National Petroleum Council North American Natural Gas and Oil Resources Study Coordinating Subcommittee Policy Subgroup – Update to the September 15, 2010 DRAFT- DO NOT CITE OR QUOTE. FOR NPC DISCUSSION ONLY

Secretary Chu’s Letters: Excerpts relating to the NARD Study and policy issues of particular interest “…In order to consider energy policy measures that enhance U.S. energy security and economic competitiveness, it is important that Congress, the Administration, and relevant agencies have the best and most up-to-date understanding of conventional and unconventional resource supply chain and infrastructure potential. Accordingly, I request the National Petroleum Council to reassess the North American resources production supply chain and infrastructure potential, and the contribution that natural gas can make in a transition to a lower carbon fuel mix. Your study should describe the operating practices and technologies that will be used to minimize environmental impacts, and also describe the role of technology in expending accessible resources. Of particular interest is the Council’s advice on policy options that would allow prudent development of North American natural gas and oil resources consistent with government objectives of environmental protection, economic growth, and national security….” Chu Letter, “…With regard to energy supply, the United States sees a future in which valuable domestic energy resources are responsibly produced to meet the needs of American energy consumers consistent with national, environmental, economic, and energy security goals. The United States, the world’s second largest producer of natural gas and the third largest producer of oil, has the opportunity to demonstrate global leadership in technological and environmental innovation. Accordingly, I request the Council’s advice on potential technology and policy actions capable of achieving this vision as part of the Prudent Development of North American Natural Gas and Oil Resources study….” Chu Letter “…In order to consider energy policy measures that enhance U.S. energy security and economic competitiveness, it is important that Congress, the Administration, and relevant agencies have the best and most up-to-date understanding of conventional and unconventional resource supply chain and infrastructure potential. Accordingly, I request the National Petroleum Council to reassess the North American resources production supply chain and infrastructure potential, and the contribution that natural gas can make in a transition to a lower carbon fuel mix. Your study should describe the operating practices and technologies that will be used to minimize environmental impacts, and also describe the role of technology in expending accessible resources. Of particular interest is the Council’s advice on policy options that would allow prudent development of North American natural gas and oil resources consistent with government objectives of environmental protection, economic growth, and national security….” Chu Letter, “…With regard to energy supply, the United States sees a future in which valuable domestic energy resources are responsibly produced to meet the needs of American energy consumers consistent with national, environmental, economic, and energy security goals. The United States, the world’s second largest producer of natural gas and the third largest producer of oil, has the opportunity to demonstrate global leadership in technological and environmental innovation. Accordingly, I request the Council’s advice on potential technology and policy actions capable of achieving this vision as part of the Prudent Development of North American Natural Gas and Oil Resources study….” Chu Letter

Policy Subgroup Members Doug Arent, NREL David Conover, BPC/NCEP Robert Earle, AGI Robert Edwards, DOE Lisa Epifani, VNF Bob Gee John Hanger, PA DEP Paul Hibbard, AGI [Maynard Holt], Tudor Pickering Bennett Johnston Melanie Kenderdine, MIT [Sarah Ladislaw], CSIS Henry Lee, Harvard Jan Mares, RFF Rae McQuade, NAESB [Briana Modrick], NDRC Betsy Moler Larry Nettles, VE Jack Riggs, Aspen [Richard Sawaya], Devon Bob Slaughter, NPC Sue Tierney, AG Frank Verrastro, CSIS

Policy Subgroup Charter Identify meaningful and actionable recommendations on changes to U.S. federal and state policy that will promote the prudent development of natural gas and oil resources in a manner consistent with U.S. government objectives of reduced greenhouse gas emissions, environmental protection, economic growth and competitiveness, and energy security

Process assumptions Demand TG results Supply TG results Operations/ Environment results Inputs POLICIES to be recommended to the CSC and Study Committee Macro GHG emissions

Relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment (in infrastructure) Best practices for development and use of infrastructure Governmental law/regulation (federal/state, environmental, safety) relating to prudent development Economic Competitiveness Energy Security Safe Operations Prudent Environmental Practices Sound Investment Lower GHG Emissions SCOPE OF TOPICS for POLICY ISSUES IN THE NARD STUDY: DIPPING A TOE IN THE POLICY DISCUSSIONS….

