1. EPA Methane Regulations Details on the Final Rules and Summary of Impacts May 16, 2016 Producer: Claire Carter Edited by: Afzal Bari Director: Afzal Bari

2. METHANE REGULATIONS First Ever Standard for Methane Emissions Targets Oil and Natural Gas Industries Breakdown of EPA’s Methane Regulations Moving Forward This rule is part of the Obama’s Administrations climate change initiative and specifically a goal to reduce methane emissions by 40-45% from 2012 to 2025 The forthcoming rule for regulations on existing oil and natural gas wells will not be implemented in the current administration, so the next administration will determine the extent to which it is implemented The industry is not satisfied with the regulations and has pointed out that it is in the industry’s best interest to not leak methane—as natural gas consists primarily of methane Natural gas has served as a bridge fuel, replacing in large quantities the demand for coal while prices for renewables decrease and the industry says they are being regulated too harshly for the emissions they have helped reduce by replacing coal May 12, 2016 | Claire Carter Sources: Jack Fitzpatrick, “EPA Releases Landmark Methane Regulations for New Oil and Gas Sources,” Morning Consult, May 12, 2016; EPA, “Updates to New Source Performance Standards”, May 12, 2016; NounProject, Arthur Shlain, Jason Dilworth. Amended New Source Performance Standards Must monitor new and modified oil and natural gas wells for methane emissions, under the new final rule A reduction of 11 million metric tons of carbon dioxide equivalent emissions by 2025 is anticipated by the agency Inspections and Exemptions Inspections will occur quarterly for compressor stations and semi-annually for well sites which was an increase from the proposed rule Initially, there were to be exemptions for low producing well sites, but the final rule left no exemptions from regulations for any well sites Information Requests for Further Regulations The agency has a forthcoming rule on existing facilities and has begin its information gathering process, which will be formally requested in the fall and finalized several months later 1

3. Methane Regulations Apply to Sources Already Monitored and Adds Additional Standards METHANE REGULATIONS 2 May 16, 2016 | Claire Carter Sources Monitored, Classified by Previous Existence in Regulations Sources: Environmental Protection Agency, “Regulatory Impact Analysis of the Final Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” May 2016; Environmental Protection Agency, “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources- Final Rule,” May 12, 2016.

4. Processing, Compressor, and Boosting Stations All Included in Regulation Expansion METHANE REGULATIONS 3 May 16, 2016 | Claire Carter Sources Monitored, Classified by Previous Existence in Regulations Sources: Environmental Protection Agency, “Regulatory Impact Analysis of the Final Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” May 2016; Environmental Protection Agency, “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources- Final Rule,” May 12, 2016.

5. Recovery of 27 Billion Cubic Feet of Salable Natural Gas Possible After Meeting Compliant Standards METHANE REGULATIONS May 16, 2016 | Claire Carter VariableEPA Estimate of Extent of Impact Air ImpactIn 2020, methane emissions would fall about 300,000 tons and volatile organic compound (VOC) emissions would reduce by 150,000 tons Emissions decrease further with estimated reductions increasing to 510,000 tons of methane and 210,000 tons of VOC’s by 2025 Energy Impact (from emission control devices) The rule would encourage technology development to recover hydrocarbon products, like methane Recovery of hydrocarbon occurs onsite as fuel or can be reprocessed within the production process for sale Total cost to industry of $320 million in 2020 and $530 million in 2035 which includes all capital, operating, maintenance, monitoring, reporting, and recordkeeping costs Compliance CostsTotal capital costs for compliance total $250 million in 2020 and $360 million in 2025 Annualized engineering costs total $390 million in 2020 and $640 million in 2025 to the industry Does not include the recovery of 27 billion cubic feet of salable natural gas in 2025 from implementing the practices Employment ImpactsUpfront labor requirements of 270 full time jobs nationwide Annual labor requirement to meet compliance levels would be 1,100 full time jobs in 2020 and 1,800 full time jobs in 2025 nationwide Various Factors and Potential Impacts Due to Rule Sources: Environmental Protection Agency, “Regulatory Impact Analysis of the Final Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” May 2016; Environmental Protection Agency, “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources- Final Rule,” May 12, 2016. 4

6. EPA Forecasts Natural Gas Wellhead Prices Will Rise Despite Regulations METHANE REGULATIONS May 16, 2016 | Claire Carter Sources: Environmental Protection Agency, “Regulatory Impact Analysis of the Final Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” May 2016; Environmental Protection Agency, “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources- Final Rule,” May 12, 2016. Economic Impact From Amended Rule Percent Change of Natural Gas Production and Prices over 2020-2025 Period ■ Net Imports Natural Gas ■ Natural Gas Wellhead Prices ■ Natural Gas Production ■ Natural Gas Drilling Levels Crude oil impacts were not affected as much by the changes with EPA estimating a 0.2% decrease in crude oil drilling levels from 2020 to 2025 Drilling levels are forecast to be decreasing by 2025 but production will decrease at a much slower rate than the physical drilling 5

7. Net Benefits Increase Over 5 Years Despite Increase in Total Costs METHANE REGULATIONS May 16, 2016 | Claire Carter Variable2020 Benefits2025 Benefits Total Monetized Benefits $420 million$840 million Total Costs$490 million$880 million Net Benefits- $75 million-$38 million Reduced Health Effects 160,000-ton reduction in VOCs released, which would lead to decreased exposure to ozone and to fine particles 2,400-ton reduction in Hazardous Air Pollutants (HAP) 350,000 ton reduction in methane released, which would lead to decreased ozone exposure 230,000-ton reduction in VOCs released, which would lead to reduced decreased exposure to ozone and to fine particles 5,000-ton reduction in HAP exposure 610,000-ton reduction in methane released, which would lead to decreased ozone exposure Non-monetized Benefits Visibility impairment, vegetation effects, non- monetized climate benefits Summary of EPA Net Benefits for Final Rule in 2020 and 2025 Sources: Environmental Protection Agency, “Regulatory Impact Analysis of the Final Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” May 2016; Environmental Protection Agency, “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources- Final Rule,” May 12, 2016. Discussion Particulate matter smaller than 2.5 micrometers in diameter, known as fine particles or PM 2.5, tend to pose the greatest health risks Hazardous Air Pollutants lead to a variety of health concerns such as cancer and non-cancer illnesses VOC’s are the precursors to ozone formation and exposure to ozone can have a number of health impacts such as respiratory impacts like difficulty breathing and airway inflammation in humans and reduced growth in plant species. 6