Il Metanino 2018Il Statistical Metanino Data Dati Statistici 2017

1 Il Metanino 2018Il Statistical Metanino Data Dati statistici 2017

1941 2016 SNAM: the mission

Snam is Europe’s leading gas utility. Founded in 1941 as “Società Nazionale Metanodotti”, it has been building and managing sustainable and technologically advanced infrastructure guaranteeing energy security for over 75 years. Snam operates in Italy and, through subsidiaries, Austria (TAG and GCA), France (Teréga) and the United Kingdom (Interconnector UK). It is one of the main shareholders of TAP (Trans Adriatic Pipeline) and is the company most involved in projects for the creation of the Energy Union.

First in Europe by transport network size (over 32,500 km in Italy, about 40,000 with international subsidiaries) and natural gas storage capacity (16.7 billion cubic meters in Italy, about 20 billion with international subsidiaries), Snam manages the first liquefied natural gas (LNG) plant built in Italy and is a shareholder of the country’s main terminal.

Snam’s business model is based on sustainable growth, transparency, nurturing talent, and development of local areas by dialoguing with communities. It fosters sustainable mobility, expands into energy efficiency, and invests in biomethane and innovative technologies to increase the use of renewable gas, a key resource of the green economy.

*Teréga has been the new denomination of TIGF since 30 March 2018. 2 Index

5 The Energy Environment 6 Natural gas reserves in the world (2017) 8 Natural gas production in the world (2017) 9 Natural gas consumption in the world (2017) 10 Natural gas: Trade movements 2017 by pipeline 12 The main LNG streams in 2017 14 LNG worldwide in 2017 16 LNG in Europe: plants 18 Storage capacities in the world at the end of 2017 20 Gas prices in the world Europe 22 Natural gas supply in 2017 23 Energy consumption by source in the main countries 24 Natural gas consumption by country (2014-2017) Italy 25 Natural gas supply in 2017 26 Natural gas consumption by sector 27 Snam in the gas system 28 Snam, the company profile 30 The journey of natural gas in Italy through Snam infrastructures 33 Regulatory framework: businesses tariff scheme 34 International development, overview 36 Snam, the European scenario 38 Gas as a forever fuel 40 Main economic-financial data 41 Snam in the bond market: the credit rating 43 Appendix 44 Glossary 46 Reference heat capacity 47 Units of measurement 48 Transported natural gas composition 49 References The Energy Environment | 5

The Energy Environment The Energy Environment | The Energy Environment | 7 6 Natural gas reserves in the world (2017) Total: 193.5 OECD countries: 9.2% Non OECD countries: 90.8% Trillion m3

62.2*

10.8

19.3

79.1

13.8

8.2

Source: BP statistical review *Of which 54.5 in Russia of world energy 2018. and Turkmenistan.

4.2% 5.6% 7.2% 10.0% 32.1% 40.9% S. & Cent. America North America Africa Asia Pacific Europe & Eurasia Middle East The Energy Environment | The Energy Environment | 9 8 Natural gas production in the world Natural gas consumption in the (2017) world (2017)

3,680.4 billion m3 3,670.4 billion m3

Asia Pacific: North America: Asia Pacific: 607.5; 16% 951.5; 26% 769.6; 21% North America: 942.8; 26%

Africa: Africa: 225.0; 6% 141.8; 4% South and Middle East: Central America South and 659.9; 18% 179.0; 5% Middle East: Central America 536.5; 14% 173.4; 5% Europe: 241.9; 7% CIS: Europe: CIS: 531.7; 14% 815.5; 22% 574.6; 16%

2014 2015 2016 2017 2014 2015 2016 2017

Usa 704.7 740.3 729.3 734.5 Usa 722.3 743.6 750.3 739.5

Russia 591.2 584.4 589.3 635.6 Russia 423.6 409.6 420.2 424.8

Iran 183.1 191.4 203.2 223.9 China 188.4 194.7 209.4 240.4

Canada 159.1 160.9 171.6 176.3 Iran 180.9 191.9 201.4 214.4

Qatar 169.1 175.2 177.0 175.7 Japan 120.5 118.7 116.4 117.1

China 131.2 135.7 137.9 149.2 Canada 103.2 102.9 109.5 115.7

Norway 108.0 116.2 115.8 123.2 Saudi Arabia 97.3 99.2 105.3 111.4

Australia 66.6 76.0 96.4 113.5 Germany 73.9 77.0 84.9 90.2

Saudi Arabia 97.3 99.2 105.3 111.4 Mexico 80.1 78.0 91.8 87.6

Algeria 80.2 81.4 91.4 91.2 UK 70.1 71.8 81.0 78.8

Billion m3 Billion m3 Source: BP Statistical review of world energy, 2018. Source: BP Statistical review of world energy, 2018. The Energy Environment | The Energy Environment | 11 10 Natural gas: trade movements 2017 by pipeline FROM FROM UK USA Iran Total Libya Qatar Bolivia Others Canada Russian Russian Algeria Norway imports Azerbaijan Federation Kazakhstan Uzbekistan Netherlands To Turkmenistan Other Europe North America 66.1 80.7 ------146.8