Initial approach Lower GHG Emissions Economic Competitiveness Energy Security Policy options Quite narrowly focused policies – prudent development VERY MACRO POLICIES BROAD ENERGY POLICIES TARGETED POLICIES Boundaries of range of policies to be considered in study?

Greenhouse Gas (and other environmental) issues and policy implications: Topics within the scope of the study Overall estimates of trends in energy use (notably natural gas and oil), with implications for GHG emissions – Under “Business as usual” (assumes no change in policy) – Under carbon constraints (and/or other environmental policies Focus on specific issues that are affecting/may affect the market for natural gas and oil (not including transportation sector requirements): – Technology, pricing, and other trends leading to changes in market share & overall demand for natural gas or oil – Trends in substituting high CO2 fuels with lower CO2 fuels – Trends in other countries’ policies on GHG emissions that will shift economic and/or industrial activity into some countries, with implications for demand (e.g., for gas, oil) here and GHG elsewhere – Trends in practices/policies that are affecting the development of/access to natural gas and oil – Trends in consideration/adoption of GHG policies affecting GHG emissions Overall estimates of trends in energy use (notably natural gas and oil), with implications for GHG emissions – Under “Business as usual” (assumes no change in policy) – Under carbon constraints (and/or other environmental policies Focus on specific issues that are affecting/may affect the market for natural gas and oil (not including transportation sector requirements): – Technology, pricing, and other trends leading to changes in market share & overall demand for natural gas or oil – Trends in substituting high CO2 fuels with lower CO2 fuels – Trends in other countries’ policies on GHG emissions that will shift economic and/or industrial activity into some countries, with implications for demand (e.g., for gas, oil) here and GHG elsewhere – Trends in practices/policies that are affecting the development of/access to natural gas and oil – Trends in consideration/adoption of GHG policies affecting GHG emissions Assume that the Task Groups and others are working on:

Greenhouse Gas (and other environmental) issues and policy implications: Topics within the scope of the study Overall estimates of trends in energy use (notably natural gas and oil), with implications for GHG emissions – Under “Business as usual” (assumes no change in policy) – Under carbon constraints (and/or other environmental policies Focus on specific issues that are affecting/may affect the market for natural gas and oil (not including transportation sector requirements): – Technology, pricing, and other trends leading to changes in market share & overall demand for natural gas or oil – Trends in substituting high CO2 fuels with lower CO2 fuels – Trends in other countries’ policies on GHG emissions that will shift economic and/or industrial activity into some countries, with implications for demand (e.g., for gas, oil) here and GHG elsewhere – Trends in practices/policies that are affecting the development of/access to natural gas and oil – Trends in consideration/adoption of GHG policies affecting GHG emissions Overall estimates of trends in energy use (notably natural gas and oil), with implications for GHG emissions – Under “Business as usual” (assumes no change in policy) – Under carbon constraints (and/or other environmental policies Focus on specific issues that are affecting/may affect the market for natural gas and oil (not including transportation sector requirements): – Technology, pricing, and other trends leading to changes in market share & overall demand for natural gas or oil – Trends in substituting high CO2 fuels with lower CO2 fuels – Trends in other countries’ policies on GHG emissions that will shift economic and/or industrial activity into some countries, with implications for demand (e.g., for gas, oil) here and GHG elsewhere – Trends in practices/policies that are affecting the development of/access to natural gas and oil – Trends in consideration/adoption of GHG policies affecting GHG emissions Assume that the Task Groups and others are working on: Assume that the Policy Subgroup is working on: Implications for relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment in prudent domestic infrastructure (e.g., development, production, delivery) Best practices(from environmental, safety point of view) for the industry for development of infrastructure Governmental law/regulation (federal/state environmental, safety) relating to prudent development Implications for relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment in prudent domestic infrastructure (e.g., development, production, delivery) Best practices(from environmental, safety point of view) for the industry for development of infrastructure Governmental law/regulation (federal/state environmental, safety) relating to prudent development Query – presumptively, the NARD report will not venture directly into broad policy areas relating to: Overall macro (e.g., all sectors, economy-wide) approach re: US GHG Broad energy policies that may affect the demand for lower-carbon energy resources (e.g., appliance efficiency standards; RPS; low-carbon resource standard; EPA regulations affecting power plant emissions of GHG) IS THIS AN ACCURATE ASSUMPTION? Query – presumptively, the NARD report will not venture directly into broad policy areas relating to: Overall macro (e.g., all sectors, economy-wide) approach re: US GHG Broad energy policies that may affect the demand for lower-carbon energy resources (e.g., appliance efficiency standards; RPS; low-carbon resource standard; EPA regulations affecting power plant emissions of GHG) IS THIS AN ACCURATE ASSUMPTION?

