Intesa Sanpaolo S p A : Presentation of the 4th “Med & Italian Energy Report” of SRM and ESL@Energy Centre of the Politecnico di Torino

PRESS RELEASE

PRESENTATION OF THE 4TH

"MED & ITALIAN ENERGY REPORT" OF SRM AND ESL@ENERGY CENTRE OF THE POLITECNICO DI TORINO

The Report focuses on

the Euro-Mediterranean energy transition and

the role that alternative fuels can play

• For the EU, oil is still the main energy source, but its share has declined by 6 percentage points over the past two decades, from 38.7% to 32.7%.
• In the European Union, Gas increased its share from 20.6% to 24.4% over the same period. Renewables and Biofuels leapt forward, gaining more than 11 percentage points from a share of 6.4% to 17.9%.
• In 2022, Russian gas supplies to the EU decreased by 80%.
• At the strategic level, the new central role of the Mediterranean, especially North Africa, will be important to ensure the security of energy supply in the short and medium term.
• The pace of growth of renewable capacity in the Middle East and North Africa is expected to increase by over 100% in the next five years, from 15 GW to over 32 GW.
• Biofuels currently play a key role in the decarbonisation of the EU transport sector, accounting for 83% of the total fuels used in 2020.
• Maritime transport and ports are playing an increasingly important role in the scenarios and are moving towards new models, more and more aimed at energy development: Green Ports and Green Ships.
• Ports are in fact becoming poles of industrial and energy development. They are terminals for fossil and renewable energies, as well as gateways for pipelines from North Africa carrying energy flows and also close to energy-intensive industries. This will increase their strategic and economic value.
• Italy's ports have an important energy component: 34% of traffic is liquid bulk (over 163 million tonnes in 2021). In the first six months of 2022, 80 million tonnes were exceeded (+5.6% on 2021).
• From January to October 2022, 63% of the fleet in orderbooks (ships under construction) is represented by vessels powered by alternative fuels, mainly Liquefied Natural Gas and Methanol.

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Brussels, 1st December 2022 - The 4TH MED & Italian Energy Report, which this year is named "Alternative fuels: a strategic option for the Euro-Mediterraneanarea?", has been presented today at the European Parliament. This research endeavour is the product of collaboration between SRM (research centre linked to Intesa Sanpaolo Banking Group) and the

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ESL@Energy Centre of the Politecnico di Torino with the participation of the Matching

Energies Foundation.

The event was sponsored by MEPs Tiziana Beghin, Patrizia Toia and Marco Zanni, and was organised with the cooperation of the Brussels-basedEuropean Regulatory and Public Affairs Office of Intesa Sanpaolo.

The Report, in line with previous editions, continues to assess and discuss the current energy situation and future prospects in the Mediterranean region, with this year's special focus on alternative fuels (both biofuels and synthetics), which fit well with a circular economy approach and could be important in supporting decarbonisation, particularly in maritime transport.

Alternative fuels could, in fact, play a not negligible role in accompanying the 'green' transition process and in supporting a decrease in energy dependency, also enhancing Euro-Mediterranean integration.

After introductory speeches by the three MEPs and the Head of European Regulatory and Public Affairs of Intesa Sanpaolo, Francesca Passamonti, the 2022 Report was presented by Massimo Deandreis, General Manager SRM, and Ettore Bompard, Director ESL@ Energy Center, Politecnico di Torino.

The results illustrated were discussed by the speakers present: representatives of Italian and European institutions, international trade associations, representatives of the energy industry and energy-related infrastructures.

The proceedings were concluded by the President of Compagnia di San Paolo and ACRI, Francesco Profumo.

For more detail:

Ufficio Stampa

Intesa Sanpaolo

[e-mail]

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Executive Summary

A major change in the structure of the European Union's energy mix has been underway for the past two decades: oil still dominates, but Renewables and Biofuels are making marked gains

• As far as the EU's energy mix is concerned, oil is still the main energy source, but its share has decreased by 6 percentage points over the last two decades from 38.7% to 32.7%.
• The share of gas increased from 20.6% to 24.4%.
• Renewables and Biofuels showed an impressive surge, gaining more than 11 percentage points from 6.4% to 17.9%.

The Russian invasion of Ukraine has created geopolitical and strategic turmoil in the European energy sector and thus also in our country: gas consumption is decreasing; sources are being diversified and supplies are changing

• Until 2021, the EU imported 90% of its gas consumption. Russia supplied over 45% of these imports (in 2010 this figure was 31%), in addition to 27% of oil imports and 46% of coal imports.
• The other gas suppliers to the EU are Norway, the USA, Qatar and Algeria accounting for 47.7% of needs.
• In 2022 (especially March-September)Russian gas supplies to the EU decreased by 80% and there was a process of demand reduction (of end-users), supply diversification and increased LNG imports together with an increase in renewables.
• Italy is among the countries most affected by the reduction in Russian gas and reacted with increased imports, especially from Algeria; in September and October 2022, gas imports via the Transmed (Algerian gas entry point) exceeded 40% of total gas imports.
• At the same time, Italy's import of Russian gas through the TAG pipeline accounted for 8.7% of total imports in September and even less than 1% in October.

The Southern Mediterranean thus becomes strategic for overcoming the crisis and setting future energy balances, not only for fossil fuels.

• At the strategic level, it is important to strengthen, in a structural manner, the new central role of the Mediterranean in order to ensure the security of energy supply in the short and medium term.
• The pace of growth of renewable capacity in the Middle East and North Africa is expected to increase by more than 100% over the next five years, from 15 GW to over 32 GW. Capacity expansion is concentrated in five countries: the United Arab Emirates, Saudi Arabia, Israel, Egypt and Morocco.
• Another opportunity to implement decarbonisation will be investments in hydrogen; Morocco and the United Arab Emirates have already drawn up road maps and/or signed memoranda on the topic of green hydrogen.