• USA - 80.7 ------80.7

• Canada 24.0 ------24.0

• Mexico 42.1 ------42.1

S. & C. America - - 14.9 ------0.5 15.4

Europe - - - 43.3 109.2 10.8 16.2 8.4 - 189.3 - - 8.9 - 33.0 4.4 - 423.4

• Austria ------8.6 ------8.6

• Belgium - - - 9.6 0.2 7.9 ------17.7

• France - - - 4.9 17.1 - 0.1 - - 11.5 ------33.5

• Germany - - - 20.2 25.7 - 0.4 - - 48.5 ------94.8

• Italy - - - 8.1 0.8 - 0.1 - - 22.3 - - - - 18.0 4.4 - 53.8

• Netherlands - - - - 22.6 1.1 8.6 - - 8.6 ------40.9

• Spain - - - - 2.6 ------11.8 - - 14.4

• Turkey ------6.3 - 27.6 - - 8.9 - - - - 42.8

• UK - - - - 35.4 - - - - 4.0 ------39.4

• Other Europe - - - 0.5 4.6 1.8 6.9 2.1 - 58.1 v- - - - 3.2 - - 77.6

CIS ------13.3 - 12.1 26.2 0.3 8.4 2.0 - - - - 62.3

Middle East ------0.6 - - 1.7 - 1.6 18.4 - - - 22.2

Africa ------3.4 - 4.2 7.6

Asia Pacific ------1.1 - 31.7 3.4 - - - - 26.8 62.9

Total exports 66.1 80.7 14.9 43.3 109.2 10.8 29.5 8.9 13.2 215.4 33.6 11.8 12.5 18.4 36.4 4.4 31.5 740.7

Source: BP statistical review of world energy 2018. Billion m3 The Energy Environment | The Energy Environment | 13 12 The main LNG streams in 2017

70% of the gas is consumed in the production countries, the residual Import 30% is traded: 393 (356 in 2016) billion m3 by LNG (Liquified Natural Gas) and 741 (714 in 2016) billion m3 by pipeline. • 40 import countries (+1 compared to 2016: Malta). • Asia: 72.9% of total LNG imports. Export LNG regasification plants across the world • 19 export countries. • 5 new terminals in 2017: two based on floating Qatar, Australia, Malaysia, Nigeria solutions (in Malta and in Pakistan). Two expansions and Indonesia: 68.6% of total LNG were also completed in Singapore and in Thailand. exports. • 24 new terminal under construction (of which 9 offshore and 15 onshore), and 8 expansion projects Gas liquefaction plants across the underway (three in China, Belgium, Greece, India, world Taiwan, Thailand). • Global utilisation: 84% (from 82% in 2016). • First LNG exports from a floating Europe 65.7* liquefaction unit in Malaysia and start up of LNG exports in China 52.6 Japan 113.9 Russia from the Arctic Region Europe with the first cargoes shipped in Japan USA Europe South Korea 51.3 december 2017 from Yamal LNG. Europe South Korea Taiwan • First LNG exports from a floating Algeria 16,6 Qatar 103.4 India Taiwan 22.5 liquefaction unit in Malaysia and Trinidad start up of LNG exports in Russia Tobago 13.4

South America Japan from the Arctic Region with the India 25.7 Europe first cargoes shipped in december Japan Taiwan

Nigeria 27.8 South Korea 2017 from Yamal LNG. • Several plants under construction Indonesia 21.7 Malaysia 36.1 in USA and Australia.

China

Japan * Of which: Spain 16.6 Australia 75.9 Turkey 10.9 France 10.8 Italy 8.4 Global imports in 2017 recorded their highest annual grow rate (+9.9%) UK 7.2 since 2010. The surge in LNG supply was driven by new production from Belgium 1.3 billion m3 Australia and USA as well as better performance of liquefaction plants in Algeria, Angola and Nigeria. Spot and short-term LNG imports remained flat compared to the previous Source: BP statistical review of world energy 2018, GIIGNL, The LNG Industry 2017 and IGU years, around 27%. Most of the demand of LNG come from Asia (72.9%), World Gas LNG Report 2018. most of the offer comes from Pacific Area (45.3%) and Qatar (26.7%). The Energy Environment | The Energy Environment | 15 14

