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SNAM.IT
The Italian gas market development: the role of Snam
MILAN, MAY 15TH, 2012
The Snam Group @ 1 January 2012
2
100%STOGIT S.p.A.
Storage of natural gas
100%SNAM RETE GAS S.p.A.
Transmission, dispatching and metering of natural gas
100%GNL ITALIA S.p.A.
Liquefied natural gas regasification
100%ITALGAS S.p.A.
Distribution of natural gas
S N A MS.p.A.
Corporate
Key Elements in the Evolution of the European Gas Infrastructure Landscape
Countries& InstitutionsCooperate in setting Energy Policy Objectives and fostering cross border network projects realization
Gas MarketIncreasing import dependance:
security and diversificationof supply
EU Regulators•Homogenization of
the European Regulatory Framework
•Cooperation among National Regulatory Agencies
•Enhance cross border integration
European Infrastructure Operators
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•Know how and expertise in managing efficiently complex projects
•Trusted and constructive ability to establish partnership
•Solid Capital Structure
Focus on Strategy to shape Further Value Creation
SHAREHOLDER RETURNSAttractive and sustainable return policy
LONG TERM CAPEX EXECUTION IN ITALYDriving profitable long term growth
FOSTER EUROPEAN NETWORK INTEGRATIONCapture value through optimisation of investment requirements and
development of innovative services
REG
ULA
TED
BU
SIN
ESS
RIS
K PR
OFI
LESO
LID CA
PITAL STRU
CTURE
4
DELIVER EFFICIENCYExploit value through operational synergies and efficient cost of capital
Agenda
5
Snam Business Development
Business Environment
Agenda
6
Snam Business Development
Business Environment
• Development of a Pan European integrated network is required to:
• Improve security of supply
• Diversify gas sources
• Implementation of the Third European Directive (unbundling, security of supply and integration of energy markets)
• Homogenization of the regulatory framework
• Increasing dependence on imports driven by rising demand in the M/L term combined with declining domestic production
Key Themes in the European Gas Business
Gas Market
EU Regulation
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EU Energy Policy: goals and provisions
• Ownership Unbundling (OU)• Independent Transmission
Operator (ITO)• Independent System Operator (ISO)
• Entry-Exit system• Market-based balancing regime• Gas Exchanges
• ACER and ENTSOG establishment• Coordination of network
development plans• EU network codes
• Diversification of supply sources• Bi-directional flows• Interconnection between national
markets• Infrastructure flexibility (N-1)
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Harmonisation & Cooperation
Infrastructure Development
Unbundling
Market Liquidity
COMPETITIVENESSCOMPETITIVENESS
SECURITY OF SUPPLYSECURITY
OF SUPPLYSUSTAINABILITYSUSTAINABILITY
Italian Regulation: evolving framework to support market integration
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HUBPSV
• Adoption of 3rd Gas Directive• Ruling on “ITO Certification
procedures” • Ownership Unbundling
(Liberalization Decree)
• Active participation in ENTSOG for rules harmonization and network code development
• Coordination of development plans (TYNDP)
• Entry-Exit system since 2001 • Storage services also for industrial and
power customers• New balancing regime • Cooperation with Exchange
Operators
• Enhancement of storage capacity • New distribution concession areas
and tender procedures• Incentive for new investments
Unbundling Harmonisation & Cooperation
Infrastructure DevelopmentMarket Liquidity
National Investments Plans EU Coordinated Investment Plans
Point-to-Point Transmission Networks Integrated European Transmission System
Different Regulatory Frameworks Convergent regulatory Framework in EU
Vertically Integrated Players Partnership of European Network Operators
Evolution of the European Gas Infrastructure Sector
TOMORROW
10
TODAY
European Gas Market
Domestic production
Net import
(*) Countries: EU 27
Source: Eurogas Statistical Report SurveySeptember 2011
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[ bcm ]
Gas Demand in Europe*Gas Demand in Europe*
CAGR 10 – 30 ~ 1.0%
CAGR 10 – 302.3%
INCREASING IMPORT DEPENDENCEINCREASING IMPORT DEPENDENCE
Nigeria5.3
Algeria4.5 Libya
1.5
Iran29.6
Qatar25.3
Netherlands1.2
Norway2.0 Russia
44.8
Main Gas Reserves supplying Europe*
(*) Trillion cubic metresSource: BP Statistical Review of World Energy, June 2011
Net importNet import
Domestic production
Net import
2030EAdditional import
2011
~100
~3070
Italian Gas Market
Source: Italian Ministry of Economic Development and SRG estimates
[ bcm ]
CAGR 11 – 30 1.2%
CAGR 11 – 30 1.9%
Gas DemandGas Demand
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bcm StorageCapacity *
Hub
Main existing gas flows
New expected gas flows
An integrated Pan European Network to guarantee Security and Diversification of Supply
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17
3
4North
South
16
West-Central EuropeGermany 20 bcmFrance 12 bcmOther 11 bcm
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ITALY SITUATED AT THE CROSS-ROAD ITALY SITUATED AT THE CROSS-ROAD
(*) Source: gie-gse, aggregated gas storage inventory data
Agenda
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Snam Business Development
Business Environment
Agenda
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Snam Business Development
Business Environment
• Capex• International Growth
• Selected projects to meet capacity requirements and supply source diversification
• Development of reverse flow capacity to favour bi-directional flow
Investment Priorities
• Increase capacity for:• Modulation services and peak
demand control• New services for industrial
customers• Develop new balancing services to
enhance flexibility• Set the basis for the development
of swap opportunities in European markets
of the gas systemSecurity Flexibility LiquidityTo increase
Transport & LNG Storage
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Consolidated Capex Plan 2012-2015
STRONG PROGRAMME TO FUEL PROFITABLE GROWTH IN OUR ASSET BASE
2012 2013 - 2015
€ 5.3 bn€ 1.4 bn
0
5
10
15
20
25
30
2011E 2012E 2013E 2014E 2015E
CAGR 4.0%
RAB with base remunerationRAB incentivized
€ 6.7 billion
26%~40%
* RAB evolution calculated assuming annual inflation rate in 2012-2015 of 2% with expected subsidies of around €0.3 billion and on the basis of the current approved regulatory frameworks
SPENDINGSPENDING CONSOLIDATED RAB*CONSOLIDATED RAB* CAPEX BREAKDOWNCAPEX BREAKDOWN
[ €bn ]
80% 20%
4.3 0.9 1.5
Not IncentivizedIncentivized
[ €bn ]
StorageTransport Distribution
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11%
34%55%
49%37%
14%
49%
23%
16%
12% Regional & national develop.
