10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 1 National Petroleum Council Future Transportation Fuels Study Base Case Commentary Guidelines and Template REV 1

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Purpose of the Templates The following Guidelines and Template are a result of a request from several subgroups for more guidance and structure regarding base case commentary for the NPC Future Transportation Fuels Study –These templates will be used for the November 10 & 11 Supply & Infrastructure report-outs on the Base Case –The templates will be the basis for the narrative assessment of the Base Case in the study report These guidelines are a supplement to pages 10 and 11 of the “EIA AEO 2010 Reference Case Transportation Sector Overview” that was issued by the Supply & Infrastructure Task Group The “In Bounds for Comments on the Base Case” (p.11) section has been further grouped into the following categories : 1.Supply and Infrastructure 2.Technology 3.Demand 4.GHG 5.Legislation 6.Other materially significant areas not addressed. Upon completion, this document should be a top line overview, about 7-10 PowerPoint slides. 2

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Future Transportation Fuels Study – Instructions Instructions: 1.Assess the Base Case (EIA AEO 2010 Reference Case Extrapolation GHG baseline) A.Consider the assumptions, data and conclusions for each category B.Subgroups should use the data supplied in the Base Case, even if assumptions are not clear 2.Explain the subgroup’s view as compared to the base case 3.Provide references and sources for the subgroup’s view relative to the base case 4.Subgroups should comment on all six categories listed in the template 5.Summarize the subgroup’s top findings upon completing the exercise 3

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 4 Supply & Infrastructure Subgroup’s comments (example items for the Supply & Infrastructure category: Supply Chains, Infrastructure availability and development, Refining and manufacturing capacity and production costs, Supply and feedstock availability, volumes, and timing, Opportunities for fuel switching or substitution, State and regional observations) Large uncertainty in out year projections Results are sensitive to price assumptions AEO pricing covers a broad range but there is some potential for prices to be outside range Price fixed so feedback between supply and demand is limited Crude pricing is a driver for alternative fuels penetration Current natural gas to crude price relation is higher than recent past. IEA has somewhat higher gas/oil price ratio in long term AEO assumes that a number of alternative fuels will be introduced. It seems unlikely that all of these fuels will be introduced. Factors to consider include: Barriers to entry: infrastructure, financial and regulatory Cost escalation: feedstock, capital, crude Potential for relative technology advancement among alternative fuels Global oil production in out years is uncertain. IEA outlook similar for global conventional and unconventional production U.S. crude production is higher than IEA. Very high use of EOR (37% by 2035) NGL from US shale gas may be underestimated

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 5 Supply & Infrastructure Significant challenges face US refining: uncertainty about GHG and other regulations, limited demand growth, foreign competition and projected change in product slate. Fuel supply and demand may not match refining infrastructure. In EIA reference gasoline demand is projected to decrease due to ethanol use and CAFÉ improvement while distillate demand grows but crude runs are reduced compared to today. Aggravating mismatch between demand and refining infrastructure: Biofuel production will probably be more heavily weighted towards ethanol vs distillate than projected in reference case Gasoline demand is lower in other outlooks (see demand comment) Not clear that investments to produce increased distillates will be made. Distillates may be imported as an alternative to reconfiguring refineries. The world will likely have the export capacity to do so. Upgrading options for Canadian oil sands not considered in AEO. Oil sands are assumed to be upgraded in Canada to a synthetic crude. Bitumen export is a viable alternative. GHG emissions caused by upgrading occurs in Canada. A small volume of pyrolysis oil is assumed to be processed at refineries. This feedstock will probably require additional processing before use as refinery feed.

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 6 Supply & Infrastructure Data and ability to model US fuel distribution network is limited. Distribution data is based on outdated 1988 NPC study and census data. Limitations in distribution infrastructure when introducing new fuels is not recognized. Certain scale is needed for infrastructure investments. Proximity to existing infrastructure an important factor. It is not clear how new fuels will move through distribution system. Location of biofuel or CTL/GTL/oil shale production facilities and how these fuels are transported and blended is not described in the AEO report (refinery/terminal) E85 volumes past 2020 are quite optimistic. E85 infrastructure is currently limited. Considerable investment is needed in service stations. E85 is sold at a discount to gasoline due to reduction in fuel economy. Ethanol will be preferentially sold as low- mid-level blends to obtain highest value. FFV owners are not used to purchasing E85 and there is no geographic concentration of FFV. Intermediate blends are likely to develop since an E15 waiver has been granted. This could significantly reduce E85 volumes. In absence of regulation, future FFV penetration is uncertain and may differ significantly from AEO case.

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 7 Technology Subgroup’s comments (example items for the Technology category: Technology pathways and timing, Vehicle technology availability, Timelines): Technology improvement in refining and elsewhere in HL liquid supply chain is not included Technology for CCS could have large impact to GHG emissions from existing refining infrastructure and CTL/GTL/BTL. AEO assumes large CO2 use for EOR some comes from combustion sources. Without clear technology winners among new fuels unlikely to displace existing fuels and infrastructure. However introduction could be rapid with breakthrough. Gradual and parallel introduction of new fuels (BTL/GTL/CTL/Oil shale) in outlook is unrealistic.

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 8 Demand Subgroup’s comments (example items for the Demand category: Fleet turnover, demand volumes and timing): Transportation fuel demand is higher in EIA than in IEA projection. Difference between EIA and IEA increases with time through 2035 and presumably would continue to increase out to 2050.

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 9 GHG Subgroup’s comments (example items for the GHG category: Carbon/GHG, Other tail- pipe criteria pollutants): Future improvements in refinery efficiency and GHG are not included beyond Industry has long track record of improving energy efficiency and this is likely to continue in the future. Accounting for biofuel GHG is not straightforward. Well-to-wheel emissions not evaluated. Biofuel production-related GHG is included in refining (no details are provided). Ag-related emissions are not included. Shifting from pipeline to truck/rail/barge miles as new fuels are introduced will increase GHG No cost of carbon included. Non-highway demand and GHG continues to increase through outlook and will become an increasing fraction of transportation GHG.

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 10 Legislation Subgroup’s comments (example item for the Legislation category: Existing legislation and regulation): Regulations (RFS2, anti-backsliding, sulfur, marine sulfur) that will probably impact refining are not reflected Future competitiveness of US refining depends on GHG and renewable energy policy in US and other countries CAFE standards and other potential GHG legislation not included

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 11 Other materially significant areas not addressed Subgroup’s comments (example item for the Other category: Significant gaps (define significance), Other issues of material impact)

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 12 Base Case Assessment Summary of Top Findings Subgroup’s comments: Large uncertainty in out year projections Results are sensitive to price assumptions Transportation fuel demand is higher in EIA compared to IEA projection. Difference increases with time to AEO introduces a number of fuels that are currently not commercial or mandated Fuel supply and demand (gasoline/diesel ratio) may not match refining infrastructure. E85 volumes are quite optimistic due to lack of infrastructure and likely introduction of E15 Limitations in distribution infrastructure when introducing new fuels is not fully recognized. Future improvements in refinery efficiency and GHG are not included beyond CAFE standards beyond 2016, cost of carbon or other potential GHG legislation not included

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Backup – Linked Slides

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 15 CO2 EOR Conventional + Other EOR Lower 48 Onshore Oil Production (million barrels per day)

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Refinery Energy Consumption (tons CO2)

10/12/2010 DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only U.S. Fuel Use Source: EIA Annual Energy Outlook 2010 Source: IEA 2009 EIAIEA