Economic Growth & Competitiveness, and Prudent Infrastructure Development Issues and policy implications - Topics within the scope of the study Demand and resource base – estimates – Implications of “business as usual” estimates (no change in policy) – Recoverable resource and production cases - onshore, Arctic, offshore – Implications of other potential future conditions resulting from public policy (e.g., climate constraint), or technological change, or economic conditions, etc. – on demand, recoverable resource base Outlook for the role of natural gas and oil (not transportation) – Implications of need to tap N. American resource base – Role of current public policies in influencing this outlook (e.g., tax policy, royalties, moratoria, environmental regulation) – Implications of existing & potential policies affecting access to resource base – Role of imports and exports relative to the issues above Operational and environmental practices that affect the development of resource base Business as usual practices, and best practices Enhanced and innovative practices Interaction of public policy (e.g., state, federal) on these practices – e.g., infrastructure siting & permitting policies (e.g., drilling, LNG facilities, storage, transmission systems), leasing policies, environmental regulations (e.g., water discharges, water use), safety regulation, investment recovery policies, etc. Demand and resource base – estimates – Implications of “business as usual” estimates (no change in policy) – Recoverable resource and production cases - onshore, Arctic, offshore – Implications of other potential future conditions resulting from public policy (e.g., climate constraint), or technological change, or economic conditions, etc. – on demand, recoverable resource base Outlook for the role of natural gas and oil (not transportation) – Implications of need to tap N. American resource base – Role of current public policies in influencing this outlook (e.g., tax policy, royalties, moratoria, environmental regulation) – Implications of existing & potential policies affecting access to resource base – Role of imports and exports relative to the issues above Operational and environmental practices that affect the development of resource base Business as usual practices, and best practices Enhanced and innovative practices Interaction of public policy (e.g., state, federal) on these practices – e.g., infrastructure siting & permitting policies (e.g., drilling, LNG facilities, storage, transmission systems), leasing policies, environmental regulations (e.g., water discharges, water use), safety regulation, investment recovery policies, etc. Assume that the Task Groups and others are working on:

Economic Growth & Competitiveness, and Prudent Infrastructure Development Issues and policy implications - Topics within the scope of the study Demand and resource base – estimates – Implications of “business as usual” estimates (no change in policy) – Recoverable resource and production cases - onshore, Arctic, offshore – Implications of other potential future conditions resulting from public policy (e.g., climate constraint), or technological change, or economic conditions, etc. – on demand, recoverable resource base Outlook for the role of natural gas and oil (not transportation) – Implications of need to tap N. American resource base – Role of current public policies in influencing this outlook (e.g., tax policy, royalties, moratoria, environmental regulation) – Implications of existing & potential policies affecting access to resource base – Role of imports and exports relative to the issues above Operational and environmental practices that affect the development of resource base Business as usual practices, and best practices Enhanced and innovative practices Interaction of public policy (e.g., state, federal) on these practices – e.g., infrastructure siting & permitting policies (e.g., drilling, LNG facilities, storage, transmission systems), leasing policies, environmental regulations (e.g., water discharges, water use), safety regulation, investment recovery policies, etc. Demand and resource base – estimates – Implications of “business as usual” estimates (no change in policy) – Recoverable resource and production cases - onshore, Arctic, offshore – Implications of other potential future conditions resulting from public policy (e.g., climate constraint), or technological change, or economic conditions, etc. – on demand, recoverable resource base Outlook for the role of natural gas and oil (not transportation) – Implications of need to tap N. American resource base – Role of current public policies in influencing this outlook (e.g., tax policy, royalties, moratoria, environmental regulation) – Implications of existing & potential policies affecting access to resource base – Role of imports and exports relative to the issues above Operational and environmental practices that affect the development of resource base Business as usual practices, and best practices Enhanced and innovative practices Interaction of public policy (e.g., state, federal) on these practices – e.g., infrastructure siting & permitting policies (e.g., drilling, LNG facilities, storage, transmission systems), leasing policies, environmental regulations (e.g., water discharges, water use), safety regulation, investment recovery policies, etc. Implications for relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment in prudent domestic infrastructure (e.g., development, production, delivery) Best practices(from environmental, safety point of view) for the industry for development of infrastructure Governmental law/regulation (federal/state environmental, safety) relating to prudent development Governmental law/regulation relating to increased use of gas (e.g., power plant siting, pipeline investment, NG vehicle infrastructure, etc.) R&D and technology policies Implications for relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment in prudent domestic infrastructure (e.g., development, production, delivery) Best practices(from environmental, safety point of view) for the industry for development of infrastructure Governmental law/regulation (federal/state environmental, safety) relating to prudent development Governmental law/regulation relating to increased use of gas (e.g., power plant siting, pipeline investment, NG vehicle infrastructure, etc.) R&D and technology policies Assume that the Task Groups and others are working on: Assume that the Policy Subgroup is working on: Query: presumptively, the NARD report will not venture directly into broad policy areas relating to: Diversity of supply or sectors’ fuel dependence GHG content of supply IS THIS AN ACCURATE ASSUMPTION?

Energy security issues and policy implications: Topics within the scope of the study Geopolitical considerations of energy supply/delivery/use – Implications of size / development of resource base for US role in global markets and relationships with other energy producers and energy consumer nations – Changing relationships among different global players (different alliances, players, etc.) with implications for supporting our/allies’ energy interests Threats of disruption of energy supply to our allies Areas of strength in U.S. and allies’ energy resources (e.g., shale basins) / technological capabilities (e.g., shale production) that affect our strategic interests and actions Changing dangers of conflict over oil and gas resources [and other energy resources] – Global environmental issues (e.g., climate change) - implications for energy security, unrest in impacted nations – changing alliances, impacts, – Enrichment of unfriendly or unstable regimes as a result of energy dependence – with implications for military action – Energy trade issues, balance of payments/power relationships Economics and/or security of control over energy supplies within and into the U.S. – Risk/threat of curtailment regarding fuel(s), delivery systems – Price pressure (including volatility) in energy commodities affected by global markets, global demand requirements – with economic impacts/vulnerabilities in the U.S., especially for fuels for which there is little substitution in the near term. – Vulnerability of infrastructure to attack (e.g., terrorist strikes) Geopolitical considerations of energy supply/delivery/use – Implications of size / development of resource base for US role in global markets and relationships with other energy producers and energy consumer nations – Changing relationships among different global players (different alliances, players, etc.) with implications for supporting our/allies’ energy interests Threats of disruption of energy supply to our allies Areas of strength in U.S. and allies’ energy resources (e.g., shale basins) / technological capabilities (e.g., shale production) that affect our strategic interests and actions Changing dangers of conflict over oil and gas resources [and other energy resources] – Global environmental issues (e.g., climate change) - implications for energy security, unrest in impacted nations – changing alliances, impacts, – Enrichment of unfriendly or unstable regimes as a result of energy dependence – with implications for military action – Energy trade issues, balance of payments/power relationships Economics and/or security of control over energy supplies within and into the U.S. – Risk/threat of curtailment regarding fuel(s), delivery systems – Price pressure (including volatility) in energy commodities affected by global markets, global demand requirements – with economic impacts/vulnerabilities in the U.S., especially for fuels for which there is little substitution in the near term. – Vulnerability of infrastructure to attack (e.g., terrorist strikes) Assume that the Task Groups and others are working on :

