With €1 billion yearly investment, Snam–Italy’s gas infrastructure company–pioneers sustainable solutions and contributes to the energy diversification of the country. In our interview, Marco Alverà, CEO of Snam, describes the trends marking a shift towards sustainability; and the opportunities arising from Italy’s strategic position in the Mediterranean as well as the development of the European single market for energy.
The International Energy Agency (IEA) expects energy demand to grow 37% by 2040. Ensuring sustainable growth by matching the demand and supply of the energy sector is one of the most compelling global challenges. When it comes to sustainability, do you think it is still a buzzword, or are we moving towards more compelling regulations internationally such as COP21 and Europe 2020?
The targets of Europe 2020 have been achieved ahead of time. It has been a phenomenal success. COP21 is a significant step towards bringing modern commitments and methodology to stay within the 2-degree warming scenario. Now, if we project to 2040, most forecasts say hydrocarbons will still be around 75% of the global energy mix. The split is about equal. It’s the “rule of 25”: 25% coal, 25% oil and 25% natural gas.
Then there are the three other sources of energy - the “rule of 8” - which make up the remaining 25%. So, around 8% new renewables, 8% hydro–which is a more traditional renewable–and 8% nuclear. The new renewables are starting from a low base, so they are growing 400% from about 2% today to 8%.
Nuclear and traditional hydro are more or less flat. Looking at the hydrocarbons, the good news for sustainability is that coal is coming down and natural gas is going up. The way to accelerate CO2 reduction is to reduce the use of coal and increase the growth of natural gas. All this growth that you have described is outside the OECD (Organisation for Economic Co-operation and Development), where the economic growth is stable and compensated with energy efficiency.
All the growth is coming from developing economies, and I believe the smartest developing economies have realized that in order to reduce not only the CO2 balance but also local pollution, gas consumption has to increase faster than the normal trajectory. For Snam, which operates in the business of natural gas infrastructure, this is good news. Sustainability is no longer a buzzword. The number one concern that most people have, once you strip out the urgencies of war, terrorism and economic crisis, is global warming. People all around the world have very strong feelings towards this global issue. I believe that politicians have realized this and consequently are taking action.
Within this context, how would you describe the contribution of Snam in particular towards the future of sustainable development in Italy?
Snam has been one of the pioneers in the world in the field of natural gas and sustainability. It pioneered into the Russian and Algerian contracts in the 70s and later in Norway and Libya. During the 50s and 60s, when it ventured to bring new sources of clean energy to Europe and Italy, it contributed to kick-starting the Italian economy after the war.
In the 50s, Snam was already bringing clean and sustainable sources of energy to factories. That’s really what helped to propel the whole industrial development in Italy. Snam has a long history of collaboration in order to create a sustainable energy mix. I believe the trends we described earlier, the substitution of coal for natural gas, play on the strengths of our company.
Gas is extremely important when we talk about geopolitics, especially in the European context. What is your opinion regarding the potential of Italy to become the focal point of an integrated energy system within the Mediterranean?
Italy is already the most diversified country in the world from an energy infrastructure perspective. If you take Europe, there are five sources of gas flowing into the Continent —Norway, Russia, Libya, Algeria, and LNG. We are adding the sixth source, which is the Caspian area and specifically Azerbaijan, through the TAP pipeline. This huge project goes from the Caspian Sea, across Azerbaijan and Greece straight into Apulia thereby providing another alternative channel to bring gas into Europe.
So, if you look at Europe, we have 5 sources coming into 6. Italy is directly connected to all the sources. We have built pipelines in the 70s crossing the Alps to bring Dutch and Norwegian gas across. We built the first regasification terminal in 1971, in Panigaglia near La Spezia. It was actually Europe’s first regasification terminal. We have built pipelines in the 70s to bring Russian gas through Slovakia and Austria, and then Algerian gas across the Mediterranean.
So, we are already the most diversified country. With the Southern Corridor, we will really become the gateway for energy flows towards Europe.