LNG worlwide in 2017 Asia Imports grew by 10.2% in 2017, consolidating Asia as the largest LNG importing region (72.9% market share). Japan remained the leading Europe importing country (28.8%), followed by China. China’s imports recorded a 42.3% increase (compared to 2016), LNG imports increased (+19.5%) driven by the gas demand for power allowing the country to overtook South Korea as the world’s second generation. The increase occurred in countries of southern Europe largest LNG importer, thanks to a political decision to favor the use of (France, Greece, Italy, Portugal, Spain and Turkey) thanks to hot weather gas over coal to reduce air pollution in major cities. in the summer and low hydropower and nuclear production in France. On the other hand, there has been a decline in imports into northern South Korea also experienced a strong increase in LNG imports, countries (Belgium, Netherlands and UK) mainly attributable to the thanks to rising gas demand from the power sector, on the other hand United Kingdom which experienced a sharp drop in LNG, intake due to India (the world’s 4° largest importer) recorded only a modest increase the reduction of deliveries from Qatar. (+1.2%) due to the effects of stronger LNG spot prices and the strong competition with other sources. Despite the increase in imports in 2017, Europe’s share of global LNG imports has fallen by nearly 50% since 2010 (from 29.4% in 2010 to 15.9% in 2017), mainly due to a decline in gas demand and to the competition from pipelines imports.

Africa The Middle East was the only region where imports declined (-9.1%), as the start Qatar of production from new gas fields domestic gas supply Supplies decreased as a in Egypt. result of scheduled and AMERICA unscheduled maintenance. Better performance in 2017 2 new onshore liquefaction However, it remains the of existing liquefaction plants in 2017 have positively leading exporter with 27.6% plants in Algeria, Angola influenced exports from of the world liquefaction and Nigeria. USA. capacity. Imports in America increased by 4.1% compared to 2016, mainly thanks to Mexico (due to constraints on Pacific pipeline imports from the The Pacific basin remains the largest source of LNG supplies, with Unites States). 45.3% of the global market, followed by Middle East (31.5%) and the Atlantic basin (23.2%). Australia: second largest exporter in the world, behind Qatar. 2 new onshore liquefaction plants in 2017. Source: GIIGNL, The LNG Industry 2017. The Energy Environment | The Energy Environment | 17 16

LNG in Europe: plants Snohvit - Statoil

Liquefaction plants Regasification plants FSRU plants (Floating storage and regasification unit)

Pori - Skangas Lyselik - Skangas

Frederikstad - Skangas Nysahamn - AGA gas

Zeebrugge - Fluxys Klaipeda-Hoegh LNG

Milford Haven - Dragon LNG Rotterdam - Gate Terminal Milford Haven - South Hook LNG

Isle of Grain - National Grid Grain LNG, Ltd

Dunkerque - Gaz Opale

Porto Levante - Adriatic LNG Revithoussa - DESFA Montoir - Elengy

Bilbao - BBG Panigaglia - GNL Italia Aliaga

Mugardos - Reganosa Fos Tonkin - Elengy Marmara Ereglisi - Botas Fos Cavaou - Fosmax LNG Barcellona - Enagas OLT - LNG Toscana Sagunto - Saggas

Delimara

Sines - REN Atlantico Etki Skikda - Sonatrach

Huelva - Enagas Arzew - Sonatrach Marsa-el-Brega - Sirte oil Co. Cartagena - Enagas The Energy Environment | The Energy Environment | 19 18 Storage capacities in the world at the end of 2017 Major European countries 1.1

4.8 3.0 14.1 billion m3 23.0 3.9 3.2 33.2 8.6 13.0 3.1 17.6* 2.5 6.3

2.8 23.2 74.9

*Of which 16.7 of Snam. Souce: Stogit (Offered capacities TY 2017-2018) 133.8

6.1

Souces: IHS Markit european gas storage tracker: May 2018. For USA: EIA, US Energy information administration. For Canada: Natural gas annual review 2017, Canadian Gas Association. For Turkey: Ministry of Energy and Natural resources. Per Russia: Management report PJCS Gazprom. The Energy Environment | The Energy Environment | 21 20 Gas prices in the world

Henry Hub (USA) LNG (Asia) (January 1, 2018 - July 31, 2018) (January 1, 2018 - July 31, 2018)

€/MWh: 9.6 €/MWh: 8.5 €/MWh: 31.7 €/MWh: 28.5 10 35

-10.0% 9 25 -11.2%

8 15 01-jul 2018 31-jul 2018 01-jul 2018 31-jul 2018 01-jan 2018 01-jun 2018 01-apr 2018 01-feb 2018 01-jan 2018 01-jun 2018 01-apr 2018 01-mar 2018 01-feb 2018 01-may 2018 01-mar 2018 01-may 2018

PSV (Virtual exchange point) Zeebrugge TTF (UE) (January 1, 2018 - July 31, 2018) (January 1, 2018 - July 31, 2018)

€/MWh: 20.5 €/MWh: 24.5 €/MWh:19.3 €/MWh: 22.1 80 80 75 75 70 70 65 65 60 60 55 55 50 19.4% 50 14.1% 45 45 40 40 35 35 30 30 25 25 20 20 15 15 01-jul 2018 31-jul 2018 01-jul 2018 31-jul 2018 01-jan 2018 01-jan 2018 01-jun 2018 01-jun 2018 01-apr 2018 01-apr 2018 01-feb 2018 01-feb 2018 01-mar 2018 01-mar 2018 01-may 2018 01-may 2018 The Energy Environment | The Energy Environment | 23 22 EUROPE* Energy consumption by source Natural gas supply in 2017 in the main countries