Energy security issues and policy implications: Topics within the scope of the study Geopolitical considerations of energy supply/delivery/use – Implications of size / development of resource base for US role in global markets and relationships with other energy producers and energy consumer nations – Changing relationships among different global players (different alliances, players, etc.) with implications for supporting our/allies’ energy interests Threats of disruption of energy supply to our allies Areas of strength in U.S. and allies’ energy resources (e.g., shale basins) / technological capabilities (e.g., shale production) that affect our strategic interests and actions Changing dangers of conflict over oil and gas resources [and other energy resources? [nuclear, renewables]] – Global environmental issues (e.g., climate change) - implications for energy security, unrest in impacted nations – changing alliances, impacts, – Enrichment of unfriendly or unstable regimes as a result of energy dependence – with implications for military action – Energy trade issues, balance of payments/power relationships Economics and/or security of control over energy supplies within the U.S. and imported into the U.S. – Risk/threat of curtailment regarding fuel(s), delivery systems – Price pressure (including volatility) in energy commodities affected by global markets, global demand requirements – with economic impacts/vulnerabilities in the U.S., especially for fuels for which there is little substitution in the near term. – Vulnerability of infrastructure to attack (e.g., terrorist strikes) Geopolitical considerations of energy supply/delivery/use – Implications of size / development of resource base for US role in global markets and relationships with other energy producers and energy consumer nations – Changing relationships among different global players (different alliances, players, etc.) with implications for supporting our/allies’ energy interests Threats of disruption of energy supply to our allies Areas of strength in U.S. and allies’ energy resources (e.g., shale basins) / technological capabilities (e.g., shale production) that affect our strategic interests and actions Changing dangers of conflict over oil and gas resources [and other energy resources? [nuclear, renewables]] – Global environmental issues (e.g., climate change) - implications for energy security, unrest in impacted nations – changing alliances, impacts, – Enrichment of unfriendly or unstable regimes as a result of energy dependence – with implications for military action – Energy trade issues, balance of payments/power relationships Economics and/or security of control over energy supplies within the U.S. and imported into the U.S. – Risk/threat of curtailment regarding fuel(s), delivery systems – Price pressure (including volatility) in energy commodities affected by global markets, global demand requirements – with economic impacts/vulnerabilities in the U.S., especially for fuels for which there is little substitution in the near term. – Vulnerability of infrastructure to attack (e.g., terrorist strikes) Implications for relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment in prudent domestic infrastructure (e.g., development, production, delivery) Best practices(from environmental, safety point of view) for the industry for development of infrastructure Governmental law/regulation (federal/state environmental, safety) relating to prudent development Implications for relatively targeted policies relating to prudent development of natural gas and oil, in such areas as: Incentives for investment in prudent domestic infrastructure (e.g., development, production, delivery) Best practices(from environmental, safety point of view) for the industry for development of infrastructure Governmental law/regulation (federal/state environmental, safety) relating to prudent development Assume that the Task Groups and others are working on: Assume that the Policy Subgroup is working on: Query – presumptively, the NARD report will not venture directly into broad policy areas relating to: Diversity of supply Dversity of sectors’ dependence on single/few fuels GHG content of supply International agreements for trade, alliances, GHG, etc. IS THIS AN ACCURATE ASSUMPTION?