Air Quality and Greenhouse Gas Issues for the Oil and Gas Sector ERM 2015 Webinar Series

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Air Quality and Greenhouse Gas Issues for the Oil and Gas Sector ERM 2015 Webinar Series December 10, 2015

Agenda Methane initiative post comment period Enforcement update RY15 Subpart W changes Early feedback from COP21 Q&A 2

Methane Initiative Phil Norwood & Andy Woerner

September 18, 2015 EPA Published: Proposed modifications to NSPS Subpart OOOO Proposal for new NSPS Subpart OOOOa Proposed rule to clarify EPA s source determination air permitting rules as they apply to the oil and natural gas industry Proposed a Federal Implementation Plan for EPA s Indian Country Minor New Source Review (NSR) program for oil and gas production sources Draft Control Techniques Guidelines for reducing VOC emissions from existing oil and gas sources in certain ozone nonattainment areas and states in the Ozone Transport Region 4

NSPS

NSPS Subpart OOOO Sources constructed/modified/ reconstructed between August 23, 2011 and September 18, 2015 Proposed amendments to improve implementation 6

NSPS Subpart OOOOa Sources constructed/ modified/ reconstructed after September 18, 2015 Regulates VOC and Methane Social cost of methane Potential permitting implications 111(d) implications From wellhead to city gate 7

NSPS Subpart OOOO Applicability Onshore Oil & Natural Gas Production Gathering & Boosting Stations Onshore Natural Gas Processing Onshore Natural Gas Transmission and Storage City Gate Natural Gas Distribution Pneumatics (VOC) Storage vessels (VOC) Gas well completions and workovers (VOC) Compressors (VOC) LDAR (VOC) Sweetening units (SO2) 8

NSPS Subpart OOOOa Applicability Onshore Oil & Natural Gas Production Gathering & Boosting Stations Onshore Natural Gas Processing Onshore Natural Gas Transmission and Storage City Gate Natural Gas Distribution Gas well completions and workovers (VOC and methane) Storage vessels Pneumatics (VOC and methane) Compressors(VOC and methane) LDAR(VOC and methane) Sweetening units (SO2) Oil well completions and workovers (VOC and methane) Fugitive emissions(voc and methane) Pneumatic pumps (VOC and methane) 9

Control and Compliance Assurance Requirements Combustion Device Control Design and Operation Initial and Periodic Performance Tests Continuous Parameter Monitoring Visible Emissions Observations Closed Vent System and Cover Inspections Flares - 60.18 (flow measurement, velocity limits) By-Pass Monitoring NSPS Storage Vessel Requirements 10

NSPS OOOO Applicability Leak Detection and Repair VOC IN! Onshore Oil & Natural Gas Production Out! Gathering & Boosting Stations Onshore Natural Gas Processing Onshore Natural Gas Transmission and Storage Out! City Gate Traditional LDAR @ Processing facilities 11

NSPS OOOOa Applicability Leak Detection and Repair VOC and Methane IN! Onshore Oil & Natural Gas Production Gathering Booster Stations Onshore Natural Gas Processing Onshore Natural Gas Transmission and Storage City Gate Different requirements inside vs. outside of Processing facilities 12

Leak Detection and Repair Main Issues Scale of Implementation Challenges Scope / Definitions - CVS/Leak Detection Overlap Availability of Qualified / Trained Resources Delay of Repair Issues Monitoring Frequency Level of Compliance / Recordkeeping Burden Reconciling with state programs (CO, OH, PA ) 13

NSPS OOOO Applicability Pneumatic Pumps Not Applicable Out! Onshore Oil & Natural Gas Production Gathering Booster Stations Onshore Natural Gas Processing Onshore Natural Gas Transmission and Storage City Gate 14

NSPS OOOOa Applicability Pneumatic Pumps VOC and Methane IN! Onshore Oil & Natural Gas Production Gathering Booster Stations Onshore Natural Gas Processing Onshore Natural Gas Transmission and Storage City Gate Control if control device already present Processing facilities use zero bleed 15

Pneumatic Pumps Main Issues Feasibility & Safety Challenges No technical feasibility exemption in proposal Chemical Injection and Diaphragm Pumps treated the same No leak threshold in proposal Pulls in onerous compliance requirements for CVS and Control Device Centrifugal compressor control requirements cited in proposal 16

NSPS Subpart OOOOa Other Issues Next Generation Compliance (Preamble) Third Party Audits Design Review Requirements Submittal of data by Vendors Electronic Reporting Requirements 17

Source Determination

1 st Option: Proximity (Similar to NESHAP) 2 nd Option: Proximity & Functional Interrelatedness Everything within a proximity distance. Everything within a proximity distance. OR Everything greater than or equal to a proximity distance. And there is exclusive functional interrelatedness

Operational Change NSPS CTGs Tribal NSR Source Determination Methane Challenge Gas and Oil Wells Compressors Fugitive Components Pneumatic Equipment Storage Vessels Control Devices Capital Expenses Equipment: wells, pneumatics, flares, control equipment Re-design/approach: monitoring equipment (IR cameras, sampling) Existing (retrofits) vs New Operational Expenses People: training, skillsets, MOC challenges Equipment Upgrades: records, reports, data systems External Stakeholders: Agencies, NGOs, neighbors/public License to Operate: Violation, Risk Actions Check Gaps (vulnerability) Influence rule language Field trial of proposed methods (leaks: is it do-able?) Evaluate alternatives (voluntary programs) Look-ahead: future impacts?