FRANCE: 248.2 Mtep GERMANY: 323.6 Mtep Coal: Other: Other: Nuclear: 3.7% 0.8% 0.5% 6.1% Gas: Coal: Renewable: 15.5% 22.0% 13.1% Nuclear: 40.4%

Norway

1.7 Oil: Gas: Oil: 29.1% Renewable: 23.0% 34.5% 10.5% Russia Source: Ministère de la transition Source: AG Energiebilanzen 35.0 ecologique et solidaire

Netherlands SPAIN: 131.2 Mtep ITALY: 170.2 Mtep 0.7 Other: Other: Coal: 5.0% Coal: 6.1% 6.0% 7.5% Nuclear: 12.5% Renewable: 19.0% Renewable: 7.2%

Gas: 20.5% Gas: Algeria 36.0% Libya Egypt Oil: Oil: 4.3 46.2% 34.0% 1.8 1.4 Qatar Source: Rivalry, European energy Source: MSE, Situazione energetica 24.9 scenarios IHS, July 2017 nazionale 2017

UK: 193.5 Mtep NETHERLANDS: 75.5 Mtep Other: Coal: Other: Nuclear: 0.7% Nigeria 5.4% 1.9% 1.0% Nuclear: Coal: Renewable: 5.2 7.9% 12.1% 5.5% Renewable: 10.8% Trillion m3

Gas: Oil: Gas: Oil: 39.2% 36.0% 41.1% 38.4% Source: BP Statistical Review of World Energy, 2018. * Europe 28. Source: UK Government Source: StatLine Statistic Netherlands The Energy Environment | The Energy Environment | 25 24 Natural gas consumption by ITALY country (2014-2017) Natural gas supply in 2017

3 2014 2015 2016 2017 GAS DEMAND: 75.1 billion m Italy* 61.9 67.5 70.9 75.1 • Domestic production: 5.5 • Storage balance, export and other: 0.0 France 36.7 39.1 42.7 43.3 • Import: 69.6 of which 8.5 by LNG UK 70.4 71.8 77.5 79.4 Origin details (billion m3) Germany 79.2 81.4 90.1 92.0

Spain 27.2 27.9 27.0 31.3 Netherlands 40.3 40.3 42.8 46.7 Other 6.4 Bcm Norway 2.5 100 Billion m3 Russia 90 27.4 80

70 Netherlands

60 0.9

0 2014 2015 2016 2017

Italy France UK Germany Spain Netherlands Libya Qatar Algeria 4.9 7.0 20.5

Source: EUROSTAT, Supply natural gas, short term monthly data. *Source: Snam, Annual Reports 2017. Source: MSE, Situazione energetica nazionale 2017. The Energy Environment | Snam in the gas system | 27 26 Natural gas consumption by sector

Demand by sector 2014 2015 2016 2017 Residential 25.66 28.97 28.86 29.48

Thermoelectric 17.88 20.62 23.43 25.36

Industrial* 16.32 15.97 16.58 17.80

Other 2.05 1.96 2.04 2.50

Gas Demand 61.91 67.52 70.91 75.14

Bcm

Billion m3

80 70 Snam in the gas 60

50 system

0 2014 2015 2016 2017

Residential Thermoelectric Industrial* Other

* Includes the consumption of the Industrial, Agriculture and Fishing, Chemical Synthesis and Automotive sectors.

Source: Snam annual reports. Snam in the gas system | Snam in the gas system | 29 28 Snam, the company profile

SCOPE OF CONSOLIDATION

Group insurance services Snam GAS RULE 4 Mobility INSURANCE 100% 100%

INTERNATIONAL ASSOCIATES

AS Trasportation TAG Asset Rigasiﬁcation Storage GASBRIDGE 1 GASBRIDGE 2 TIGF* TAP Gasinfrastruktur 100% ITALGAS 40.5% 84.47% Beteiligung Company 2 GB1 GB2 20% 100% 100% 13.5% 50% GMBH SNAM 50% 40% RETE GAS 100% GNL ITALIA STOGIT

Interconnector UK(IUK) TIGF AS ITG GB1 15.75% Gasinfrastruktur GB2 15.75% investissement GMBH 100% 100% 100%

IZT GB1 26% TIGF SA GB2 25% 100% GCA PRISMA IUK 49% 49% 14.66%

* Starting from 30 March 2018, TIGF has become Teréga.

