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«Зеленый СПГ»

35th meeting of Working Group 2 “Internal Markets” (WS2)

EU-Russia Gas Advisory Council (GAC)28 May 2021

Green LNG Strategy Leading in LNG markets during Energy Transition

«Sakhalin Energy Investment Company Ltd.»

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SAKHALIN 2 PROJECT

SAKHALIN 2 Assets:

• Three offshore platforms

➢ PAA

➢ PAB

➢ LUNA

• Offshore pipelines;

• Onshore pipelines;

• Onshore Production Facility (OPF);

• Booster Station (BS-2);

• Oil Export Terminal (OET);

• Liquified Natural Gas Plan (LNG);

• gas sampling and metering stations (north and south)

Shareholders:

• Gazprom (50% plus one share);

• Royal Dutch Shell plc (27,5% - 1 share);

• Mitsui (12.5%);

• Mitsubishi (10%).

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EMISSIONS PHYLOSOPHY

(1) EXTRACTION (2) PROCESSING (3) TRANSPORTATION (4) LIQUEFACTION (5) DISTRIBUTION (6) END USE

Emissions from bringing LNG product to the MarketEmissions from distribution

& product use

Upstream Midstream Distribution Burning

Scope 1 + Scope 2 (12%) Scope 3 (88%)

GHG EI =CO2e* emitted

LNG Produced

(mln ton/year)

(mln ton/year)

GHG Emission Index (EI)

It is important to note that the comparison of absolute emission rates is possible only in relation to fully identical production facilities (chains). Due to the significant differencein technologies, methods and operating conditions, levels of optimization and natural conditions, a specific value, called the Emissions Intensity or GHG Intensity, is subject tocomparison

Scope 1

Production emission

Scope 2

Energy imported

Scope 3

Customer's side

Efficiency indicator

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Implementation of a comprehensive approach tothe optimization of existing processes will reducegreenhouse gas emissions to varying degrees. Atthe same time, as a rule, each of the approacheshas limitations both in terms of physicalcapabilities of optimization processes and in termsof financial costs

SAKHALIN ENERGY’S GHG DATA AND PERFORMANCE

Sakhalin Energy achieved a reduction in greenhouse gas emissions per unit bythe end of 2019 through the implementation of production process optimizationprojects

LNG Plant, GHG, MLN TONES СO2e

0.242 0.242

0.231 0.230 0.228 0.228

0.22

0.22

0.23

0.23

0.24

0.24

0.25

0.25

2015 2016 2017 2018 2019 2020

Em

issi

on

s In

ten

sity

,

tСО

2е

/tLN

G

LNG Plant, Emissions Intensity, tСО2е/tLNG

3.705 3.716 3.748 3.777 3.538 3.671

0.00

1.00

2.00

3.00

4.00

2015 2016 2017 2018 2019 2020

Mln

ton

es,

СО

2е

2019 GHG distribution vs activities

Structure of GHG sources in 2019

HCs production

Transportation

LNG production

Gas consumption

Flaring

Mobile sources

Other sources

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INITIATIVES IMPLEMENTED AND RESULTS

Continuous Improvement Journey

Between 2009 and 2020 Sakhalin Energy hasimplemented a number of projects that havesignificantly improved the efficiency of theintegrated gas chain, which, has led to areduction in the intensity of greenhouse gasemissions per unit of product

Over the years of operation, the amount of gas flared at onshorefacilities has been significantly reduced by improving thereliability of the LNG plant, optimizing startup procedures, andthe frequency of scheduled shutdowns of the integrated gaschain. On oil platforms - by improving the reliability of gascompressors, optimizing gas flaring during well cleanup or startupwhen low process pressure is required.

