Snam S p A : Full year 2021 results (Transcript)

Full Year 2021 Consolidated Results - Conference call

Thursday, March 17, 2022, 15:00 CET

Investor Relations Snam T [phone] [e-mail]

MODERATORS: MARCO ALVERÀ, CHIEF EXECUTIVE OFFICER

ALESSANDRA PASINI, CHIEF FINANCIAL OFFICER AND CHIEF INTERNATIONAL & BUSINESS DEVELOPMENT OFFICER

OPERATOR:	Good afternoon. This is the Chorus Call conference operator. Welcome,
	and thank you for joining the Snam Full Year 2021 Consolidated Results
	Conference Call. As a reminder, all participants are in listen-only mode.
	After the presentation, there will be an opportunity to ask questions. Should
	anyone need assistance during the conference call, they may signal an
	operator by pressing "*" and "0" on their telephone.
	At this time, I would like to turn the conference over to Mr. Marco Alverà,
	CEO of Snam. Please go ahead, sir.
MARCO ALVERÀ:	Thank you very much. Ladies and gentlemen, good afternoon, and welcome
	to Snam's full year 2021 results presentation. The crisis in Ukraine is having
	a profound impact on energy markets, particularly in the gas market. And
	we've seen supply security concerns, making what was already a tight
	situation with very high prices, even worse. And the previous prices were
	driven more by increasing demand from Asia for LNG, and the situation in
	Ukraine has made prices even more volatile.
	The gas flows are currently uninterrupted, and our team is in constant
	contact with the Ukrainian dispatching center to monitor the situation. Given
	Russia's importance in the European gas market, policymakers across
	Europe are focused on supply security and diversification. And I'm
	encouraged by the level of cooperation between companies and between

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member states and with the commission that I'm seeing in these difficult weeks.

Storage is at the center of the European strategy with member tasked being tasked with mandating that 90% of storage capacity is filled ahead of the next winter. In a deeply backward dated market like we're seeing, it is an economical for shippers to store gas today. And so, we're in discussion with the EU and national policymakers to think about the right instruments that are required to make sure the storages are filled. There is also a renewed focus on supply diversification, maximizing pipeline imports from the south and particularly additional LNG. With spare re-gas capacity that's mainly focused in the Iberian Peninsula and in Northwest Europe, maximizing recourse to LNG means overcoming bottlenecks with new hydrogen ready infrastructure and with new interconnections.

In the long term, accelerating the deployment of biomethane and hydrogen will further reduce reliance on imported gas, while progressively decarbonizing energy consumption. The EU has proposed raising biomethane to 35 billion cubic meter target per year, doubling what was previously the Fit for 55 target, and the new hydrogen target is now for over 70 billion cubic meters of gas equivalent with half of that being imported into Europe through what is called a Mediterranean Green Hydrogen partnership.

Snam does not have direct assets or presence in neither Russia nor the Ukraine, and our regulation, as you know, largely protects us from volume and credit risk. We're studying projects to increase Italian and European supply security at the same time trying to find ways to mitigate the prices. Our assets will play a key role in enabling greater gas and in the future, hydrogen flows from North Africa into Europe. Italy has significant reverse flow potential into Germany and Central Europe through Switzerland and/or Austria. We're also seeking to acquire fast and flexible FSRU capacity for Italy under a regulated framework.

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Given the ample re-gas capacity in Iberia, we're studying with our partners, all options to debottleneck this capacity through the MIDCAT project in France that we've been advocating for a number of years. In the absence of real and fast progress on MIDCAT, we're also in the pre-feasibility stage for a new offshore pipeline from Spain to Italy. In the very near term, we're organizing a virtual pipeline with a system of small vessels to transport LNG from Spain to Panigaglia, where only smaller ships can offload LNG.

Looking more closely at the Italian context, Snam has historically been mandated with a responsibility to guarantee the adequacy of the gas system and verifying that it has enough spare import capacity to cope with the interruption for whatever reason of the largest import source. In general, Italy has a relatively strong position, also thanks to the pipeline, which increased supply diversification and our ample storage capacity and storage levels that are more than 10 percentage points higher than the rest of Europe in 2021.

2021 was a bumper year for gas demand, which was up 7% due to a rebound in industrial production and a slightly colder weather. Russian gas from Tarvisio accounted for 38% of supply or around 30 billion cubic meters. In the table, on this page, we summarize the potential spare capacity of all the entry points into Italy, this adds up to around 30 billion cubic meters. However, in a tight market, the main issue is the commodity. And Europe will need joint purchasing and joint storage to cope with this challenge in the most efficient manner.

Additional leeway and flexibility could come from new facilities as I mentioned, that can be brought on stream in 12 to 18 months, such as new floating re-gasifiers or in the longer term, increasing TAP's capacity, the capacity of TAP by up to 10 bcm. When looking at the production side, it is clearly important to maximize domestic production wherever possible and to

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facilitate the development of biomethane, which in Italy has the potential to reach 12 billion cubic meters by 2030.

Hydrogen, which can be produced in Southern Europe or North Africa and exported into the rest of Europe will play an increasingly important role. A structural change in flows with additional gas in future hydrogen coming from the South would require accelerating investments that are currently foreseen beyond our 10 year long term plan.

Moving now to our associates, we've built a portfolio of assets in some of the more strategic regions. This enables us to diversify risks and capitalize on opportunities. Our recent acquisition of the stake in the transmit pipeline strengthens our position in the strategically important route from North Africa, while DESFA, TAP and Terega will gain volumes or gain opportunities to invest in additional capacity.

TAG, the transit route of Russian gas in Italy through Austria is protected by a year of contract guarantees. Beyond that, it would be exposed to a structural change in flows of gas. This would reduce the profitability and the value of the asset in the near term. However, it would continue to be a strategic asset, given its potential, not only to run into a reverse flow of gas supplies, but potentially also for hydrogen from Italy to Austria. Either way, TAG remains a key asset for Austrian security of supply.

Turning now to our results, 2021 has been another year of delivery and achievements. We've met all our targets and exceeded net profit guidance by almost €50 million, thanks to a solid operating performance, a stronger than expected contribution from associates and our liability management exercises which reduce the cost of debt.

We have investments in Italy, we've invested almost €1.3 billion, which is a record amount owing to an increase in the maintenance and replacement CAPEX, the investment ramp up in our new businesses and our continuing

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