Snam, shareholders at January 2018 Shareholding Geographical Break Down at January 2018 5.8% 2.4% 5.1% 8.6% 30.1% Italy- Strategic holders* 16.3% 30.6% CDP Reti Italy-Retails**

Bank of Italy Italy-Institutional

Treasury Shares Continental Europe UK and Ireland Institutional Investors 12.2% 0.5% USA and Canada Retail Investor 2.4% Rest of the world Minozzi 14.4% 52.6% 15.5% Treasury shares 3.5%

* Italy-Strategic holders includes Bank of Italy and CDP Reti. ** Italy-Retails includes the participation of Romano Minozzi equal to 5.8% Snam in the gas system | Snam in the gas system | 31 30

National (9,704 km) and regional (22,880 km) gas pipeline grid: 32,584 km The journey of natural gas in Italy • Gas injected into the grid: 74.59 bcm through Snam infrastructures • Gas imported: 69.35 bcm • Gas production: 5.24 bcm

Transport Import by entry points (bcm/year) Thanks to investments to develop and upgrade infrastructure, the 2015 2016 2017 network transportation capacity has always grown in the past years. In line with the provisions of the EU Third Energy Package, the Company is Tarvisio 29.92 28.27 30.18 committed, through specific investments, to facilitating trans-European Mazara del Vallo 7.24 18.87 18.88 flows, thanks to the development of reverse-flow transport infrastructure. Passo Gries 10.63 6.70 7.25 The gas from abroad is injected into the national network via eight entry points where the network joins up with the import pipelines Gela 7.11 4.81 4.64 (Tarvisio, Gorizia, Gries Pass, Mazara del Vallo and Gela) and with the Gorizia 0.03 - 0.02 LNG regasification terminals (Panigaglia, Cavarzere and Livorno). Once it has been imported or regasified, the gas is transported to the local Cavarzere (LNG) 5.80 5.72 6.85 distribution networks, the regional network redelivery points or large end Livorno (LNG) 0.04 0.48 0.91 users such as thermoelectric power stations or manufacturing plants. Panigaglia (LNG) 0.05 0.22 0.22 Snam Rete Gas allocates transportation capacity to the shippers upon their request. Then they gain the right – as Users – to inject and withdraw Panigaglia LNG terminal at any time during the thermal year, a quantity of gas not greater than the • Gas liquefied: 0.63 bcm daily capacity allocated. Terms to access the transportation service are • Tankers loads: 15 set out in the Network Code. The shippers have the possibility to make • Daily regasification capacity: 17,500 3m of LNG sales and gas exchanges at a Virtual Trading Point (PSV) of the National • Yearly maximum capacity of injection into the grid: 3.5 bcm Network, thanks to the dedicated IT platform. Passo Gries Tarvisio Gorizia LNG regasification National pipeline network Cavarzere Through the Panigaglia regasification plant, Snam provides the Italian gas (regasification Compression stations system with the proper diversification of sources, while ensuring a high terminal) Panigaglia (LNG) Regasification terminal degree of flexibility in terms of supply. Livorno OLT (regasification Import points The process for the extraction of natural gas from the fields, its terminal) liquefaction for transportation by ship and subsequent regasification for use by the users, forms the ‘LNG chain’. The process begins in the country of the exporter, where the natural gas is brought to a liquid state by cooling it to -160°C and subsequently loaded onto tankers for shipping to the LNG regasification terminal. At the regasification terminal, the LNG is unloaded, then heated and returned to a gaseous state before being injected into the natural gas Transportation network.

Mazara del Vallo

Gela 2017 data Snam in the gas system | Snam in the gas system | 33 32 Storage Regulatory framework: businesses Snam storage capacity has sizeably increased over the last decade, thanks to relevant investments both to increase capacity of existing fields and to tariff scheme develop new sites. Transportation Regasification Storage

The gas storage system fulfils different requirements between supply Calculation of Revalued historical Revalued historical Revalued historical and consumption that are derived from the seasonality of demand. The net invested cost cost cost capital recognised injection phase into the National Network is generally concentrated for regulatory Deduction of between April and October, while the withdrawal phase from fields, purposes (RAB) restoration costs treatment and delivery to users via the Transportation Network is usually recognised concentrated between November and the following March. Storage Return of net 5.4% 2016/18 6.6% 2016/18 65% 2016/18 also ensures that strategic quantities of gas are available to compensate invested capital recognised for any lack of or reduction in non-EU supply or crises in the gas system. for regulatory Through its subsidiary company Stogit, Snam is the major Italian operator purposes (real WACC pre-tax) and one of the leading European natural gas storage operators, via eight storage fields in Lombardy (four), Emilia-Romagna (three) and Abruzzo Incentives on new Transitional period Transitional period Transitional period investments (investments in (investments in (one). The storage business makes use of integrated infrastructure 2018-2019): 2018-2019): With holding for comprising deposits, wells, gas treatment plants, compression stations +1% for 12 years +1.5% for 12 years 8 years of 20% and the operational dispatching system. (investments in (investments in of revenues in new transportation new regasification excess of revenue capacity and with capacity) recognised resulting positive cost-benefit from insolvency analysis) Return on procedures investments Return on t-1 (from 2017 Return on investments investments) to investments t-1 t-1 (from 2017 offset regulatory to offset the • Gas moved into the system: 19.92 bcm investments) to time-lag regulatory time-lag offset regulatory (from 2014) • Gas injected: 9.80 bcm time-lag Passo Gries • Gas withdrawn: 10.12 bcm Tarvisio Gorizia Efficiency factor Transitional period 0% Transitional period • Strategic storage (XFACTOR) +1.3% - operating To be defined in capacity: 4.5 bcm costs P.T. 2019 Cavarzere • Availability storage (regasification capacity: 12.2 bcm terminal) Panigaglia (GNL) The Regulatory Authority for Energy, Networks and Environment (ARERA) • Concessions: 10 (9 active) Livorno OLT has regulated the tariff system in each business, defining the criteria for (regasification terminal) setting the tariffs in different regulatory periods. The rate of return on regulatory invested capital (WACC) has been in force since 1 January 2016. For the regulations of the infrastructural gas services, the Authority has established a regulatory period lasting six years (2016-2021); moreover, SNAM Storage sites a mechanism of infra-period WACC update has been envisaged, based on the trend of the macroeconomic scenario.

