The future of gas. Berlin, February 1 st snam.it

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1 The future of gas Berlin, February 1 st 2018 snam.it

2 A new report dedicated to natural gas Will gas achieve its strong projected growth path? 2

3 bcm The growth of natural gas is expected to continue to 2040 World natural gas demand to New Policies Current Policies Sustainable Policies Global gas demand increases from 3,600 bcm in 2016 to over 5,300 bcm in 2040 (+45%) Ca. 50% of this growth to come from non-oecd Asia Main driver to be power generation (both new capacity and coal-to-gas switch) Average annual demand growth rate of 1.6% between 2016 and 2040 Source: Snam Global Gas Report 2017; IEA 3

4 Production Demand and there are even reasons to be bullish about Europe Bcm 600 EU28 Natural gas demand evolution European gas demand is in strong recovery (+6% in 2016; +6% in 2017) 500 Further upside potential from coal to gas switching 400 Longer term forecasts divergent, will depend on the perception of gas s role in decarbonizing Europe 300 New policies (IEA) Sustainable development (IEA) Current policies (IEA) European domestic production rapidly declining Additional imports required under most scenarios * Eurogas Sources: Eurostat, IHS. IEA. 4

5 Germany: at the heart of Europe s gas story Europe s top gas consumers (bcm) Top global gas importers (bcm) Rest of EU 62 Germany Netherlands Turkey 46 United Kingdom France 46 Italy 69 0 Turkey S. Korea France Italy China United States Germany Japan Source: ENI world gas and renewable review 2017 (2016 data) 5

6 Energiewende, but at a price Share of renewables in gross power consumption 35 Household power rates ( ct/kwh) 40% 35% 30% 25% % 15 15% 10% 10 5% 5 0% Procurement, Power generation distribution, and sales margin Grid charges Other concessions and levies Taxes EEG Renewable surcharge surcharge (EEG) Surcharges for renewable energy account for almost a quarter of a household s electricity costs, more than commodity costs Source: AG Energiebilanzen, 2017 (preliminary data), Agora Energiewende 6

7 Germany is on course to miss its emissions targets German power mix 2017 Germany on course to miss its targets Nuclear 12% Natural gas 13% Oil 1% Other 4% Hard coal 14% Coal 37% Renewables 33% Lignite 23% 0 Projected 2020 emissions EU 2020 target shortfall EU 2020 target German 2020 target shortfall German 2020 target German 2030 target Source: European Environment Agency, Gas Naturally, Kraftfahrt Bundesamt 7

8 Energiewende 2.0: a greater role for gas? Daily demand for gas and electricity for final uses TWh 3,0 2,5 2,0 Max gas demand: 2,9 TWh/d gas electricity 1,5 1,0 0,5 0,0 Max electricity demand: 1,2 TWh/d Gas demand: 490 TWh/y Electricity demand 314 TWh/y Yearly gas demand for final uses is 1.6 x higher than electricity demand Peak gas demand is 2,5 times higher than electricity peak 8

Air 108 Hydro Pumps 120 Short-term flexibility Ensure intra-day flexibility to cover consumption peaks Li-Ion Batteries 220 Flow Batteries

9 Gas storage is an economical and viable solution to meet our energy needs Energy Storage Costs ( /MWh) Needs met by gas storage Natural Gas 5 Supply and demand adjustment Respond to high seasonality of gas demand by replenishing storage facilities in summer and emptying them in winter Compressed Air 108 Hydro Pumps 120 Short-term flexibility Ensure intra-day flexibility to cover consumption peaks Li-Ion Batteries 220 Flow Batteries (zinc-bromide) 427 Arbitrage Seize price opportunities by buying gas cheap, storing it, and selling it when prices rise Sources: EIA, Lazard, Snam s elaboration 9

investment needed 50% reduction of coal with gas switch in EU reduces 250 Mt/y CO 2 emissions A cost effective way of

10 Gas can support decarbonisation by substituting coal in power generation E-HIGHWAY 2050 EUROPEAN GAS GRID Development of highway for power generation from RES in EU 400 B for new electric grids to reduce 200 Mt/y CO 2 Gas Grid limited investment needed 50% reduction of coal with gas switch in EU reduces 250 Mt/y CO 2 emissions A cost effective way of reducing Co2 emissions in power generation Source: European Environment Agency, Gas Naturally, Kraftfahrt Bundesamt 10

Gas is an immediately-available solution for transport Widely available 1m natural gas vehicles in Italy today, 15 million in Europe by 2030 Fast

years Circular economy With biomethane it can help reducing waste while being emission negative -30% CO 2 PM -70% NO x CNG -30% CO2 Sources: Snam; NOx

11 Gas is an immediately-available solution for transport Widely available 1m natural gas vehicles in Italy today, 15 million in Europe by 2030 Fast charging Unlike EVs, CNG cars can be charged in few minutes -96% Economical CNG cars cost half as much to run and pay back retrofit costs within two years Circular economy With biomethane it can help reducing waste while being emission negative -30% CO 2 PM -70% NO x CNG -30% CO2 Sources: Snam; NOx and PM calculations are calculated based on emissions vs Euro 6, FCA-Iveco 2016; CO2 calculations based on well-to-wheel emissions of CNG vs Petrol by Thinkstep 11

Natural gas: not just a bridge fuel Power to Gas: gas infrastructure be used to «store» excess renewable power Significant potential to replace gas-fired generation with renewables in oil & gas