2% premium for 7 – 10 yrs
Expansion & new entry points 3% premium for 10 – 15 yrs
Safety1% premium for 5 yrs
MaintenanceBase return: 6.4%
Expansion of existing fields4% premium for 8 yrs
Development of new fields 4% premium for 16 yrs
MaintenanceBase return: 6.7%
(*) Gross of subsidies
Metering8% allowed return
Substitution of cast iron pipes2% premium for 8 yrs
Other investmentsBase return: 7.6%
2012-2015 Capital Expenditure and Incentive Scheme*
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[ €m ]
Transport and LNG
Storage
Distribution
2012 2013 - 2015
€ ~3.5 bn€ ~0.8 bn
2012 2013 - 2015
€ ~0.6 bn € ~0.3 bn
2012 2013 - 2015
€ ~1.2 bn€ ~0.3 bn
Main Projects• Po Valley Infrastructure• Empowerment/construction of
compressor stations• Metering point in Masera
Fully Operational by 2015
2
6
TarvisioPasso Gries
Expected export
capacity beyond2015
TarvisioPasso Gries
13
6
Cross Border Bi-directional Flows
[ bcm ]
[ bcm ]
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Planned project:Length: ~1,150 km Installed power capacity: ~170 MW
Capacity at entry points from South
+8 Bcm
South–North Developments
TO INCREASE FLEXIBILITY AND FACILITATE SUPPLY SOURCE DIVERSIFICATION
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South-North DevelopmentSouth-North Development
New Potential Opportunities to sustain significant Capex Beyond 2015
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Additional capacity atentry points:
From South
From Galsi
From North/East
FEASIBILITY STUDY
+ 10 bcm
+ 8 bcm
+ 8 bcm
GALSI
Porto Empedocle
GioiaTauro
Falconara
Trieste
Priolo
TAP
ITGI
0
5
10
15
20
0
100
200
300
400
New Storage Capacityto facilitate Gas System Liquidity
MINERBIO
FIUME TRESTE
SETTALA
BORDOLANO(new storage site)
2012 – 2015 capex plan consistentwith Ministerial Decree
SERGNANO
SABBIONCELLO
RIPALTA
4.010.013.0
Modulation Capacity
Peak Capacity
271310
2011 2015E
+ ~14%
+ ~30%
Modulation Capacity for industrial users (new Ministerial Decree)
9.0
1.7
8.3
ALFONSINE
Feasibility study and
permissioning for new
capacity to be developed
beyond 2015
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[ Mscm/d ] [ bcm]
Distribution: selected investments to increase profitability in a mature business
4
5
6
7
2011 2015E
Redelivery points (millions)
5.9~6.4
+ ~8%
• Replacement of:• ~300 km mainly of cast iron pipes • ~0.5 mln of meters
• New connections (~ 2,000 km) on existing distribution network and development of new distribution network
START UP OF SMART METERING PROJECT:
• ~1.1 million smart meters
• IT systems development to support smart metering process
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Main projectsMain projects
Agenda
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Snam Business Development
Business Environment
• Capex• International Growth
DEVELOPING THE ITALIAN HUB TO BECOME A KEY PLAYER IN THE EUROPEAN INFRASTRUCTURE GAS MARKET
Increasing focus on security of supply anddiversification of sources
Supportive regulatory and market environment for the emergence of integrated European network
and cooperation among infrastructure players
Convergent regulated risk profiles acrossEuropean gas markets
Large size and solid capital structure supportiveto international growth
Innovative industrial know-how in developmentand management of cross-border integrated
gas infrastructure
Leader in the Italian market: key platformfor the European gas network
Key Factors supporting Snam International Growth
SNAM POSITIONINGEUROPEAN GAS MARKET EVOLUTION
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Strategic Alliance Agreementwith Fluxys
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• Reverse flow initiatives to promote cross-border flows and to link the gas trading places in the Northwest and South of Europe
• Transport, storage and LNG projects to enhance the flexibility and security of supply in the European infrastructures
Pursuing development opportunities in the gas infrastructure sectorin Europe consistent with the
Third European Directive
Implementing International Growth in the European Regulated Gas Business
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SNAM.IT
The Italian gas market development: the role of Snam
MILAN, MAY15TH, 2012