Enforcement Update Ryan Alam

USEPA Peak Flow Enforcement Issue USEPA national enforcement initiative for upstream onshore oil and gas production operations (e.g. well sites and central gathering facilities) Focuses on unauthorized air emissions from crude oil and condensate storage tanks Evidence generated from site inspections (IR camera) & 114 information requests USEPA claims oil and gas companies have not properly designed and/or operated their tank piping systems and air emission control devices to handle peak flows Landmark settlement against Noble Energy finalized in June 2015 (i.e. Noble Consent Decree) Open investigations with numerous oil and gas companies in intermountain, gulf, and northeast 22

Peak Flow Issue 23

Peak Flow Consent Decree Obligations Core Objectives Tank VCS Evaluation and Modification Sampling Develop Modeling Guideline and Design Standard Perform Design Evaluation VCS Modifications Self- Certification 3 rd Party Verification 24

Additional Consent Decree Obligations Continued Next Generation enforcement requirements for continuous tank headspace monitoring and 3 rd party verification and audits Pressurized liquid sampling verification (QC standard set at 30% of bubble pt) Evaluation of PRV and thief hatches Directed Inspection and PM Program Ongoing IR Camera and AVO inspections Reliable information triggers Root Cause Investigation and corrective action Ongoing performance specifications for control devices (manf O&M) Semi-annual reporting Ongoing penalty structure for failure to comply with CD requirements ranging from $250 to $20,000 per day per violation 25

Business Implications $73MM* in civil penalties, estimated equipment retrofits, and other commitments (EMP, SEP, etc.) CD contains multiple avenues to trigger well shut-ins (including IR camera inspection triggers) Provides mechanisms for continuous VCS design evaluation loop Contains mechanisms to report to public on progress of enforcement resolution Impact future well pad design and existing supply chain logistics *Based on EPA estimates Limits ability for asset restructuring (divestitures/acquisitions) 26

Peak Flow CAA 114 Requests Affirmative declaration on whether a design analyses of VCS completed? Prior to construction Some other time Never Design analysis objective to verify VCS has capacity to handle reasonably foreseeable fluctuations in flash gas volumes with no detectable emissions or minimize emissions to atmosphere to maximum extent 27 If never conducted design analysis, must conduct design analysis Provide detailed information for USEPA to conduct independent design analysis: P&IDs, well configuration, separation stage approach, piping design, PRV/thief hatch set points, control device performance tolerance, O&M procedures, gas gathering line MAOP, etc. Requires new sampling if not within 12 months Timeline varies from phase approached 30/60 days depending on sample population

USEPA Enforcement Activities USEPA has issued several CAA 114 requests to numerous operators in Region 8 and 6 USEPA is leveraging all available authority to pursue enforcement (e.g. NSPS OOOO including negative declaration reviews, SIP-approved regulations, permit representations, etc.) Targeting small, medium, and large operators USEPA is currently in negotiation with oil and gas operators on new consent decrees USEPA is scheduling site inspections where the Agency brings IR cameras and FID instruments to look for emissions from storage tanks and control devices Deputizing the states (e.g. NDDoH) 28

ERM Peak Flow Risk Assessment 29 ERM has a systematic, efficient process for measuring risk exposure to USEPA s peak flow enforcement initiative Objective is to minimize potential for enforcement Risk assessment designed to prepare companies for responding to 114 requests, hardening asset for Agency inspections, and identification of regulatory exposure Risks are categorized by severity, preliminary corrective actions identified, and cost estimates are provided to inform management decision analysis for optimum solution for risk tolerance Project is conducted in close collaboration with Reservoir, Facilities, and Operations teams to ensure any lessons learned are incorporated into standard design philosophies and O&M practices Analysis completed in conjunction with legal team to maximize available protection policies

Subpart W Denise Grubert

Report Year 2015 31 January 1, 2015 December 31, 2015 Definitions: Clarification and consistency (e.g. Associated Gas) Monitoring: Reciprocating and Centrifugal Compressors (Screening tool); Allow site-specific gas composition (e.g. Stationary combustion) Calculation Methods: Liquids Unloading, Completions and Workovers, Storage Tanks, Blowdown Vents Associated Gas Venting and Flaring, Reciprocating and Centrifugal Compressor Measurements Flares Missing Data: Clarifications Reporting: Clarification and alignment Additional facility level reporting requirements Metric tons of GHG constituent and not in CO 2 e Reports are still due March 31st