As an example, the annual target in 2019 was reducedby more than 20%, from 125.9 kton (2014-2018 average)to 96.5 kton. Nevertheless, actual gas flaringperformance was considerably better at 51.2 kton. Thiswas largely due to a historically best, record-settingreliability performance of several assets

Kilotons of flared gas

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BENCHMARKING

0.824

0.229

- Emissions from production

- CO2 in feed gas

Из них

Based on 2017 GHG EI benchmarking results of 21 LNG plants aroundthe world, Prigorodnoye Production Complex ranked second. Results of2019 benchmarking shown that Prigorodnoye Production Complexcontinued to reduce its emission intensity and achieved 0.221CO2e/ton produced, which is one of the best in the world.

GHG Emissions Intensity, LNG producers, 2017 data Flaring GHG Emissions Intensity among offshoreplatforms by company for 2019* as a bubble chart(50kgCO2e/boe).

According to the results of the comparative analysis

conducted by the independent analytical agency Rystad

Energy, Sakhalin Energy's offshore platforms performed

second best in the world, confirming high performance and

one of the lowest indicators in the calculation of 50 kilograms

of CO2e per barrel of oil equivalent

*RYSTAD ENERGY analysis

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CASE FOR CHANGE

Demographic pressureIn 2030 - 9+ Billions of people will require clean Energy access

Global Energy market

under the pressure

Economic pressureCheaper renewablesOversupply of LNG: Low prices

Social/Health pressureClean Air & Less Death

Climate changesHigh CO2 amount in atmosphere Average temperature Up +0.68°CProtect Earth for the future

Pressure call for a necessary evolution

of the energy landscape

CHINA 30%

EU 40%

JAPAN 26%USA 30%

S.KOREA 37%

Global Commitment in GHG reduction

WE NEED TO DECIDE:WE SURVIVE OR THRIVE?

175* of the world’s most influential companies, committed to 100% renewable power

550* companies who have set greenhouse gas emission reduction targets in line with climate science to future-proof growth

0* Russian Companies in the List of Committed companies

by 2030

by 2030

by 2030by 2030

by 2030

INDIA 35%by 2030

People demand CLEAN energy & Governments act on climate challenge

30% by 2035 | 65% by 2050 34% by 2040 | 60% by 2050 60% by 2050

End costumers needs:clean energy

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REDUCING THE CARBON FOOTPRINT

Workstream 1Nature Based Solutions:

‒ conservation

‒ reforestation

‒ afforestation

‒ blue carbon

Workstream 4Long term strategies and alternatives:

-renewables

CCS (carbon capture and storage)

COMPENSATEEMISSIONS

AVOIDEMISSIONS

Workstream 2Integrated Gas Chain Energy Efficiency:

‒ process optimization

‒ reliability improvement projects

‒ automation and predictive analytics

Workstream 3Carbon Low/Neutral LNG Cargos

- carbon credits

- marketing

REDUCEEMISSIONS

Establishing Sakhalin Energy flag

in a new emerging market area

Securing first mover advantage

Making Sakhalin Energy

«GREEN LNG» strategy

as a brand to thrive in this transition

OUR AMBITIONS

The Present The Path The Future

SCENARIOS

SMARTER SOLUTIONSTECHNOLOGY DRIVERSBEST PRACTICES

ALTERNATIVES & LONG TERMS

COMPENSATORY MECHANISMS ESTABLISH FUTURE REPUTATION

COMPENSATEEMISSIONS

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WS 1: NATURE BASED SOLUTIONS (NBS)

CONSERVATIONConservation of Forests & ecosystems

REFORESTATION

Restore Forests after negative impact

AFFORESTATIONEstablish forests where there was no previous tree cover

BLUE CARBONDevelop sea life ecosystems like algae or plankton

NATURE BASED SOLUTIONS COULD CONSIST FROM

SEVERAL DIFFERENT COMPENSATION TYPES:

Workstream 1

OBJECTIVES:

• Increase level of GHG awareness and knowledge within the company and

active promotion of air protection among staff

• Involvement of experts to assess Far Est NBS options

• Developing a SEIC’s green image via local greening initiatives and energy

consumption reduction campaigns

• Develop portfolio of NBS projects

• Close cooperation with Sakhalin Government as part of the Regulatory GHG

Experiment

COMPENSATION MECHANISM

Forests

CO2 can be compensatedthrough nature-basedsolutions projects

When CO2 emissionsare hard to abate or capture

1 Carbon Credit (CC) represents the avoidance

or removal of 1 tonne of CO2

RUSSIA’S TOP3 NBS OPPORTUNITIES*

Reforestation

Forest Management

Peatlands

Mt CO2e/year

351.3

245.1

89

*Nature4climate.org

700+ Total – TOP 5 Countries in the World

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WS 2: INTEGRATED GAS CHAIN ENERGY EFFICIENCY

Goal: Sustain TQ over value chain over decades to come – identify further improvements

OPTIMIZATION PROJECTS. TOP 7 OUT OF 30, CO2E LDAR

▪ Improve MR/PMR GT Efficiency▪ Air Cooler performance▪ GT Loading strategy – GT Loading▪ Battery Energy Storage System▪ Improve GTG Efficiency▪ Replace OPF JT Valve with Expander▪ IGC Reliability improvement program – BIG Data study & predictive

analytics implementation

Further development and

implementation of LDAR (Leak

Detection and Repair) program

focused on methane leak monitoring

at all assets

Note: Optimization has a limited capacity to reduce GHG further (above projects represent 5-10% reduction)

Scope 1 and 2 emissions of SEIC around 3.7 - 3.9 mln ton CO2e/year

GHG and Energy Management Plan available for Oil Production Facilities, needs updating

In addition to existing projects, more than 100 different projects focused at optimizing energy efficiency across

the entire gas chain were screened in detail over the past 6 months. More than 20 are financially promising

WS 3: Carbon neutral LNG

Long term

Shape carbon neutral cargo as a standard offerand deliver number of cargoes per annum with

positive economic effect for buyers and seller

Market of carbon credits

Voluntary market mainly. Driven by CSR agenda and

commitment to reduce GHG

Prices vary and depend on a number of factors:▪ Type of carbon credits (NBS, renewable energy,

cookstoves, clean water, etc.)

▪ Vintage/year

▪ Type of verification standard

▪ Third party provider

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Short term

Possibility to market and deliver carbon neutral

LNG cargo using third party carbon credits is

considered:

Carbon credits solutions acceptable in our key

markets in JKTC – how to buy and sell them, from

whom and at what price

Explore customer interest in carbon neutral LNG

cargoes from SEIC LNG buyers

Carbon neutral LNGBecome a premium product

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WS 4: LT STRATEGIES AND ALTERNATIVES - EXPLORATORY

Growing in the Energy Transition. Key factor: price of carbonReduce gas domestic consumption (maximize LNG for export – engage Sakhalin governments to transition to renewable energy infrastructure/infrastructure master plan for Oblast’)

An initial assessment has been made of the potentials for alternative

energy sources:

- CO2 sequestration: Carbon capture and storage for LNG CO2/GT exhaust, Backfill gas, Train 3

gas; NPV negative projects

SEIC CO2 storage hub for Asia-Pacific (>2 bln. USD)

- Integrating renewables grid energy in SEIC operation to reduce own consumption

▪ Wind parks to generate power to reduce LNG gas power consumption and supply/expand Sakhalin/RF grid (100-200 MUSD, 20 turbines, 70 MW)

▪ Pilot solar power on SEIC buildings/Zima/Assets to reduce-eliminate diesel usage (1 MUSD)

▪ Renewable solutions in remote locations eliminate/minimize diesel generators. (1 MUSD)

▪ Hydrogen/P2X production and storage to store excess energy from renewables (>100 MUSD)

▪ LNG for transport fuel for marine and potentially trucking business (< 5 million USD)

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Energy Companies Capture and filtration of CO2

Compression or liquification

Хранение Compression and Injection

Pipeline

Porous space

Transportation

CCS: CARBON CAPTURE AND STORAGE

CARBON CAPTURE AND STORAGE SCHEME:

