KLAIPEDA LNG TERMINAL

IN THE BALTIC GAS SYSTEM7TH NOVEMBER, 2018

Mindaugas Jusius

General Manager

2

KN – AN OIL PRODUCT AND LNG TERMINAL OPERATOR

Traditional business Focus on strategic expansion – development, construction and operation of LNG terminals

Klaipeda LNG terminal based on FSRU

Independence

LNG transport and bunkering vessel project for

the Baltic Sea

LNG reloading and bunkering station under

commissioning in Klaipeda

LNG terminal development

and Advisory services

50+ years of oil product terminal operations

State fuel reserves terminal

3

GLOBAL GAS MARKET CONTEXT

4

LNG IS THE FASTEST GROWING NATURAL GAS SOURCE

Gas supply by source

Shell, Wood Mackenzie

LNG imports by region

62% 7%

31%

0

1,000

2,000

3,000

4,000

5,000

6,000

2017 Domestic

production

Import via

pipelines

LNG import 2035

BCM

55%

16%

15%13%

0

200

400

600

800

1,000

2017 Asia Europe Americas Other 2035

BCM

5

FSRU AS TECHNOLOGY OF CHOICE

0

1

2

3

4

5

6

7

2012 2013 2014 2015 2016 2017 2018

FSRU

FSU

Onshore

New LNG terminals by technology

KN interpretation of IHS Markit data

#

FSRU based terminals in global import mix

0%

2%

4%

6%

8%

10%

12%

14%

0

5

10

15

20

25

30

35

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mtpa imports % of total

6

KLAIPEDA LNG TERMINAL

7

THE RATIONALE LNG TERMINAL

Diversified energy sources

Import prices reflect the global market price level

Ensured security of energy supply

Third party access to spur competition

8

KLAIPEDA LNG TERMINAL INFRASTRUCTURE

FSRU operator

Terminal operator

Transmission

system operator

FSRU

Gas Metering

Station

Onshore pipeline

Subterranean, 15 km

Gas metering

stationOffshore connecting pipelineFSRU and

jetty operation

Jetty

– Terminal commissioned by KN in Dec 2014

– 170.000 m3 of LNG storage

– 4 bcm/y regasification capacity

– Open third party access

– FSRU leased until 2024, KN holds a purchase option

MARKET BENEFITS BROUGHT BY THE TERMINAL

– Ended the 100% reliance on monopoly supplier

– Transparent third party access mechanism

– Effective price cap

– Baltic gas users have access to international LNG markets

– Near-complete ability to supply the gas market need

– Combined with Incukalns UGS for seasonality

– Access to clients with limited size portfolios

– Joint use of LNG in the terminal

– Enabling the small scale LNG development

– Break bulk of high quality LNG for further distribution

9

Balticconnector

From 2020

GIPL

From 2021

FSRU Independence

4 bcm import capacity

2,3

bcm

1,3

bcm

0,5

bcm

Incukalns UGS

15

bcm

33

bcm

Poland

Ukraine

3

bcmFinland

SECURITY OF SUPPLY FOR THE BALTIC STATES

Source: Energy Security Stress Test 2014 coordinated by the European Commission: Joint report by Estonia, Latvia, Lithuania and

Finland (adjusted by Klaipėdos Nafta to reflect post-Stress Test conditions)

Gas supply disruption 6 months, cold spell scenario

10

– Baltic states are now protected

against a major gas supply

disruption from the east

– Security provided by a

combination of key

infrastructure elements– Alternative gas import route via

Klaipeda LNG terminal

– Seasonal storage in Incukalns

– Upgraded transmission pipeline

network

11

GAS MARKET CHANGES SINCE INTRODUCTION OF LNG

The market situation in 2018 is very different to 2012

– Wholesale gas price benefits

– Reflective of EU hub prices rather than oil-indexation

– Lithuanian prices are now similar to other markets

– LNG competes with pipeline gas

– Security of Supply benefits

– No longer dependent on a single supply source

– Further improvements with access to Inčukalns and GIPL

– Regulatory arrangements

– Implementation of EU directives has established competition

– Prospects of regional gas markets

– Retail competition still to be established

Baltics, EU15 and NBP gas prices (€/MWh)

