INTEGRATION OF LNG TERMINAL IN THE LITHUANIAN GAS SYSTEM22ND MAY, 2018

Mantas ŠabanasProject Analytics Manager

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KN – AN OIL PRODUCT AND LNG TERMINAL OPERATOR

Traditional business Focus on strategic expansion – development, construc tion 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 developmentand Advisory services

50+ years of oil product terminal operations

State fuel reserves terminal

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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

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KLAIPEDA LNG TERMINAL INFRASTRUCTURE

FSRU operator

Terminal operator

Transmissionsystem operator

FSRU

Gas Metering Station

Onshore pipelineSubterranean, 15 km

Gas meteringstationOffshore connecting pipeline

FSRU andjetty 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

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BalticconnectorFrom 2020

GIPLFrom 2021

FSRU Independence4 bcm import capacity

2,3bcm

1,3bcm

0,5bcm

Incukalns UGS

15bcm

33bcm

Poland

Ukraine

3bcm

Finland

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

– 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

– Full supply in cold winter– District heating operating as usual

– No interruption to either residential or industrial customers

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GAS MARKET CHANGES SINCE INTRODUCTION OF LNG

The market situation in 2018 is very different to 2 012

– 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

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PRICE CONVERGENCE TO EUROPEAN HUBS DUE TO LNG TERMINAL IN KLAIPEDA

Source: European Commission Q3 2017 Gas market report

– Gas prices in the Baltic region have converged closer to the main European gas trading hubs– Benefit is felt in all Baltic states, due to available

interconnection capacity and regulated 3rd party access to the LNG terminal

– Klaipeda LNG terminal allows regional gas consumers to source gas from global markets– Klaipeda LNG terminal can cover 90% of

regional demand

– Former incumbent and monopoly gas supplier is unable to charge premium prices– LNG terminal provides bargaining power, even if

some physical volumes still come from the east

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ENABLING REGIONAL GAS STORAGE INFRASTRUCTURE

– Klaipeda LNG import terminal is a proven alternative supply route for seasonal storage in Inčukalns UGS

– Maximises the use of overall regional gas infrastructure

– Immediately after the Latvian gas market opening in April 2017, first injections to Inčukalns were enabled by gas flow from LT

– Lietuvos Duju Tiekimas brought two spot LNG cargoes in part to supply Latvian customers directly and via seasonal storage

– First half of May 2018 all gas flows into the Latvian transmission system were coming form Lithuania*, largely coming via the LNG terminal

Source: Conexus Baltic Grid website*No Russian flows and no gas storage withdrawal for 12 consecutive days

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Time period

Regasification rate, Nm 3/h

Inventory level in tanks, m 3

Terminal user No.1 delivers LNG and lends it

Terminal user No. 2 delivers LNG and returns it

COMMERCIAL INNOVATION - JOINT USE OF LNG TO ENABLE LNG ACCESS FOR SMALLER REGIONAL USERS

– Advantages of SWAP model– Terminal can be simultaneously used by several

clients– Decouples client regasification profile from

physical LNG delivery– Enables relatively small regional gas traders to

access LNG markets

– Process– Borrowed / returned LNG quantities are indicated

in approved schedules– Terminal users provide bank guarantees to each

other to ensure LNG delivery

– Access to terminal– Nominations open for upcoming gas year on 25th

of April – Annual schedules approved no later than 2

months before gas year– Schedules published on KN website– Spot capacity booking no later than 60 day prior

to use

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

– Eight 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

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Gate

Risavika

Ora

LysekilNyneshamn

Swinoujscie

Pori

Gavle

Hamina

Tornio

Klaipeda

Estonia

2 day voyage fromKlaipeda

1 day voyage fromKlaipeda

Large scale LNG terminal

Existing small scale LNG terminal

Planned small scale LNG terminal

KLAIPEDA LNG TERMINAL HUB IN ITS 4TH YEAR OF OPERATIONS

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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 users

Multiple users

LNG truck loading services for Multiple users

Operational regime Energy securityEnergy security

Commercial regas

Energy securityCommercial regas

Commercial reloadingCommercial truck loading

Energy securityCommercial regas

Commercial reloadingCommercial truck loading

Oilterminal

Forecast

Booked capacity

Spare capacity

averageNm

3/day

2018 Approved LNGT regasification schedule + additional capacity booking forecast

Forecasted additionalutilization

2016

2015

2017

UTILIZATION OF KLAIPEDA LNG TERMINAL

2018eLNG cargo delivery

Reload operation

Forecast delivery/reload

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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

Mantas ŠabanasAnalytics ManagerLNG DepartmentM.Sabanas@kn.lt