacity between Italy and Austria at Tarvisio interconnection point

• 2015 – First bi-directional flow transmission capacities in Gries Pass by October 2015, through a Strategic Alliance with Fluxys to create gas interconnections increasing liquidity in EU markets

8

.. positioning as a key player to support European gas market dynamics

Snam infrastructure positioning at the Heart of the EU Energy Corridors

EU PRIORITY CORRIDORS

Source: Eurogas, statistical report 2014 9

Snam commitment in promoting storage key role for EU market

Storage for market flexibility and security of supply

Germany 25%

Italy 17%

France 12%Austria 8%

Hungary 7%

Netherlands 6%

UK 5%

Czech Rep. 4%

Other 17%

EU28 gas storage capacity: ca. 97 Bcm (2014)

Snam operates in Italy and France approx. 20% of total European gas storage capacity, promoting a full integration of storage and transmission services

Snam Group presence with

storage activities

Snam supports also the role of EU storage for flexibility and security of supply ..

261 270

21 2149173

0

100

200

300

400

500

7 Feb. 2011 7 Feb. 2012Import National production Storage

Source: Snam Rete Gas database 10

Storage for market flexibility Storage for security of supply

Gas storage role in Italy: a possible benchmark for EU?

.. based on its direct and diversified experience in Italy

Interconnection Point

(gas source)

Reason Interrupted capacity

Duration

Tarvisio (RUS)

Ukraine crisis 100% 14 days

(Jan 2009) Gries Pass (NOR-NL)

Mudflow in Switzerland 100% 154 days

(Jul-Dec 2010) Gela

(Lybia) Internal conflict 100% 232 days

(Feb-Oct 2011)

Summary of gas emergencies in Italy

Strategic storage not being used due to large availabilities of alternative gas but a strong and effective measure to protect final

customers in case of need

Benchmark on 2012 peak gas demand (Mcm/d) 464

+134 Mcm/d for exceptional

gas demand

37% of gas demand covered

via storage withdrawal

Storage role to cover exceptional peaks in gas demand in winter time, along with a reduction in electric power import and production from

renewables

Natural gas: fuelling climate targets in an efficient and immediate way

11

Natural gas long-term demand & production* (Bcm)

* New Policies Scenario hypothesizes the full implementation of the Energy Policies set out at EU level (the "Current Policies Scenario ‘ foresees a gas demand worth 656 bcm at 2040) ** IHS Rivalry assumes EU on track to reach its 2020 targets. 2030 targets at EU level not reached but different trends among Countries (priority is given to national policies)

Gas demand review in last 5 years

“Unexpected” growth of renewables

Enhanced efficiency in final uses to reach

higher energy saving targets

Economic crisis impact on the industrial

footprint

Reduction of about 160 Bcm (from 2010-2012 to 2015 IEA forecast) impacting

traditional uses

How to turn needs into opportunities? • Reduction of GHG emission in ETS sectors • Reduction of CO2 in transport (95 g/km CO2 at 2020*) • Increasing RES share in energy mix

• Promote “carbon tax” to support gas vs. coal in power generation • Encourage gas use in transport as cleanest fossil fuel • Support biomethane as renewable source

1

2

3

0

20

40

60

80

100

120

140

2016 2020 20300

20

40

60

80

100

120

140

2016 2020 2030

The growth of the EUA prices and the dynamic of gas prices in a low-oil prices scenario reduces the competitiveness of older and less efficient coal plants

CCGT power generation competitiveness depend on the amount of emission taxes/cost**

Carbon competitiveness Generation costs for Italian plants

Price competition for power generation

• Introduction of carbon tax (as in France or UK) would allow CCGTs to compete with all coal power plants

• Replacing half of the present coal generation with gas generation would reduce CO2 emissions by 8% with an increase in gas demand to 90 Bcm avoiding unnecessary investment costs for electricity infrastructure.

