102 YINSON HOLDINGS BERHAD STRATEGY & OUTLOOK BUSINESS REVIEW - OFFSHORE PRODUCTION Zero Emissions FPSO concept We are making steady progress with the development and implementation of our Zero Emissions FPSO concept. Yinson is actively evaluating and implementing currently available technologies such as hydrocarbon blanketing, closed flare, vapor recovery, combined cycle power generation and cooling water regeneration turbines, combining these with the latest and most energy efficient technologies and equipment that are available in the market. Further, we are studying generation and import of various sources of clean power to the units wherever this is feasible. This is highly dependent on the asset’s location and design, as well as a close cooperation with our clients. On the carbon capture front, we have been actively studying the various carbon capture technology options and are currently finalising our proposed selection of prototype technologies for one of our assets under construction. This is a very exciting space, and we look forward to sharing progress updates as they unfold. As part of our commitment to ensure the accuracy and integrity of our GHG reporting and underlying operational processes, we successfully verified our FPSOs’ GHG emission footprint for FYE 2021 with Det Norske Veritas (“DNV”) for the first time. We are committed to undertaking and expanding our external verification scope moving forward. In FYE 2022, we took our commitment to lower our fleet’s emissions a step further by linking our cost of capital to our climate targets. The RM1.0 billion Sustainability-Linked Sukuk Wakalah that we issued in December 2021 clearly outlines quantitative targets to decrease the Group’s carbon intensity, which we need to achieve in order to avoid a step up in sukuk profit rates. As our offshore production division is responsible for around 97% of the Group’s overall carbon emissions, reducing the emissions of our current and future fleet is essential to the achievement of our SPTs, and thereafter our Climate Goals of being carbon neutral by 2030 and net zero by 2050. Strategy Review, pg 54; Climate change and the energy transition, pg 132; Climate change and greenhouse gas emissions, pg 159 EXTERNAL ENVIRONMENT • Geopolitical tensions contributed to market concerns about disruptions to oil production, putting upward pressure on oil prices. • As global energy demand continues to rise, the long-term outlook for oil & gas remains promising, even alongside the increasing contribution from alternative energy sources to the energy mix. • The global oil & gas supply chain continues to be affected by the Covid-19 pandemic. • There is a growing push towards a greener economy, with the rise of alternative energy sources and new efficient technologies which are deemed as more environmentally friendly. • The pool of skilled FPSO contractors has been decreasing, and many contractors have reached capacity and may not be able to take on new projects. • Many postponed oil & gas developments have resumed, resulting in a significant increase in awards. • There is an increased demand for leased FPSOs compared to owned units, showing a trend towards acceptance of contractor standards. • Many oil companies are considering FPSO redeployment opportunities which can result in operational cost savings and quicker delivery schedules. RISKS • Operators who are unable to adapt to the volatility in the global oil & gas supply chain may experience delays in project delivery. • Stricter rules to meet international decarbonisation goals may affect businesses that do not comply. • Financing oil & gas-related projects, which are capital intensive, could be more challenging as the investor market may favour pathways that support a greener economy. OPPORTUNITIES • With anticipated increase in project awards against a backdrop of limited specialist FPSO contractors in the market, FPSO contractors can obtain more balanced commercial contracts. • Businesses which adopt a sustainability focus may find exciting opportunities as green loans and SLF become the norm. • Increasing interest from clients and financiers for environmentally-friendly FPSOs will benefit contractors who focus on energy efficiency and minimisation of emissions. • Demand for more emission-friendly assets creates new opportunities to pioneer and innovate low-emission FPSO designs. • Recent needs for securing energy supply from alternative/reliable sources have surged during the first part of 2022 due to the Ukrainian war. EXTERNAL VARIABLES, RISKS & OPPORTUNITIES
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