2016 Major Changes to Subpart W Onshore Production Addition of well ID reporting Effective date is January 1, 2016 for monitoring Oil well completions with hydraulic fracturing Wells with GOR <300 scf/stock tank bbl are exempt Addition of Two New Industry Segments Onshore petroleum and natural gas gathering and boosting Onshore natural gas transmission pipeline industry segment Best Available Monitoring Methods (BAMM) Allowed for January 1, 2016- December 31, 2016 32

Gathering and Boosting - Boundary Onshore Production Well Pad Well(s) Well Pad Well(s) Well Pad Well(s) Well Pad Well(s) AAPG Basin Tank Battery Gathering/ Boosting Compressor Station Central Tank Battery excludes pipelines with GOR <300 scf/stb AAPG Basin Natural Gas Processing Transmission Pipeline Natural Gas Distribution Pipelines 33

Gathering & Boosting- Applicable Sources Pneumatic devices Pneumatic pumps AGR s (throughput less than 25 MMscf/year) Dehydrators Blowdown vents (> 50 scf) Storage tanks Flare stacks Centrifugal compressors (count) Reciprocating compressors (count) Equipment leaks (Population count) Gathering pipeline equipment leaks (Population count) Stationary combustion Portable combustion All equipment between onshore production and either a natural gas processing facility, natural gas transmission pipeline or natural gas distribution pipeline. 34

Gathering and Boundaries Key Challenges Applicability for Boundaries Determining GOR for all pipelines (pipelines <300 scf/stb are exempt) Intermingling of wells at several points along the pipeline Ownership issues Number of stages of separation along the process Underground Lines 35 Equipment Reporting Issues Stationary Combustion including portable combustion Blowdown Vent tracking across entire basins AGR throughput determines applicability between gathering and boosting and onshore processing Determining Length of Applicable Pipe Flaring Subpart W versus Subpart C

Transmission Pipelines Applicable Sources: All pipeline blowdowns Facility: All US transmission pipeline mileage Monitoring Requirements: Pressure/Temperature Volume of Pipe Track events by state and pipeline blowdown type as specified by EPA Challenges: Contractor Management training on requirements Event Management system for tracking data/events Interpretation of applicable definitions 36

Path Forward Complete applicability reviews and understand impacts to your business as soon as possible, if you have not already Strategize and develop compliance plan prior to summer 2016: Complete equipment inventory end of year Implement plan for tracking blowdowns along entire gathering and boosting system Miles of gathering pipeline by pipe type within the basin boundary Portable combustion equipment Do not overly rely on BAMM! This could result in over or under estimating the emissions, which has longer term reporting consequences or compliance issues, respectively. 37

COP21 Lisa Campbell

COP 21 Scheduled to deliver an international agreement/framework for post-2020 GHG reduction commitments The aim is to reach a universal, legally binding agreement that addresses climate change and the transition towards low-carbon future All Parties (governments) signed up to a timetable and format for delivering their Intended Nationally Determined Contributions or INDCs for national action on GHGs What is different this time? Bottom up approach with countries making commitments prior to COP; heads of state endorsing importance; more business engagement in process 39

Navigating the Path to 2 C INDC commitments by around 200 countries will not achieve goal of 2 degrees of warming Additional commitment options that have been discussed range from: 40-70% net emission reductions below 2010 levels by 2050 Net zero emissions by 2050 or 2100 Decarbonization of energy supply Mitigation agreement in Paris has long-term implications for business, especially O&G industry 40

International Challenges 41 COP21 expected to place new demands on business to reduce their GHG emissions, improve energy efficiency, and switch to less carbon intensive fuels Challenge for O&G to comply with a emerging patchwork of obligations Some companies calling for action - price on carbon in attempt to harmonize requirements, reduce uncertainties Natural gas opportunities for coal switching Carbon capture and storage (CCS) necessary for O&G to be viable in net zero carbon future

Q&A Session

ERM 2015 Sustainability Report 2015 Sustainability Report Highlights About this report CEO message Our value chain Sustainability at ERM 43 http://www.erm.com/en/sustainabilityreport2015/home-page/

Contact Information Today s Speakers and additional contacts: Phil Norwood Raleigh, NC 919-233-4501 phil.norwood@erm.com Andy Woerner Philadelphia/Pittsburgh, PA 484-913-0455 andrew.woerner@erm.com Ryan Alam Denver, CO 303-720-5397 ryan.alam@erm.com Denise Grubert Raleigh, NC 919-855-2282 denise.grubert@erm.com Lisa Campbell Raleigh, NC 919-855-2279 lisa.campbell@erm.com Toby Hanna Ewing, NJ 609-403-7518 toby.hanna@erm.com 44