Identifying and managing business and financial risks and opportunities presented by the impacts of climate change is critical to the success of our business. Capitalizing on the opportunities to provide clean energy solutions, for the betterment of our society and the world as a whole, takes a focused and disciplined approach to identifying, managing and mitigating risks to our business presented by climate change. In 2017, The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) established recommendations for voluntarily climate-related reporting, including with respect to governance, strategy, risk management and metrics. Freeport LNG has voluntarily implemented many of the TCFD disclosure recommendations.

The TCFD recommends outlining potential climate risks into categories that affect our industry. The TCFD divides climate risks into two major categories: (1) physical risks – those related to the physical impacts of climate change; and (2) transition risks – those related to the transition to a lower carbon economy. Transition risk is further divided into four categories: policy and legal risk; technology risk; market risk; and reputation risk. Physical risk is divided into acute and chronic risk.

In the tables below, we have identified potential climate related physical and transition risks affecting our business, potential opportunities presented by climate change, and descriptions of the potential financial impacts for each. We continually identify and monitor these and other evolving risks and opportunities through our Enterprise Risk Management and ESG committees.

Climate protection and preservation are foundational tenets of our business. Our liquefaction facility is the largest all-electric motor-driven LNG production plant of its kind in the world, and the only one in the United States. The LNG we deliver is the most environmentally sustainable of any LNG produced today.

Worldwide, coal serves as the primary power generation source of electricity, despite its high carbon emissions intensity. According to the United Nations, the global population is projected to grow to over 8.5 billion people by 2030, nearly a 700 million person increase over 2021. As the standards of living among growing populations improves, ever-increasing energy resources will be required to meet their power needs. Freeport LNG is uniquely positioned to meet the challenges of the growing global energy economy, providing an environmentally responsible alternative to the deployment of more coal and other dirtier fuels to meet increasing power generation needs. As we move forward from 2022 and the increase in coal penetration due to the war in the Ukraine, the importance of accessible LNG globally was made even clearer if the world is to come close to decarbonization goals.

Our use of electric motors allows us to reduce associated plant emissions by over 90% relative to the typical natural gas-fired LNG plant. This not only safeguards the air in our communities, it also enables us to produce LNG with significantly lower carbon intensity relative to our competitors.

In addition, our use of electric motors allows Freeport LNG to take advantage of its location in one of the most diverse renewable power generation markets in the United States. In 2022, wind, solar and nuclear power comprised approximately 40% of the electricity generated on the Electric Reliability Council of Texas (ERCOT) grid, representing twice the U.S. national average. As the renewable share of ERCOT generating capacity continues to grow over the coming years, this will further reduce the carbon intensity of LNG produced at the Freeport LNG facility, and enhance the already significant environmental benefits associated with the LNG we deliver.

In order to further capitalize on the unique environmental benefits of our low-carbon LNG, efficient operations are top of mind. As we continually optimize our facilities to maximize LNG production, we drive down the per-unit environmental impact of the energy we deliver. The more volumes Freeport LNG places in the global market, the greater our contribution to the critical transition from coal and other dirty fuels to a clean energy source with less waste and fewer global emissions.

The competitive strength of our low-carbon LNG allows us to take advantage of growing market demand for sustainable LNG supplies, and furthers the already substantial environmental benefits inherent in LNG’s displacement of coal-fired electric generation in China, India and even Europe after their transition away from Russian gas in 2022. We are heavily engaged in marketing our low-carbon LNG. Low-carbon LNG’s growth in global importance also presents additional opportunities to further reduce lifecycle emissions associated with LNG, including with respect to enhanced carbon efficiency in gas supplies and in LNG shipping.

As we transition to a carbon neutral global economy, the world has an opportunity to lower its carbon footprint with energy technology that’s readily available today in the form of LNG. Freeport LNG stands uniquely ready to support this long-term transition, by providing some of the lowest carbon-intensity LNG available in the world.

There is simply no better tool than natural gas to enable a sustainable global energy transition, balancing environmental stewardship in developed countries with ensuring their populations access to readily available, secure, affordable and flexible energy supply to heat and cool homes and keep businesses operating. In developing regions, wealth continues to grow, with millions more people needing access to affordable and sustainable energy every year. Natural gas has a transformative role to play in the developing world, providing the foundational building block for improving lives, increasing opportunities and lifting people out of poverty. Freeport LNG plays a leading role in this societal progress, providing the unique energy source needed to meet our critical environmental and humanitarian objectives.