12 Natural gas: not just a bridge fuel Power to Gas: gas infrastructure be used to «store» excess renewable power Significant potential to replace gas-fired generation with renewables in oil & gas producing counries Hydrogen: Excess power can be used to produce hydrogen from water, delivering another clean fuel for heating and transport Biomethane: 8bcm potential in Italy by 2030, ca. 122bcm potential in Europe by 2050; significant synergies from integration with solar/wind (> 100bn annually) CCS: Overall cost effective way to decarbonise, faces hurdles in a market environment Methane leakage needs to be addressed to support sustainability of gas Source: Ecofys study; Snam s elaboration 10

13 Integrating renewable gas: ca. 140bn of savings annually in Europe Domestic heating Lower electric heat pump capacity ( 37bn) ~122bcm Renewable gas (Biomethane and Powerto-gas) Insulation Electricity production (Seasonal) fluctuations Electricity infrastructure Less extreme insulation ( 16bn) Lower CAPEX and OPEX than solid biomass generation Lower cost for energy storage Less grid expansion, thanks to lower peak power demand ( 6bn) 89bn ~ 141bn Annual savings when used in gas infrastructure Gas infrastructure Costs associated with maintaining gas infrastructure (- 4bn) Gas production Costs associated with the production of renewable gas (- 4bn) 11

To leverage the benefits of gas we must make it even cheaper North America Gas

$9/MMbtu EU Energy Union as a key enabler for (a) narrowing the European gas

North America and (b) enhancing the European security of supply NOTA: I dati

14 To leverage the benefits of gas we must make it even cheaper North America Gas price (HH) ~$3/MMbtu Europe Gas price (TTF) ~$7/MMbtu Asia Gas price (JP) ~ $9/MMbtu EU Energy Union as a key enabler for (a) narrowing the European gas price differential vs. North America and (b) enhancing the European security of supply NOTA: I dati di Snam e le sue partecipate (TIGF, TAP, IUK, TAG). I Paesi sono Francia, Austria, Belgio, UK, Italia FONTE: SOURCE: Snam EIA, Snam 14 14

through infrastructure, interconnections and storage Snam s Snam s priorities priorities for the for Energy the Energy Union Union 3 1 2 Southern Corridor (TAP) Ukrainian route 3 Northern corridor

15 through infrastructure, interconnections and storage Snam s Snam s priorities priorities for the for Energy the Energy Union Union Southern Corridor (TAP) Ukrainian route 3 Northern corridor (NS2/Eugal) Greece: DESFA privatization Reverse flow and increased hub liquidity (AUT, CH) Turk Stream Interconnection with Iberian Peninsula STEP/MIDCAT Mediterranean and Caspian routes SOURCE: EIA, Snam

16 Backup snam.it

The Italian National Energy Strategy Complete coal phase-out by 2025 02 Implementing the reverse flow project 04 01 Improving the energy security by diversifying supply sources 03 175 b for

17 The Italian National Energy Strategy Complete coal phase-out by Implementing the reverse flow project Improving the energy security by diversifying supply sources b for sustainable growth (30 b for gas and electricity networks, 35 b for renewable sources and 110b for energy efficiency) Natural gas will continue to play a key role in the energy transition Source: Strategia Energetica Nazionale (SEN); 17

18 Globally, forecasts suggest a growing role for renewables and gas in the energy mix 1973 Total: 5,681 mtoe 12% 2016 Total: 13,760 mtoe 14% 2040 Total: 18,300 mtoe* 16% 32% 30% 47% 24% 27% 22% 5% 6% 1% 16% 22% 26% Renewables and others Coal Natural Gas Nuclear Oil Source: EIA, IEF; *New Policies Scenario 18

Coal continues to dominate power generation until 2030, when gas takes over Installed power generation capacity by type* GW 3 000 2 500 2 000 1 500 1 000 Coal still accounts for ca.

19 Coal continues to dominate power generation until 2030, when gas takes over Installed power generation capacity by type* GW Coal still accounts for ca. 70% of CO 2 emissions from power generation globally Potential for coal-to-gas switch in Europe Additional coal capacity expected to be built, especially in Asia Coal Oil Gas Nuclear Hydro Wind Solar PV Other renewables Source: IEA 2017; * according to the «New policies scenario» by IEA 19

Methane Small Scale LNG Traditional fossil sourcing Integrated business model, from

20 Biomethane: green, available and renewable Production Transport & Storage Fuel distribution Consumption Biomethane CNG Stations Agriculture CNG Organic Waste L-CNG Methane Small Scale LNG Traditional fossil sourcing Integrated business model, from biomethane production plants to fueling stations Strengthened positive environmental impact Source: Snam 20

Power generation Solar Methanation CO 2 CH 4 Mobility Industrial use

21 Power to gas to use existing gas grid while balancing power supply in excess Power infrastructure Hydrogen storage Wind H 2 H 2 Electrolysis H 2 Power generation Solar Methanation CO 2 CH 4 Mobility Industrial use Domestic use CH 4 CH 4 CH 4 Natural gas grid Gas Storage Source: Snam s elaboration 21

Competitive energy landscape in Europe

President of Energy Sector, South West Europe, Siemens Competitive energy landscape in Europe Brussels, siemens.com/answers Agenda Europe s competitiveness depends on an affordable and reliable energy