Better Energy Better World Sustainability Report 2017 AS OG K ith , w gy er n E t x e N Better Energy Better World KOGAS Sustainability Report 2017 About this Report KOGAS pursues to position itself as an energy corporation that grows along with stakeholders through corporate management activities to fulfil social responsibilities as a corporate citizen. Such management activities of sustainability management and the corresponding performance are transparently disclosed through yearly publication of the report. This report is KOGAS’ 10th Sustainability Report. Reporting Scope and Period This report was written based on sustainability performance data from January to December 2016. Data of the first half of 2017 on some quantitative performance considered to be of significance for disclosure is included in the report. Some quantitative performance of the past three years since 2013 has been disclosed to identify the trends, and there was no critical change in the corporate scale, corporate governance, or the ownership structure during the reporting period. The scope of this report encompasses KOGAS’ headquarters, regional business locations, and R&D centers. Performance and information for overseas business were also included, if necessary. Changes from the Previous Year If there were any changes in disclosed data in the previous report, the reasons for the change were indicated on the relevant page. Even some performance and information where there has been no change after the previous reporting were explained again for readers to better understand the content. Writing and Assurance Standards for the Report This report was written in accordance with the Core option of the international standard of GRI (Global Reporting Initiative) G4. To secure credibility and quality, independent third-party assurance was conducted and the result is contained in the Appendix. Additional Information of the Report More detailed information is available on KOGAS’ website, and the contact information below is available for inquiries regarding KOGAS’ sustainability activities and feedback on this report. Website http://www.kogas.or.kr Address 120, Cheomdan-ro, Dong-gu, Daegu, Korea (41062) Department Future Strategy Team E-mail [email protected] Tel +82-53-670-0208 Fax +82-53-670-0249 02 About this Report 04 CONTENTS CEO Message 06 KOGAS Business 13 KOGAS at a Glance 14 KOGAS Profile 16 Vision & Strategy NEXT Energy with KOGAS 20 Neo_New Future Energy World - Management of Sustainable Energy Business 25 EXcellent_Excellent Future Energy World - Excellent People, Vibrant Organizations 32 Trust_True Energy World for the Future - Stable Supply, Safe Sites Shared Value with KOGAS 40 Healthy Industrial Eco-system 45 Innovation in Customer Service 48 Responsibilities to Local Community 54 Creation of Environmental Value KOGAS Sustainability Management 62 Corporate Governance 64 Risk Management 66 Ethical and Integrity Management 68 Stakeholder Engagement 70 Materiality Test Appendix 73 Performance Summary 79 Prizes and Awards/Memberships 80 Human Rights Management at KOGAS 82 Supply Chain Management 84 Third Party’s Assurance Statement 86 GRI Content Index 88 Sustainability Initiative 91 Subsidiaries and Invested Companies 4 CEO Message KOGAS will create a better energy world through sustainability management. Dear distinguished stakeholders, I would like to express my heart-felt gratitude to you for showing your generous interest and support for KOGAS at all times. As a result of our endeavors to promote energy welfare for the past 33 years, we have positioned ourselves as an eco-friendly energy corporation for the public by installing pipeline infrastructure network of 4,572㎞ and 69 storage tanks of 10.66 million㎘, achieving the natural gas distribution rate of 90.8% to local governments nationwide. We also conduct 24 gas and crude oil projects in 13 countries worldwide. Such efforts enable us to acquire overseas resources, contribute to stable supply and demand of energy and create added values with higher technological values. As such, we raise our prestige as a global energy corporation. And yet, stagnant demand, higher volatility, and accelerated competitions at home and abroad as the domestic natural gas industry enters a maturity stage requires us to transform our fundamentals. We are committed, internally, to rising higher again as a trusted corporation by stakeholders by establishing a culture of ethics and integrity and reshuffling our corporate culture. To this end, respect for human rights is reflected in our corporate management to befit the global standard based on the Charter on Human Rights Respect we have formulated. We diversify partnership models with suppliers by jointly advancing into overseas projects without being confined to the scope of the existing gas business in Korea. Our cooperation with the shipbuilding industry for a long period of time, in particular, has contributed to the development of the Korean shipbuilding industry driven by the spill-over effects of related industries, ranging from LNG carriers to FLNGs to LNG