Significant CAPEX and OPEX. The use of natural storages close to the installation sites significantly reduces costs

When transporting liquefied CO2 by sea, it is necessary to build a jetty and an unloading terminal, which significantlyincreases the cost of the project

CONCLUSIONS:

The main source of greenhouse gas emissions is the exhaust from power generating equipment (power and power turbines, combustion products from flares)

Capture and compression units can be installed on almost any facility. There are mobile modular solutions with different capacities and degrees of purification

CO2 is stored underground by injection into deep porous, permeable formations, where it is physically trapped by capillary forces beneath seal rocks. Co2 Dissolves in water and converts to solid minerals (Calcite).

For instance, CCS Quest, which is a part of Athabasca Oil Sands Project in Canada has capacity > 1 mln tones СО2e per annum. The cost of the project ~ 1.4 bln. CAD (CAPEX and 10-yearOPEX). The Canadian government has provided the project ~ 865 mln CAD

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DECARBONIZATION ASPECTS

• Significant investmentsSignificant reductions in GHG are possible through capital construction and modernization projects

• Technological and technical limitationsOutdated facilities and oil and gas technologies make it impossible to further optimize/modernize production to reduce GHG

• Lack of regulatory mechanisms from the State and BusinessAttempts to legislate a system to control GHG are at the experimental stage and being shaped, as well as a system of incentives toreduce GHG emissions.

• Lack of sufficient material, technical and scientific baseThe study of the absorption capacity of various types of ecosystems requires research and experiments in real environments

• Integration with international practices, methodologies and existing carbon footprint assessment systemsThe world practices of GHG compensation, quantitative methodologies for determining GHG have been sufficiently developed andstandardized. Future domestic developments should take into account this experience

• Readiness of local equipment manufacturers for increased environmental requirements

An analysis of industry readiness for the transition to new, more stringent regulatory standards is needed for possible incentives todesign and produce equipment that meets the new environmental standards

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BACK UP SLIDES

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A metric measure used to compare the emissions

from various greenhouse gases on the basis of their

global-warming potential (GWP), by converting

amounts of other gases to the equivalent amount of

carbon dioxide. One standard cargo roughly

contains 250K of CO2 e.

CO2 equivalent (CO2e)

GLOSSARY

The Paris Agreement is an agreement within

the United Nations Framework Convention on

Climate Change (UNFCCC), dealing

with greenhouse-gas-emissions mitigation,

adaptation, and finance, signed in 2016. The

agreement's language was negotiated by

representatives of 196 state parties at the 21st

Conference of the Parties of the UNFCCC in Le

Bourget, near Paris, France, and adopted by

consensus on 12 December 2015. As of February

2020, all UNFCCC members have signed the

agreement, 189 have become party to it, and the

only significant emitters which are not parties

are Iran and Turkey.

Paris Agreements

A carbon credit is a generic term for any tradable

certificate or permit representing the right to emit

one tonne of carbon dioxide or the equivalent

amount of a different greenhouse gas (tCO2e).

Carbon Credit (CC)

Nature-based solutions (NBS) refers to the sustainable

management and use of nature for tackling socio-

environmental challenges. The challenges include issues

such as climate change, water security, water pollution,

food security, human health, and disaster risk

management.

Nature Based Solutions

Carbon Neutral LNG CargoAn LNG cargo bundled with carbon credits to

compensate emissions for production,

shipping/distribution and final product usage.

A greenhouse gas (sometimes abbreviated GHG) is a

gas that absorbs and emits radiant energy within the

thermal infrared range. Greenhouse gases cause the

greenhouse effect on planets. The primary

greenhouse gases in Earth's atmosphere are water

vapor (H2O), carbon dioxide (CO2), methane (CH4),

nitrous oxide (N2O), and ozone (O3).

Greenhouse gas

Reforestation

Afforestation

Conservation

Reforestation is the natural or intentional restocking of

existing forests and woodlands (forestation) that have

been depleted, usually through deforestation.