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• The EU, at COP27 in Sharm el Sheikh, also signed an MoU with Egypt to create a partnership on green hydrogen.

The strengthening of the "fossil based" energy dialogue across the Mediterranean is a mandatory answer to the ongoing geopolitical crisis between Russia and Ukraine. However, in the long run, a strategic interplay among energy commodities will be necessary for building a new "green" dialogue.

• The evolution of the energy systems in the Mediterranean region must be intertwined with the triangle of desirable energy attributes, which reflects the so-called "energy trilemma": environmental sustainability, energy security and equity.
• The conflict between Russia and Ukraine is shifting the priority from a vertex (environmental sustainability) to the other two (security and social equity). One of the first effects of this has been a strengthening of the fossil-basedenergy dialogue across the shores, since Algeria is assuming the role of key gas supplier for several countries belonging to the Northern shore, like Italy: in October 2022, the gas import from Algeria through the Transmed pipeline was more than 40% of the total, while the import from Russia was lower than 1%.
• If the reinforcement of the "fossil based" dialogue across Mediterranean is a mandatory answer to the contingency determined by the crisis, in the long run the strategical policy choices cannot ignore the need for balancing the three key attributes.
• The exploitation of locally available renewable resources could lead to benefits not just in terms of increasing sustainability, but also with reference to supply security for highly dependent countries and social equity, ensuring an affordable access to energy to all the citizens. Electricity from renewables is expected to assume the central role in the future energy mix and in building a new "green" dialogue.
• However, electricity could not assure by itself the complete decarbonisation of the Mediterranean energy systems due to the presence of "hard-to-abate" final energy uses (as the production of high temperature process heat in industry, and the long-distance maritime and aviation transport), requiring a synergy with other commodities (like hydrogen).
• In this framework, a non-negligiblerole could be played by the alternative fuels, both biofuels and synthetic fuels (obtained by combining hydrogen and CO2), whose exploitation fits with the circular economy approach at the basis of the European Green Deal and which have been already included in the strategic plan of the European Commission "REPowerEU".

In the journey towards a fully decarbonised transport sector, biofuels and e-fuels are expected to support the energy transition, especially for the hard-to-abate segments such as aviation and maritime.

• Biofuels currently play a fundamental role in the decarbonisation of the EU transport sector, representing an 83% energy share of total renewable fuels used in 2020. The EU countries located in the Mediterranean area used around 6,300 ktoe of biofuels in 2020, equal to 38.8 % of total biofuels consumed at EU27 level; in particular, France, Spain and Italy account for almost 90% of such share. On the other hand, the Eastern and Southern Mediterranean shores are still lagging behind, with only Turkey and Cyprus reporting limited biofuels consumption figures: of 167 ktoe and 27 ktoe in 2020, respectively.

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• Biofuels demand figures for the transport sector in the Northern Mediterranean shore are expected to rise until 2030, ranging between 8 Mtoe and 12.6 Mtoe, then gradually be complemented by direct electricity and e-fuels are expected to increase. Southern and Eastern Mediterranean shores are expected to follow a similar path but shifted ahead in time of around two decades.
• The development of highly sustainable liquid fuels value chains is of paramount importance for decarbonising "hard-to-abate" sectors such as international civil aviation and maritime transport.
• An analysis of technical potential for biofuels production, based on the biomass feedstock availability potential, in the Mediterranean area for year 2030, has been performed. It mostly considered existing EU-scale studies and focused on three production pathways: Sustainable Aviation Fuels (SAF) and Renewable Diesel from ligno-cellulosic biomass, SAF from waste oils and fats, such as Used Cooking Oil and finally Bio Liquified Natural Gas (LNG) from the Anaerobic Digestion of the Organic Fraction of Municipal Solid Waste (OFMSW). The resulting total technical potential for the Northern EU shore was estimated at around 28 Mtoe. The expected SAF potential from oils and fats could cover around 15-16% of the SAF mandates-drivendemand for 2030, while the projected Bio-LNGproduction could cover around 20% of the expected demand for the maritime sector. Southern and Eastern Mediterranean estimated technical potential proved slightly lower, mostly due to the existing high uncertainties.

Different policy supporting actions for alternative fuels development are in place in the Mediterranean areas, with the Northern shore leading and the Southern and Eastern shores getting-up to speed.

• Policies fostering biofuels uptake in the transport sector are in place by more than a decade at EU level. Currently, the 2018/2001 RED II Directive contains a 14% RES target over the total transport sector energy consumption in year 2030, with a sub-targetof 1.75% of advanced biofuels.
• Within the 'Fit for 55' legislative package a proposal for the revision of the 2018/2001 RED II Directive has been presented. It raised the transport target ambition and defined it in terms of GHG emissions levels reduction instead of renewable energy consumption. The proposal also raised the advanced biofuels sub-target to 2.2% of transport energy consumption and introduced a new 2.6% target for hydrogen and synthetic hydrogen fuels in the sector.
• Other targets and mandates were proposed within the ReFuel EU Aviation and the Fuel EU Maritime legislation proposals, both in terms of GHG reduction and bio/synthetic fuels uptake, in 2050.
• For the time being, the policy framework for alternative fuels of Eastern and Southern Mediterranean shore countries is less structured and detailed, in comparison with the one of European countries. Nevertheless, it is worth noticing that policy is rapidly shaping, through the development of strategic plans and roadmaps, together with projects involving industrial partners.
• Within this overall picture, a further adaptation of existing legislative measures could foster and financially support the Mediterranean marginal land recovery actions that bioeconomy and bioenergy could put into place, by using autochthonous feedstocks as an input for their processes.

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