Italy's soaring gas investments ignore falling demand
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Key Findings
Italian energy company Snam continues investing in gas infrastructure despite Italy’s recent declining demand for the fuel.
Snam’s increased investments often provide it with higher regulated revenues. Such incentives may encourage excessive capital expenditure.
The company owns a significant share of Italy’s LNG infrastructure and two of the country’s planned LNG terminals.
Falling LNG demand will lead to lower utilisation rates for Italy’s expanding fleet of regasification terminals.
Executive Summary
Italy’s declining gas consumption raises questions about its continued investment in the fuel. The country’s gas demand dropped by 19% from 2021 to 2024. Meanwhile, liquified natural gas infrastructure construction plans could see the country triple its regasification capacity from 16.1 billion cubic metres in 2022 to 47.5 billion cubic metres in 2026.
Snam Rete Gas, part of the Snam Group, is a key player in Italy’s gas market. It operates a 32,000-kilometre nationwide pipeline network and supplies around 95% of the Italian market. Most of Snam’s revenues are regulated to ensure that services are provided to third parties according to non-discriminatory criteria. Such regulations could lead companies to unnecessarily increase investments.
Regulatory agencies in various European countries have been aiming to mitigate the risk of regulatory incentives potentially providing a bias towards excessive capital expenditure. In Italy, energy regulator ARERA launched a programme in 2021 called Regulation by Objectives of Expenditure and Service to help consolidate and strengthen investment selectivity and efficient infrastructure use. This led to a new approach to revenue setting.
Despite this change, Snam’s investments and regulatory revenues have been growing. Its regulated revenues increased by 20.1% year on year in the first half of 2024. This rise was mainly driven by a higher weighted average cost of capital and regulated asset base growth in its gas transportation and storage segments.