Reforestation can be used to rectify the effects of

deforestation or improve the quality of human life by

soaking up pollution and dust from the air, rebuilding

natural habitats and ecosystems, mitigating global

warming since forests facilitate bio sequestration of

atmospheric carbon dioxide, and harvesting for

resources, particularly timber, but also non-timber forest

products.

It is a reforestation in an area where there was no

previous tree cover. In some places, forests need help to

reestablish themselves because of environmental factors.

For example, in arid zones, once forest cover is destroyed,

the land may become dry and inhospitable for the

growth of new trees.

Conservation is the practice of planning and maintaining

forested areas, peatlands, mangroves and other

ecosystems for the benefit and sustainability of future

generations. Conservation involves the upkeep of the

natural resources within a system that are beneficial for

both humans and the ecosystem. Forest conservation

acts to maintain, plan, and improve forested areas.

Scopes 1, 2 & 3 (GHG Emission)

Scope 1 - direct GHG emissions occur from sources that

are owned or controlled by the company, for example,

emissions from combustion in owned or controlled

boilers, furnaces, vehicles, etc.; emissions from chemical

production in owned or controlled process equipment.

Scope 2 - accounts for GHG emissions from the

generation of purchased electricity consumed by a

company. Purchased electricity is defined as electricity

that is purchased or otherwise brought into the

organizational boundary of the company.

Scope 3 is an other indirect emissions. Some examples of

scope 3 activities are extraction and production of

purchased materials; transportation of purchased fuels;

and use of end products and services.

GHG Emission Index (EI)Value indicating effectiveness of Energy utilized for ton

of LNG produced by the Plant in terms of GHG emission

across the IGC.

Corporate social responsibility (CSR) is a self-regulating

business model that helps a company be socially

accountable - to itself, its stakeholders, and the public.

Corporate Social Responsibility (CSR)

Over-the-counter (OTC) marketAn over-the-counter (OTC) market is a

decentralized market in which market participants trade

commodities or other instruments directly between two

parties and without a central exchange or broker. Over-

the-counter markets do not have physical locations;

instead, trading is conducted electronically.

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COMPARISON OF GHG ESTIMATION APPROACHES

- «Sakhalin Energy» applies «American Petroleum Institute (API) Guideline for Calculating GHG for the Oil and Gas Industry

- Order of the Ministry of Natural Resources and Environment of Russia from June 30, 2015 № 300 approved the methodological guidelines for the quantification of greenhouse gas emissions

- Methodological basis for Order No. 300 - guiding documents of the IPCC

- The difference ~ up to 8%.

It is necessary at the state level:- improve measures stimulating improvement of energy efficiency of the companies;- unify the list and methods of GHG determination, ensure accounting, analysis and control of emissions, finalize the Federal Law "On State Regulation of Greenhouse Gas Emissions...".

GHG Source APIOrder of the Ministry of Natural Resources

Stationary Combustion CO2, CH4, N2O CO2

Flaring CO2, CH4, N2O CO2, CH4

Mobile Combustion CO2, CH4, N2O Not considered

Fugitives CH4Not considered

VentingCO2, CH4

CO2, CH4

HFC HFC Not considered

Other Purchased electricity is accounted Method is developed

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CARBON CREDITS GENERATION AND MARKETING

COMPANIES GENERATING CARBON

CREDITSCARBON CREDITS CONSUMERS

WIND

SOLAR

BIO ENERGY

NUCLEAR

NBS

SOURCES OF

GENERATIONENERGY

COMPANIES

PRODUCTION FACILITIES OIL AND GAS

COMPANIES

GENERATED CARBON CREDITS

SOURCES OF

GENERATION

ALTERNATIVE ENERGY SOURCES AND

COMPENSATIONPRODUCTION FACILITIES OIL AND GAS

COMPANIES

CARBON CREDITS VERIFIED AND RECORDED

EXPERT ORGANIZATIONS

VERRA, Gold Standard, UN

UNREGULATED MARKET

CREDITS MARKETING

DEMAND

ENERGY

COMPANIES

PREMIUM ENVIRONMENTAL PRODUCT WITH EXTRA CHARGE

END CUSTOMER

TRADERS

INVESTMENTS IN PROJECTS FOR GARBON FOOTPRINT REDUCING

(OPTIMIZATION, ENERGY EFFICIENCY, ENVIRONMENTAL PROJECTS) Companies performing the