Regarding the TAP, what do you think is going to be the impact of this project on the local socio-economic development?
The beauty of our job is that it’s very capital intensive, technologically challenging but invisible from an eyesight perspective, as we do not provide fumes or visible infrastructure, as it’s all below the ground.
We are always very welcome as we invest money locally in construction without providing any disturbance from a pollution or physical infrastructure perspective. We pride ourselves with maintaining the best possible relationship with the territory.
Just to give you an idea, last year, we procured globally almost €2 billion of purchases spread over almost a thousand different companies. We are investing significant CAPEX into projects involving many industry-related companies. This €2 billion figure is mainly focused on Italy. When we look at our regional projects, we focus on working with local companies.
What do you think are going to be the opportunities or challenges emerging from Eni’s discovery of the Zohr gas field?
The Zohr discovery is a phenomenal piece of news because it’s a new source of clean and sustainable energy. It will bring a great contribution to the Egyptian economy, which has experienced significant growth in demand for natural gas. Now they will be very well supplied. Furthermore, if Eni decides to export this gas into Italy, we are certainly ready to play our role in developing the necessary infrastructure to do that.
With regards to the European vision to create a single market for energy, what do you think are the prospective growth opportunities for Snam?
I think it is gradually happening. We have three or four key infrastructure bottlenecks that need to be sorted out. Connecting France and Spain and completing the Eastern European infrastructure are a priority.
Once this infrastructure is executed and developed, the markets will work on their own to harmonize and create a single energy network. This will mean lower prices, more security and greater flow of energy between countries. The amount of investment that this attracts is very interesting, and Snam is right in the center as we have the largest pipeline network in Europe.
Can you please provide us a snapshot of the magnitude of Snam’s network, natural gas storage and distribution capacity?
Snam today has a market capitalization of close to €18 billion and has a debt of around €14 billion. So, we have an enterprise value of close to €33 billion. The return for shareholders in terms of TSR has been over 500% since our listing in 2001. In 75 years we have built the largest transport network in Europe with around 32,000 kilometers, which extends to round 38,000 if you take into account the networks managed by our foreign associates in UK, France and Austria.
Our subsidiary Stogit is the largest storage company in Europe, and we also have one of the first regasification terminals built in the world in Panigaglia. Our portfolio is very balanced and sizable, counting with very attractive opportunities.
Looking at the future, what would you say are the main expansion projects for Snam?
We will be presenting our strategy to investors at the end of June. We have significant growth opportunities within our existing portfolio, and we are working together with Italian and European policy makers to support and push for the market integration—moving away from twenty-seven different gas markets to a single market, where price hubs are interconnected and so we also send the right signals to investors.
The US is Italy’s top trade and investment partner outside the EU. Why should American investors look at Italy as their next investment destination?
I can tell you what I tell all my U.S. friends: Italy counts with a stable government that has already achieved several significant reforms, with more reforms expected later this year. Coming to Snam and our business, there is a stable and predictable regulation in terms of remuneration of our infrastructure. The dividends that companies like Snam or Terna and other regulated companies can pay today are very high, compared to other yield investments. We see many investors beginning to realize this, and we are seeing a great appetite for Italian equities, bonds and non-performing loans. The wave is beginning to come.
What is your personal vision regarding the future of Italy? How do you imagine Italy in 10 years time?
Italy has shown in the field of renewables that when the incentives are right, it will execute, recover ground and actually beat everyone else in the game. I am very optimistic that the reforms that are being pushed forward will unleash a hugely entrepreneurial energy within Italy.
The good news is that our nation has everything it needs to really outpace the growth of other countries. I see an Italian economy that has a growth potential more than some other European countries. Certainly, Snam is ready to do its job through very large programs of investment. We invest around €1 billion per year. Therefore, we are one of the largest investors in the Italian economy.
Our existing assets outside of Italy also mean that we also have a presence and an opportunity to play a role in helping Italy to become the energy hub for Europe.