Snam and Gas Storage Fundamentals

Snam and Gas Storage fundamentals

Mr. Andrea Stegher Snam SVP Marketing Global Solutions

Cartagena de las Indias, April 11th 2019 Congreso Naturgas Snam at glance: Europe’s largest natural gas utility

€ 20.3 bn € 22.5 bn Consolidated € 5.2 bn Presence throughout Regulated Asset Base in RAB including experience CAPEX in large-scale Europe with our Italy. High-pressure associates and long-term projects transport network, in developing and managing in the period 2017- associates storage sites and LNG complex projects 2021 terminals

Solid shareholding structure & results

EBITDA adj. 2018: € 2.1 bn Net Profit pf adj. 2018: € 1 bn

2 Almost 80 years of development and innovation….

1941

3 … which delivered robust performances … to build our leadership in European gas infrastructure

~20% of European storage capacity Snam Global Solutions

The new business integration platform leveraging Snam key competencies

• Becoming the partner in the midstream value • Promoting acceleration in the growth and efficiency of the gas markets chain worldwide leveraging on Snam • Supporting clients as a system integrator of the competences as the owner and operator of the whole gas value chain largest European gas infrastructures • Focus on high value-added services • Complementing organic development projects

• Governments & National Authorities to design • Assessment of the gas value chain identifying and develop gas infrastructure systems and the areas of improvement markets • Regulatory design, infrastructure integrated • Gas Infrastructure Companies to improve planning, promotion of new uses of gas efficiency leveraging on Snam track record • Project Management, O&M, Technical and • Project Companies to realize and manage Commercial operations new gas infrastructures • ICT systems development and digital solutions • Oil & Gas Companies for midstream activities for technical and commercial operations • Asset Integration & Cyber-security

http://www.snamglobalsolutions.com 6 Snam in Italy: a fully integrated, flexible and resilient system

+32,500 KM of networks

11 compression stations

72.8 bcm natural gas injected Clients into the network ~ 89 (shipper) 16.7 bcm of available storage Technical capacity investments

9 storage fields € 101 mln Gas moved 3.5 bcm annual regassification capacity (+7% shares ~ 20 bcm of ALNG terminal, 8 bcm)

~3.000 Employees

7 Leadership developed and maintained with extensive and focused knowledge in development and management

Reservoir Geology Subsurface monitoring Life-time performance optimization and . 3D seismic surveys (geological interpretation) . Pore pressures improvement also allowing overpressure . Gas-water contact . 3D geological studies and modelling management . Log analysis and Formation Evaluation . Microseismicity . Operations Geology for new wells . Subsidence Unique competences for safe operations . Geochemical (urbanized / subject to earthquakes / subsidence areas) Reservoir Engineering Well Activities Continuously improved technology contributing to efficiency and effectiveness . 3D dynamical studies and modelling . Well engineering of development and operations . Injection/withdrawal operations planning . Well construction . Well-testing interpretation . Well Surveillance & . 3D geomechanical studies and modelling Management Snam integrator of Service Companies to achieve the most effective, efficient and safe solution for any operational stage of Upstream “know‐how” on Drilling specific know‐how the activity Ample range of experiences to reservoirs with specific storage and high‐tech equipment improve performance focus development

8 Key advantages of UGS to meet peaks

Gas infrastructure essential to cover seasonal peaks The market needs seasonal storage Consumption (Gwh) Gas/Renewable gas storage 5.000 Months

4.500 Few days/ Weeks Pumped hydro 4.000 STORAGE NEEDS Compressed Day 3.500 Air Storage

3.000 Mins to Batteries hours 2.500 Gas <10MWh Up to 1000 Up to 10 100 GWh to MWh GWh 100 TWh 2.000 DEMAND COVERAGE 1.500 Cost for optimized use of storage (€/mwh) 1.000 Underground gas storage 5 500 Electricity Compressed Air 65 ‐ Pumped Hydro 110 Lithium-Ion batteries 200 Flow Batteries (Zinc) 220

Italian storage capacity is >22% of gas demand and makes up to 35% of gas peak supply EU and Italian demand coverage

European demand coverage …

2017 Import: ~ 365 bcm 2017 import: 69 bcm

… strong dependence of Italian demand on gas imports Sources: Europe – Snam elaboration on ENTSOG data, Italy - Snam data 10 The multiple roles of gas storage

• Provide an additional supply source to ensure Storage need No storage need continuity in case of supply interruptions due to infrastructure unavailability or commodity Drivers Seasonal Weekly Daily Hourly shortages (Strategic storage) Seasonality of heating • Balance the seasonal summer/winter differences in demand and supply Power generation (CCGT flexibility)

• Balance day-to-day and within-day variability in Power generation (back up for demand and supply renewables)

• Contribute to reduce price spikes and volatility Long distance pipelines

• Support the additional request of flexibility LNG supply (price arbitrage) deriving form the penetration of VRES generation asthemostefficientandeconomic Gas hubs exchange (price arbitrage) energy storage, enhancing the cross-sectoral gas and electricity optimization Security of supply

• … Depleted/aquifer

Salt 11 The value of storage

VISIBLE The market value . Temporal arbitrage between summer and winter and in balancing variable supply and demand across days or weeks

The system value INVISIBLE . Optimization in dimensioning network infrastructures . Availability of gas close to the final market

The insurance value . Avoiding risks to SoS and limiting prices spikes

12 Storage as a regulated business

In Italy gas infrastructures are regulated ….

Tariff Regulation Access Regulation Quality Regulation (Revenues and Tariffs) (Network Codes) (Standard)

… by an independent National Regulatory Authority (NRA) 13 Storage revenues and value protection mechanism

The regulatory framework envisages Allowed Revenues defined by the NRA …

Allowed Revenues Storage capacity Auctions Revenues Reconciliation

Capital .Allowed revenues criteria Back to the remuneration are set by the NRA Accepted bids market Pric + .Allowed revenues cover e Collected by the market operating costs, Depreciation Reserve price depreciation and a fair set by NRA + remuneration of RAB

Operating .Revenues are approved Regulated Auction Auction Offered Quantit costs revenues Revenues Revenues yearly by the Regulator Capacit y y (Higer) (Lower)

… over/under recovery of Auction Revenues actually collected are reconciled through a special account managed at public level

** Cassa per i servizi energetici ambientali: Public Body in the Italian energy sector collecting specific regulated charges for equalization purposes, according to rules defined by the NRA Storage resilience to market volatility evolution

Even in presence of very low summer/winter spreads …

Summer/Winter spreads (TTF) Storage development and utilization*

Bc Full implementation of the auction regime m

Source: Timera Energy (LEBA data)

… full storage filling with benefits for consumers and full revenue protection for storage investments 15 * Not including Strategic storage capacity Muchas gracias