function of searching

buyers and sellers

Companies that buy carbon credits in the open unregulatedmarket are able to compensate (fully or partially) GHGemission (reduce carbon footprint). Sales of the final productin this case occurs as a premium environmental product withextra charge. In various schemes the charge for the sale ofpremium products partially or completely transferred to theend consumer.

Companies investing in reducing their carbon footprint receive various preferencesdepending on the system of state regulation. This can be a reduction in the tax base,the possibility of access to new markets, or the use of carbon credits for their ownpurposes (compensation or sale on open markets)

GOVERNMENTREGULATOR

PLA

TFO

RM

INFORMATION

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Sakhalin Region

Russian Federation

▪ Significant reductions in GHG emissions have beenreported due to declining production rates around theworld. The decline was more than double that recordedduring World War II.

▪ The number of carbon-neutral LNG cargoes shipped in2020-21 has increased and interest in them is growing

▪ Formation of a carbon tax policy in most Europeancountries.

▪ Creation of alliances to regulate and create carbon creditmarkets.

В Мире

In January 2020, when the initiative group was just starting work on the formation of the concept and then the strategy of "Green LNG" in Russia and in the world, the issues ofcompensation and regulation of GHG emissions were not as acute as they are today. The COVID pandemic is a short-lived but clear example of how the carbon footprint canbe reduced if the reduction action is coordinated, collaborative and comprehensive.

▪ At the end of 2020, the CLIMATE project and anexperiment to regulate greenhouse gas emissions in theSakhalin Region were initiated.

▪ Targets announced to become a Carbon Neutral Regionby 2025.

▪ A Climate center has been created to develop methodsfor calculating and compensating for GHG emissions, workis underway with world expert organizations

▪ In April 2021, Climate Week is being held with the aim ofcreating a dialogue between the participants in the GHG/ State formation process and the scientific community.

▪ Dialogue with carbon credit trading companies

▪ The experiment of the Sakhalin Oblast was supported bythe Russian Federation government.

▪ The environmental agenda is at the forefront of discussionduring a government meetings.

▪ In October-November 2021, it is planned to sign theFederal Law on the Regulation inGHG Emissions

▪ Dialogue with representatives of Business

Sakhalin Energy

▪ Green LNG strategy developed▪ The initiative group carries out the development of

projects within the framework of the strategy

ATTENTION TO THE CLIMATE CHANGE AGENDA IS GROWING IN THE

WORLD & RUSSIA TO REDUCE CARBON FOOTPRINT

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GREEN LNG STRATEGY IN CORPORATE MEDIA

February 2021: Green LNG, or How to Become a Green Company, interview by A. A. Singurov, Deputy

Production Director for, Director of Prigorodnoye Production Complex

http://www.sakhalinenergy.ru/upload/iblock/206/Vesti_February_2021.pdf

March 2021: Using the experience of shareholders, Natalia Anikina, head of the organizational and

planning division of the HSE Department and head of the working group to implement the strategy

«Green LNG», http://www.sakhalinenergy.ru/upload/iblock/8ea/Vesti_March_2021.pdf

April 2021: Climate Vector, Andrei Samatov, Head of Sakhalin Energy's Environmental Division

http://www.sakhalinenergy.ru/upload/iblock/dc7/Vesti_April_2021.pdf

May 2021: "Lungs" of the Planet for Green LNG, Andrei Sharipov, Head of QHSE, Prigorodnoye Production

Complex, http://www.sakhalinenergy.ru/upload/iblock/51c/Vesti_May_2021.pdf

More to come...