12 Source: Snam elaboration

(€/MWh)

57 21 11.5 EUA (€/t) 100 56 22 Carbon tax (€/t)*

New coal power plants Old coal power plants CCGT

*Total emissions costs including EUA ** Clean spark spread resulting higher than clean dark spread

Italy today with EUA Italy adopting French carbon tax

Gas for transport

Specific deadlines for the development of infrastructures for supplying alternative fuels

European strategy for the development of more efficient and sustainable solutions in fuelling

Increasing attention in controlling emissions in maritime transport. 2 different targets for specific areas: • SECA: sulphur contents in marine fuel < 0.1% by Jan 2015 • No-SECA: sulphur contents in marine fuel < 0.5% by Jan 2020

2020 2025 2030

CNG fuelling stations (road)

LNG bunkering facilities in all ports

LNG fuelling stations in roads and bunkering facilities in main ports

SECA SECA Area

No-SECA area

Directive 2014/94/EU (DAFI) Directive 2012/33/UE

13

Italian Legislative Decree 112/2014 anticipates the sulphur limit emission at

2018, subject to the same anticipation by

neighbouring countries.

CNG today is the cheapest solutions for the reduction of CO2 emissions..

..becoming an immediate opportunity for gas in the transport sector

Snam can play a direct role to promote the natural gas for road transportation *Index consumption; in 2015 equal to 46% ** Estimated number stations required

14

Estimates for the Italian market show a good potential even with relative market share

*** Market share of CNG in transport sector

2008 2014

523k 885k

700 1040

+9.2% p.a.

+6.8% p.a.

Target 2030 ~5M CAGR

+13%

1 Bcm 8 Bcm 0.6 Bcm

2500** ~ +140%

1.3% 2.2% 9% ***

Gas for transport: Italian state of the art and potential

… and to NOx and Particulates, real source

of city pollution

Several automotive industries have already introduced Natural Gas

Vehicles

15

Mass balancing on a single European biomethane grid enabling trans-European trading

Harmonized European biomethane registers enabling traceability also between EU member states

Harmonization of European support regimes

Growing awareness of biomethane role in the decarbonisation strategy all over Europe…

…but additional efforts for a full and consistent EU development

ETS sectors (i.e. power generation) can collect the full “carbon value” of biomethane Feed-in-tariffs for injection into the gas grid in most EU countries

National targets in several countries (Germany, France, Netherlands)

National biomethane Registers of Guarantees of Origins in several European countries

Tax reliefs for specific uses

111

300

2011 2014Plants

+170% Biomethane plants and capacity in

Europe 2010 2013

Capacity (Bcm)

+330% 154

54

23 0.3

1.3

Biomethane is a renewable and programmable source contributing to RES targets and to additional domestic production

Biomethane is injected into the gas grid and can support gas infrastructure role

Biomethane

Snam, together with Confagricoltura and Consorzio Italiano

Biogas, developed a common position paper issued to

national and EU authorities to promote biomethane

development

16

The electric industry view

The gas industry view

Objectives to achieve

Achievement of targets set by the EU “20-20-20” package and “Framework to 2030”

- Increase RES share in energy mix

- Reduce CO2 emissions

Targeting the emission reductions optimizing the actual infrastructure to improve the efficiency and enhanced the system security developing programmable RES

High investments in the electric network to reach the targets and higher costs to backup the not programmable RES evolution

How to achieve them?

The “gas” case: a “do-able” way to achieve the energy policy targets

Implementation of the policies for the reduction of CO2 emissions and development of renewable energy programmable (biomethane): Introduction of "carbon tax" to allow the switch from coal to gas

reducing the share of coal in the energy mix Necessity of active policies to support biomethane development

and linking gas grid to RES evolution; Action: support biomethane value linked to the EUA to facilitate the consumption in the thermoelectric sector

* Industrial Emissions Directive, EU

Utilization of coal plants up to 40 years with the sole application of emission limits required by the IED (oxide emissions and particulates that become stricter from 2023).

Strong development of non-programmable renewable (wind and solar) to achieve the target reducing the increase of biomethane.

Strong investments required on electricity networks (national and local)

The gas sector in the decarbonisation path Efficient and immediate

17

E-HIGHWAY 2050

Development of highway for power generation from RES in EU

EUROPEAN GAS GRID

50% reduction of coal with gas switch in EU reduces 250 Mt/y CO2 emissions

Gas Grid limited investment needed

400 B€ for new electric grids to reduce 200 Mt/y CO2

The gas sector in the decarbonisation path Efficient and immediate

Snam is the leading infrastructure player to

support Europe to implement the EU gas

market development, in cooperation with other

relevant continental players and stakeholders

Snam role in the EU gas market development

18

snam.it

Diversification and cross-border interconnections at the core of the EU Internal Energy Market European Energy Forum Strasbourg 12th April, 2016