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Snam goes global with gas ambitions

Italian grid operator diversifies to head off challenge of sagging domestic gas demand

Italy's Snam is taking a bold two-pronged approach to the familiar struggle for growth for European gas grid operators faced with stagnating domestic demand. The firm is raising its international profile with strategic partnerships in developing gas markets, and focusing on green gases and power-to-gas solutions domestically.

"Snam is one of the biggest operators in Europe and can export its know-how in terms of efficiency and industrial processes," says a source close to the company.

Snam in October signed a memorandum of understanding (MoU) with Beijing Gas, China's largest natural gas distributor and supplier, to develop biomethane and natural gas storage projects in the country. This is "positive news for Snam" as China "has massive plans to develop its gas market and expand its gas grid" says Davide Tabarelli, CEO of Italian consultancy Nomisma Energia. Chinese gas demand is set to triple to 600bn cm by 2040, according to the International Energy Agency says.

This latest deal is part of the company's strategy of expanding internationally through its Snam Global Solutions unit. The Italian firm is targeting income exceeding €160mn ($183mn) by 2022 from its international arms.

The firm faces little growth in Italy and even the threat of a further drop in gas consumption amid pressures to further electrify the energy sector, Tabarelli says. Gas consumption is expected to be flat or just slightly up in the coming years and to decline in the long term, according to Italian investment banking firm Equita Sim. Snam estimates that Italian demand will average 70-80bn m³/yr through to 2030.

Biomethane potential

The firm is increasingly looking at the potential in green gases—hydrogen and particularly biomethane—and by power-to-gas solutions, which would help Italy meet targets set in the country's 2017 Energy Strategy. These include reducing CO2 emissions by 39pc (against 1990 levels) and reaching a 28pc share of renewable energy sources in final energy consumption by 2030. Thanks to green gases, gas might no longer be a transition fuel but could become a pillar of decarbonisation, says Snam CEO Marco Alvera.

For biomethane, the growth potential could be "significant", reaching 6-8bn m³ by 2030, equivalent to about 10pc of Italian demand, Equita Sim notes.

"There is fierce competition between the electric and gas sectors in Italy as to how to achieve [CO2 emissions] targets" the source close to the company says. "An argument in support of natural gas is that it would leverage the existing gas network."

But there are physical limits to the amount of biomethane that can be produced, says Tabarelli, as well as a more general "hostility towards hydrocarbons" domestically, exemplified by the struggle over the Trans Adriatic pipeline (Tap). Italy's prime minister Giuseppe Conte gave final approval to the project at the end of October. But the Five Star Movement, the junior ruling coalition partner, and local groups in southern Italy continue to oppose it. Tap, which would bring Azeri gas to Italy, is a pivotal element in Snam's ambition to turn the country into a gas hub.

The 2017 energy strategy placed natural gas firmly at the centre of the Italian energy mix amid the phase-out of coal. But it is now unclear whether this role will be maintained in future policy.

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