bunkering business. At the same time, we strive to reduce sustainability risks in the supply chain with diverse suppliers by formulating and operating the Code of Conduct for Suppliers. Seeking to take the initiative in fulfilling corporate social responsibilities, we provide natural gas infrastructure in a broader scale in islands and mountain areas with little access to energy including Jeongseon-gun, Goseong-gun and Jeju Island. We also keep our eyes on projects that improve the quality of life for local residents in countries with the presence of KOGAS: providing a playground for children in Uzbekistan and sponsoring the construction of a technical training class for youths in Mozambique. We will take the lead in achieving growth in the gas industry in the future and creating new values. Specifically, we will expand our roles in the new era of the eco-friendly hydrogen-powered transport fuel and establish a fuel cell-based distributed power network in order to address environmental problems such as micro dust under the new climate scheme of Post 2020. We will also launch new energy projects in a self-driven manner including LNG bunkering and LNG cold energy business to respond to stronger regulations in the maritime environment. Distinguished stakeholders, Driven by our cherished mission of ‘Creating a Better World through Better Energy’, we will do our utmost to make the next 100 years for a world with new, excellent and genuine future energy’ under the new vision of ‘Next Energy, with KOGAS’. Thank you. July, 2017 Seung-Hoon Lee, CEO and President of KOGAS 5 6 KOGAS Sustainability Report 2017 KOGAS The natural gas industry is segmented into upstream, midstream and downstream depending on the scope Business of activities: upstream prior to liquefaction, midstream for the liquefaction and transportation stage, and downstream for the post-transportation stage. KOGAS has established the entire business scope, covering from overseas resource exploration and development, and introduction and transportation of natural gases to Korea to their production, supply and sales. Supply and Demand Management for Natural Gases Import Volume for 2016 LNG Import and Transportation The amount of our LNG import has increased on a yearly basis up to 31,847,000 tons in 2016 since we 31,847 thousand tons imported LNG from Indonesia for the first time in Korea in October 1986. Given the nature of LNG being imported under a long-term contract of over 20 years, we conduct accurate demand prediction by using scientific models for statistical analysis. In order to secure stability in supply by acquiring the volume on time in line with increases in the domestic demand, KOGAS is seeking to diversify exporters in Brunei, Qatar, and Oman besides Indonesia and Malaysia. Nigeria Qatar LNG 4,241 (13.3) LNG Import Volume 11,819 ● Amount of import (1,000 tons)/ (37.1) data in the bracket: portion (%) (as of December 31, 2016) 247 (0.8) Oman 7 Since LNG carriers are required to transport a large amount of LNG which is compressed and liquefied at -162℃, the manufacturing process is extremely challenging and requires sophisticated shipping Korean Flag- technologies. In order to foster the domestic shipbuilding and shipping industries, we have proceeded registered LNG Carrier with a business policy on flag-registered LNG carriers, and utilized flag-registered carriers for LNG transport 21 since 1994. KOGAS placed orders for 21 flag-registered carriers up to date, and LNG flag-registered carriers in operation, built by five shipping companies have transported LNG to Korea from six countries – Indonesia, Malaysia, 6 carriers under Qatar, Oman, Yemen and Russia (Sakhalin). construction Russia Others Malaysia 1,863 (5.9) Brunei Australia Total 520 3,823 (1.5) 31,847 (12.0) Papua New Guinea (100%) 1,362 145 (0.5) ※ ‌Other countries for import: Algeria, Peru, (4.3) Equatorial Guinea, U.K. Singapore, Norway and 3,138 India (9.9) 4,689 (14.7) Indonesia 8 KOGAS Sustainability Report 2017 Production and Supply of LNG LNG imported through LNG carriers from natural gas producing countries from all over the world is unloaded in terminal divisions, stored in storage tanks, gasified again, and delivered to the nationwide LNG Storage Capacity 10.66 pipeline network. We run four terminal divisions of Pyeongtaek, Incheon, Tongyeong and Samcheok, and million ㎘ have a total of 69 storage ranks of 10.66 million㎘ – the world’s largest storage facility capacity for a single corporation. Regional divisions that are supplied with natural gases gasified from each terminal division securely supply natural gases, which go through each governor station (4 ~ 0.85MPa) up to pipelines of power plants and Total Extension of general city gas producers. Since our first natural gas supply from Pyeongtaek Power Plant in 1986, we Pipeline Network have supplied natural gases to 48 power plants and 32 city gas producers nationwide as of 2016 through 4,672km the nationwide pipeline network stretching up to 4,672km, and the city gas distribution rate of KOGAS (supply rate of local governments) stands at 90.8%.