Breakingviews – Snam rethink reflects Europe's new energy reality –

MILAN, Jan 19 (Reuters Breakingviews) – Snam’s (SRG.MI) new business priorities highlight Europe’s revised energy needs. The continent’s biggest gas network operator said on Thursday that it was hiking spending in transport and storage to ensure more of the fossil fuel can safely flow into Italy and Europe. Stable revenues from such regulated assets should help new Chief Executive Stefano Venier hit his targets. The message is less encouraging for Europe’s energy transition.
Previous boss Marco Alverà, who left the 16 billion euro group last April, had written a book on “The Hydrogen Revolution” and was a firm believer that the advent of the green fuel as a replacement for gas was near. Yet Russia’s invasion of Ukraine in February sent European nations scrambling to quickly replace Moscow’s gas exports. Security of energy supplies, for decades a given, suddenly became a European strategic priority.
That’s why Snam, which already operates 41,000 kilometres of pipelines in Italy and beyond, is earmarking about 9 billion euros by 2026 to install two new regasification units, upgrade its Adriatic network, and increase gas storage capacity. That’s significantly higher than the nearly 7 billion euros it spent on transport and storage under Alverà’s previous 2021 to 2025 business plan.
Boosting investment in stable regulated assets like networks will allow Venier to charge customers more, helping his chances of hitting an EBITDA growth target of 7% per year through 2026, up from 4.5% a year under Alverà’s plan. Yet the crisis, and inflation spike, has also pushed up interest rates. That will eat into Snam’s profitability and cap annual net income growth at a mere 3%. The sluggish bottom line may be one reason Snam trades at just 14.6 times 2023 earnings, a discount to the 17.3 times multiple enjoyed by Italian electricity grid operator Terna (TRN.MI). The valuation may also reflect longer-term doubts about what happens when gas is no longer needed.
Europe’s rush to boost energy security, however, may mean it risks being slower to abandon fossil fuels. Indeed, Snam is reducing its investments in green projects like hydrogen and biomethane to 1 billion euros from 1.3 billion euros under the previous plan. To remain relevant in the long term, the Italian group is working to ensure its pipelines are fully ready to transport carbon-free hydrogen when the technology becomes commercially viable. Venier’s lighter push into green projects suggests that the European energy transition may come at a more measured pace than before the crisis.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
Italian gas network operator Snam, Europe’s biggest, said in its new business plan unveiled on Jan. 19 it will invest 10 billion euros between 2022 and 2026, chiefly to boost infrastructure and storage capabilities. That’s a 23% increase from the 8.1 billion euros unveiled under its previous 2021 to 2025 strategic plan.
The company plans to invest 1 billion euros in energy transition businesses, of which 550 million euros will be invested in biomethane, 100 million euros in hydrogen and 120 million euros in carbon capture and storage technology. This compares with 1.3 billion euros under the previous plan.
The business plan is the first under new Chief Executive Stefano Venier, who replaced former CEO Marco Alverà in April after two three-year terms.
Snam said it targeted EBITDA growth of around 7% a year on average despite rising interest rates, up from 4.5% in the previous plan. It also targeted net profit growth of 3% per year and pledged to grow its dividend per share by at least 2.5% annually, as in previous years.
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