Source: OIES and Pöyry analysis

12ACER

The most efficient measure to put

competitive pressure on EU pipeline

gas suppliers and improve EU welfare

is to provide seamless access for

LNG to the EU internal gas market

Quo Vadis gas market regulatory framework –

Study on a Gas Market Design for Europe,

European Commission, Feb 2018

PRICE CONVERGENCE WITH

LIQUID GAS MARKETS

2017 Average price spread between gas import and TTF index

2017 Lithuanian gas import

price spread <1 EUR/MWh

KLAIPEDA LNG TERMINAL HUB IN ITS 4TH YEAR OF OPERATIONS

13

2015 2016 2017 2018 / 2022

Natural gas regasified, bcm 0.5 1.3 1.1 >0.9

Capacity utilization 13% 35% 30% >25%

Terminal users Multiple users

LNG reload services to - - Multiple users

Access to regas markets

Reloaded LNG delivered to Multiple countries

LNG suppliers Multiple suppliers

LNG truck loading station

usersMultiple users

LNG truck loading services for Multiple users

Operational regime Energy securityEnergy security

Commercial regas

Energy security

Commercial regas

Commercial reloading

Commercial truck loading

Energy security

Commercial regas

Commercial reloading

Commercial truck loading

Oil

terminal

Forecast

-

2000 000

4000 000

6000 000

8000 000

10000 000

Booked capacity

Spare capacity

avera

ge

Nm

3/

day

2018 Approved LNGT regasification schedule + additional capacity booking forecast

2016

2015

2017

UTILIZATION OF KLAIPEDA LNG TERMINAL

2018eLNG cargo delivery

Reload operation

Forecast delivery/reload

14

3

15

SMALL SCALE LNG

KLAIPEDA LNG TERMINAL – SMALL SCALE LNG ENABLER

– Klaipeda LNG terminal enables further small scale

LNG developments in the Baltic Sea region

– Break-bulk of internationally traded LNG cargoes

– 14 reloading operations since 2017

– Small scale LNG reloading station commissioned in

2018

– 5.000 m3 LNG storage capacity

– Truck loading and vessel bunkering

– LNG bunkering transportation vessel to be launched

in Q4 2018

– Ice-class multi purpose vessel

– 7.500 m3 capacity

16

Gate

Risavika

Ora

LysekilNyneshamn

Swinoujscie

Pori

Gavle

Hamina

Tornio

Klaipeda

Estonia

Latvia

2 day voyage from

Klaipeda

1 day voyage from

Klaipeda

Large scale LNG terminal

Existing small scale LNG terminal

Planned small scale LNG terminal

EMISSION COMPLIANT LNG FUELED VESSELS ALREADY

WIDELY USED

17

23

617

16

215

Area of operation of LNG fueled ships, %

Europe

Norway

Asia

America

Middle East

Global

Source: DNV GL, 2018

– Vessels in SECA zone must comply with 0,1%

sulphur limit since 2015

– From 2020 a 0,5% sulphur limit becomes global

– From 2021 vessel newbuilds in NECA zone must

comply with 3,4 g/kWh NOx limit

HIGH POTENTIAL FOR LNG AS ROAD TRANSPORT FUEL

18Source: EU Clear Fuel Strategy – Clean Power for Transport Package

– LNG fuelling stations every 400 km from 2025

– CNG fuelling stations every 150 km from 2025

– No excise duty for natural gas used as transport

in Lithuania

Source: LNG Blue Corridor

Source: NGVA Europe

0 5 10 15 20 25

Poland

Germany

Finland

Belgium

Sweden

Portugal

France

Italy

UK

The Netherlands

Spain

LNG truck loading stations in Europe

19

FUTURE CHALLENGES

20

FUTURE CHALLENGES

Regional gas market integration

Building the small scale LNG market

Ensured continued operations post 2024

Gas in the future energy mix

www.kn.lt