While adherence to strict local, state and federal regulatory requirements establishes a baseline that governs our overall environmental management, our climate strategies take us above and beyond these requirements, marrying our environmental stewardship with our efforts to advance the sustainability of our product.

With approximately 90% fewer emissions than turbine drive facilities, we provide our customers and ultimate end consumers with low carbon LNG. Our electric drive motors enable us to take advantage of the high and growing relative percentage of renewable power in the Texas energy grid, further enhancing the low-carbon intensity of our LNG. These incredibly efficient electric drive motors, coupled with our APCI main cryogenic heat exchangers, also provide opportunities to optimize our production to deliver incrementally more LNG with the same kit and power usage – thus lowering the carbon intensity of each BTU of LNG produced.

As a largely tolling facility, we do not control the incoming gas flows and power consumption for the majority of the LNG we produce. However, for the portion of gas and power purchases we do control, we are working to develop procedures whereby the carbon intensity of the LNG we delivering can be measured. For example, we are able to secure renewable power supply from the Texas grid, and we have fully implemented third party carbon intensity certification capability for LNG we deliver in accordance with the framework established by the International Group of Liquefied Natural Gas Importers.

We live in the community where we operate. Measurement of emissions and detection of potential issues is a paramount focus, enabling us to assess our overall emissions and identify gaps in measurement and emissions control. This effort takes us beyond minimum regulatory requirements, and allows us to understand every component of our emissions to ensure successful mitigation where needed.

Though a private company, we have always been transparent with our key stakeholders and, with our continuation of this annual report, the public at large. We are proud of our leadership position in the energy transition and want to use our data and success to promote both ourselves and our industry – LNG is the fuel that will secure the prosperity of developed countries, and satisfy the energy needs of growing global middle class in the developing world.

We are committed to the responsible and proactive management of important ESG impacts, risks and opportunities. This includes a strategic focus on ensuring that our operations are resilient in the global energy transition and deliver lasting value to our customers and stakeholders.

With sustainability as our focus, we continue to support the transition to a lower-carbon future. We are strategically focused on continuous improvement of our environmental performance and disclosures, and we are advancing several key projects and initiatives that are indicative of our commitment to lessening our carbon footprint across our operations.

Construction of our Noble Gas Project is underway with expected in service in Q2 2024. The project will extract helium from compressed natural gas returned from liquefaction to our Pretreatment Facility in our boil-off gas pipeline.

Helium is a finite resource characterized by the United States Department of the Interior as a critical mineral vital to the nation’s security and economic prosperity. Extraction of helium associated with the production and storage of LNG is one of only three ways that helium can be captured. The primary application of domestic helium use is in magnetic resonance imaging machines for medical diagnostics, space exploration, and defense systems. Our Noble Gas Project promotes economic and energy efficiency by capturing a finite resource that would otherwise be lost and putting it to beneficial use.

We are working with Talos Energy to develop a carbon capture and sequestration project immediately adjacent to Freeport LNG’s natural gas pretreatment facilities. Talos is initially assessing the feasibility of local sequestration of the PTF acid gas stream, which accounts for approximately one-half of Freeport LNG’s total GHG emissions.

Front-end engineering and design work for our Marine Barge Terminal Project has been completed. We intend to seek the regulatory authorizations to construct the project in 2023, which could enable a 2025 in-service date. This project will enable LNG bunker barges to lift LNG from our facility for ship-to-ship delivery to LNG-powered seagoing vessels utilizing LNG as a cleaner burning alternative to other marine fuels, thereby directly supporting the reduction of GHG, sulfur, nitrogen oxide and other emissions in maritime transport and furthering Freeport LNG’s overall climate objectives, both regionally and globally.

Operating with a commitment of environmental stewardship means that we have a responsibility to leave the environment in a better condition than how we found it each and every day for the good of our workforce, the communities in which we work and live and the world-at-large.

Keeping environmental preservation top of mind requires us to satisfy stringent regulatory requirements around air emissions, water protection, waste disposal, leak prevention, land management, and other aspects of environmental protection.