Transport 4 years + 2 years (transitory period) To December 2019

Mazara del Vallo Regasification 4 years + 2 years (transitory period) To December 2019

Gela Storage 4 years + 1 years (transitory period) To December 2019 2017 data Snam in the gas system | Snam in the gas system | 35 34 International development, Interconnector overview • Contributes to the security of supply in North-West Europe. Following the closure of the Rough storage field, it plays a key role for UK market. Snam holding 23.68% • With its bi-directional flows, also makes it possible to boost the flexibility and diversification of the system.

GCA • With its strategic positioning in Central Europe, it plays a key role in Snam holding the transport of gas toward many indirectly markets adjacent to the Austrian National Networks International Assets LNG terminal 19.6% market. In joint venture con Allianz (Snam 40%)

TERÉGA • Operates in the South-East of France TAG and helps the energy security of the country. • A strategic infrastructure for Italy, it transports flows coming from East. Snam holding • With its strategic position, between Snam holding 40.5% the French and the Spanish markets, • Strategic opportunity to establish will succeed in playing a key role in 84.47%* reverse flow capability to Southern achieving greater integration at a Germany and Eastern Europe. *Equal to 89.22% of economic rights European level.

TAP • Contributes to the full-scale development of the South corridor. Snam holding • It allow for diversification of supply, 20% through the importation of gas from Azerbaijan. Snam in the gas system | Snam in the gas system | 37 36 Snam, the European scenario

Within the european energetic policy, Italy holds an important role, as it is placed in the middle of the main European gas routes. In line with FEBRUARY/SEPTEMBER 2012 the principles of the European Third Energy Package, which promotes Acquisition of a 31.5% stake of Interconnector UK (16.41% from eni the integrated development of infrastructures and common rules for and 15.09% from E-on), of a 51% stake of Interconnector Zeebrugge network access in different countries, and in order to take advantage and of a 10% stake of Huberator through a joint ventury with Fluxys. of the privileged position it enjoys in Europe’s gas corridors, Snam, This joint acquisition is a first important milestone in pursuing the aim from 2012, has increased its focus on strategic partnership and M&A of an integrated European gas network. operations. With the positioning of its domestic and international assets, Snam will have a leading role in the investment projects that will be needed in the next 20-30 years in Europe.

FEBRUARY/JULY 2013 APRIL 2018 Acquisition of a 45% stake of TIGF (Teréga from march Consortium headed by Snam (60%), in jv with Enagás and 2018), heading a consortium in which GIC holds a 35% stake Fluxys, successful bidder of the tender for the privatisation and EDF the remaining 20%. of DESFA, national operator of gas infrastructure in Greece. Closing of the transaction in H2 2018.

DECEMBER 2014 MARCH 2018 Completion of the acquisition of the stake (84.47%) held by Acquisition by Snam and Fluxys of the 33.5% stake CDP GAS in Trans Austria Gasleitung GmbH (TAG), approved owned by CDPQ in Interconnector UK. Once the share by the Board of Directors on 12 September 2014. transfer is completed, Fluxys and Snam, with a 76.32% and a 23.68% stake respectively, are the sole ultimate shareholders in Interconnector UK.

DECEMBER 2015 In 2015 Snam’s international development continued DECEMBER 2016 with the acquisition of a 20% stake in Trans Adriatic It was completed in December the sale of 49% of Pipeline AG (TAP), the company responsible for Gas Connect Austria from OMV, the international developing the pipeline that will run from the Turkey- integrated oil and gas company based in Vienna, to the Greece border to Italy along the Southern Corridor, Consortium composed of Allianz and Snam. enabling gas produced in Azerbaijan to reach European markets, through the italian infrastructure. Snam in the gas system | Snam in the gas system | 39 38 Gas as a forever fuel

Production Transport & Storage Distribution Consumption

Final users and distribution networks

Methane

CNG/LNG stations

Thermal Agricultural and gasification organic waste

Biomethane

Small Scale LNG Power to gas

Hydrogen/syngas

The study explored the potential role of gas in a completely decarbonised energy system in 2050, coming to the conclusion that in the EU the production of renewable gas, in the form of biomethane and renewable hydrogen, could be increased to 122 billion cubic meters by that year. In February 2018, Ecofys published a study commissioned by the Gas Further evidence from the study is that using this gas with existing gas for Climate, a consortium in which Snam is a member. The results of the infrastructure, smartly combined with renewable electricity in sectors research show “how gas can contribute to achieving the Paris Agreement’s where it adds the most value, can lead to annual cost savings of 138 billion objective in a cost-effective manner.” euro compared to decarbonisation without a role for renewable gas. Snam in the gas system | Snam in the gas system | 41 40 Main economic-financial data Snam in the bond market: the credit rating Snam (million) 2016 2017 Total revenue* 2,415 2,441 At 31 December 2017, the Group’s 2027, for a total amount of 650 net financial position was 11,550 million euro, with a coupon equal Adjusted EBITDA 1,987 2,022 million euro. Snam’s goal is to to 1.375% and a duration of ten Adjusted EBIT 1,336 1,363 achieve a debt structure consistent years. In addition, Snam has signed with business requirements in a contract with the EIB for the Adjusted Net profit 845 940 terms of loan term and interest financing of projects promoted rate exposure. by Snam Rete Gas, for 310 million Net debt 11,056 11,550 In October 2017, Snam successfully euro, with a fixed rate of about Capex 906 1,034 completed a buyback on the 1.5% and maturing in 2037. bond market with a total nominal These transactions on both the **Net of pass-through items. value of 607 million euro, with an banking and bond market made average coupon of approximately it possible to optimise medium 2.5% and a remaining maturity of and longterm debt maturities by approximately 4.4 years. extending their average term and The repurchase price totaling 656 creating conditions for a reduction Transport, 2017 million euro was largely financed in average borrowing through a new fixed rate bond costs in 2018. • Regulated Revenues: 1,816 € million issue, expiring on 25 October

Regasification, 2017 • Regulated Revenues: 18 € million

Storage, 2017 LAST LAST LAST • Regulated Revenues: 508 € million UPDATE UPDATE UPDATE 11 June 2018 8 November 2017 12 October 2017

RATING FOR RATING FOR RATING FOR LONG-TERM DEBT LONG-TERM DEBT LONG-TERM DEBT Baa1 (under review BBB+ BBB+ for downgrade)

RATING FOR RATING FOR RATING FOR SHORT-TERM DEBT SHORT-TERM DEBT SHORT-TERM DEBT Not assigned A-2 F2

OUTLOOK OUTLOOK OUTLOOK Negative Stable Stable Appendix | 43

Appendix

Glossary Reference heat capacity Units of measurement Transported natural gas composition References Appendix | Appendix | 45 44 Glossary Economic and financial terms Unbundling: ownership, corporate and accounting separation of import, transportation and storage activities of the vertically integrated Economic and financial terms: net investments made for operating companies of the gas, aimed at the beralisation of the market. reasons, being the sum of net working capital and non-current assets. Regulatory period: period of time (usually four years) for which criteria Weighted Average Cost of Capital (WACC): indicates the remuneration are defined for setting tariffs for transport and dispatching, storing, of the invested capital as recognised by the Authority (RAB). distributing, regasifying liquefied natural gas. Net debt: Indicator of the ability to meet financial obligations. Tariff: unit prices applied to the natural gas business. Represented by gross financial debt minus cash and cash equivalents as well as other financial receivables not held for operations. Incentives on investments: remuneration on the investments to be added to the base return. Commercial terms Capex: costs of long-lasting assets where useful life does not expire over Thermal year: period of time into which the regulatory period is divided, one reporting period. currently coinciding with the calendar year. Gross Operating Margin (EBITDA): unit of measurement to assess the National Network: set of pipelines, compressor stations and group’s operating performance, as a whole and in the individual business infrastructures that, at national level guarantee the transport of natural segments, in addition to EBIT. Determined by the difference between gas, through interconnection with international transport networks, revenue and operating costs. production sites, to the delivery points for the distribution and use of natural gas. Leverage: Indicator of financial structure. Measures a company’s level of debt and is calculated as the percentage ratio of net financial debt to net Liquified Natural Gas, LNG: Natural gas comprised essentially of methane invested capital. liquefied by cooling at around -160°C, at atmospheric pressure, to make it suitable for tanker transportation or reservoir storage. In order to be Regulated revenues: revenues from the regulated activities of the injected into the transportation network, the liquid must be reconverted company. into a gas at regasification plants and brought to the operating pressure Net profit: EBIT minus result from financial operations and income taxes. of the pipelines. Operative profit (EBIT): difference between revenues and costs in a Upstream: activity of reserch, drilling and coltivation of hydrocarbons. given period; therefore the income from operations before costs and Downstream: activities following the reserch and drilling of oil. In revenues from financial operations and taxes. more details it regards the refining and processing of the oil to obtain products ready to be used; the storage and transport of oil products; the distribution and commercialization of fuel and lubricant through the Regulatory terms distribution network. Negotiated access: access system to the network based on individual Gas chain: totality of activities concerning the natural gas market, from contracts at prices freely negotiated between the parts (producer/suitable the production/importation to the distribution to the final client. client and network operator). Natural Gas: is a gas consisting primarily of methane and, at lower level, Regulated access: access system to the network based on individual ethane, propane and higher hydrocarbons. The natural gas injected into contracts (producer/suitable client and network operator) at prices the transportation network must respect a specific quantity to guarantee regulated by a proper agency ((Authority for Energy, Networks and the interchangeability of the gas. Environment). Appendix | Appendix | 47 46 Reference heat capacity Units of measurement