Freeport LNG’s operations are regulated by state and federal agencies. We also work closely with local agencies to ensure that we safely and successfully manage our operational footprint in the local community.

As it pertains to state and federal oversight of our operations, the regulatory process starts with the Texas Commission on Environmental Quality (TCEQ). The TCEQ regulates emissions from all of Freeport LNG’s facilities. Freeport LNG holds permits issued by the TCEQ that outline pollutant limits for all emission points. The TCEQ also defines many of our operating parameters.

When it comes to regulating Freeport LNG’s pipelines and underground natural gas storage facility (UGS), we adhere to guidelines set by the Railroad Commission of Texas (RRC). In addition to operating our pipelines within RRC regulations, we also adhere to regulations set forth by the Pipeline Hazardous Materials Safety Administration (PHMSA).

From a federal oversight standpoint, Freeport LNG’s operations are regulated by the Federal Energy Regulatory Commission (FERC). FERC authorizes construction and regulates operation of LNG facilities.

Managing LNG cargoes that arrive at our docks means working with and abiding by regulations set forth by agencies that regulate waterways. Freeport LNG works closely with the U.S. Coast Guard (USCG). The USCG regulates all waterside operations as well as safety and security of the LNG facility under the direction of the Department of Homeland Security.

Rounding out the federal regulatory oversight of our operations, is the Environmental Protection Agency (EPA). The EPA regulates all of the site’s water discharge in the form of storm water and process wastewater.

Knowing the environmental significance of the Quintana area, Freeport LNG took special care in facility design. Not only are there delicate wetlands around our facilities, but the region also has a long history as a commercial shrimping and sport fishing center and lies in North America’s most active flyway for migrating birds. Our goal is to ensure that our operations preserve and maintain the ecosystem and enhance the environment around us.

Our environmental stewardship began as the company initiated site selection, engineering, and permitting of the original LNG import project. This commitment has become a hallmark of how we construct and operate our facilities.

When it comes to conservancy, we seek to increase the quality and scope for each type of wetland that we may impact and to preserve or create new habitats for coastal fish and wildlife species. Freeport LNG has donated nearly 350 acres of land containing various types of habitat to conservation groups and manages another 35 acres of created wetlands at and around our facilities on Quintana Island. These areas host a variety of shore and wading birds, including roseate spoonbills, gulls, avocets, stilts, and many others.

Managing Effluents

Managing the discharge of liquid waste in all of its forms is a vital part of our environmental stewardship. We have developed extensive plans and procedures to assess, store, transport, and dispose of effluents including wastewater, storm water, process water, and sanitation wastes.

As it relates to the water used for emergency response/firefighting during the June 8 incident at our liquefaction facility, that water was captured on site in our secondary containment systems. No water left the site. Water that was contained in the LNG tank 1 area of the facility was removed from our site by a vacuum truck and transported for proper off-site disposal.

The water contained within the LNG Tanks 2 and 3 containment area was tested several times per environmental safety protocols and was then released through our permitted outfall once it was verified to meet all effluent test requirements.

Freeport LNG has implemented thorough spill prevention control and countermeasures to minimize the likelihood of an effluent breach. However, should a spill occur, we strictly adhere to our control and response measures to help protect the safety of our personnel, community, and environment.

Resource Recycling and Waste Management

Freeport LNG has made a strong commitment to recycling materials at all sites. We have been able to recycle soils, rock, concrete material, and even vegetation. For example, to build up the terminal site, we used dredged material and soil from our marine-berth area, which avoided hauling fill material to the site and reduced traffic on the island. Sand obtained from the dry excavation of the marine basin was separated and used for padding the pipeline trench during pipeline construction. We also used material that was excavated during the construction of our barge dock to create new wetland areas along the Intracoastal Waterway.

Boil-off gas created while the LNG facility is operating is not vented or flared but recovered and sent via pipeline to the pretreatment facility where it is used as fuel for a gas turbine power generator and fired heaters. Freeport LNG employs advanced recycling methods to capture waste heat from the generator and applies it to regenerate materials used in the gas pretreatment processes.

At our facilities, we follow waste-minimization plans and waste storage and labeling procedures. A qualified and licensed third-party has been contracted to collect, transport, and properly dispose of our hazardous and non-hazardous waste and to assemble data about those collections to prepare for submittal to the appropriate regulatory agencies.