Conversion factors LHV (MJ/kg) HHV LHV (kcal/kg) HHV To convert in multiply for

Vapour coal 26.1 / 6,250 / pinch in millimeters mm 25.4 Sulcis coal 22.3 / 5,330 / feet ft meters m 0.305 Green lumber 10.5 / 2,500 / statue mile mi. kilometers km 1.609 Coke of coal 29.3 / 7,000 / nautical mile mile kilometers km 1.853 Reference crude oil 41.8 44.4 10,000 10,600 short ton sh. ton ton t 0.907 Dense combustible oil 40.2 42.5 9,600 10,150 long ton long ton ton t 1.016 Fuel oil 42.7 45.2 10,200 10,800 pound lb. kilometers kg 0.454 Virgin Naphta 43.9 47.7 10,500 11,400 kilogram kg newton N 9.81

LPG 46.0 50.2 11,000 12,000 pound per square inch psi bar bar 68.95x10-3 kilogram per square cent. kg/cm³ bar bar 0.981 atmosphere atm bar bar 1.013 cubic feet ft³ m3 m³ 28.32x10-3 gallon U.S. gal liters l 3.785 barrels (42 gal. U.S.) m3 0.159 kilocalories kcal joule J 4,185

kilocalories kcal kilowatt hour kWh 1.163x10-3 british thermal unit Btu joule J 1,055 horse power (meters) CV kilowatt kW 0.735 horse power hp kilowatt kW 0.746 gas m3 m3 kilowatt hour kWh 10.35 gas m3 m3 tons of oil equivalent toe 0.0008

Equivalences To convert in multiply for

oil barrels bbl oil tons t 0.135 daily oil barrels bbl/d yearly oil tons t/a 50 Btu millions MMBtu kilowatt hour kWh 2.93 liquid methane tons t m3 methane gas m3 1,400 daily cubic feet ft3/d yearly m3 m/a 10.34

kilocalories kcal gas m3 m3 0.11x10- 3 Btu millions MMBtu gas m3 m3 27.69 megajoule MJ gas m3 m3 0.026 gas m3 m3 megajoule MJ 38.1 Appendix | Appendix | 49 48 Trasported natural gas composition References

Algeria North Russia LNG Nat. Libya Web sites: Europe Prod. Energy Information Administration: www.eia.gov Helium % Mol. 0.15 0.04 0.01 0.00 0.00 0.08 BP global: www.bp.com Nitrogen = 3.99 2.31 0.80 0.97 0.58 0.43 Ministero Sviluppo Economico: www.sviluppoeconomico.gov.it Carbon dioxide = 0.65 1.19 0.09 0.00 0.03 1.42 Snam: www.snam.it Methane = 84.25 90.10 97.83 89.15 99.33 86.89 Ihs: www.ihs.com Superior hydrocarbons = 10.96 6.37 1.27 9.88 0.06 11.18 High heating value MJ/Smc 40.094 38.891 37.969 40.786 37.573 40.803 Report: Low heating value MJ/Smc 36.233 35.095 34.202 36.834 33.829 36.860 • Snam Annual report Wobbe index MJ/Smc 49.824 49.485 50.380 51.901 50.302 51.237 • BP statistical Review of World Energy, 2018 Volume mass kg/Smc 0.7936 0.7569 0.6960 0.7568 0.6837 0.7771 • The LNG Industry - 2017, International Group of LNG Importers (GIIGNL) Z - 0.9974 0.9977 0.9979 0.9975 0.9980 0.9974 • World Gas LNG Report - 2018, IGU • Bloomberg data • Supply natural gas, EUROSTAT • Situazione energetica nazionale 2017, MSE References Piazza Santa Barbara, 7 20097 San Donato Milanese (MI) Tel. +39 0237031

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This publication, a consulting handbook which collects data on the natural gas sector, is the new edition of a manual issued between 1973 and 2000 that in the course of the years has been named by the people of the business “metanino”. September 2018