1. Presentation on Why the Use of Natural Gas in Transportation Applications will Encounter Environmental Opposition Unless Pre-use Methane Losses are Cut in Half – April 15, 2013 Sigmund Silber S. Silber & Associates ssilber1@Juno.com

2. Surprise! 2013 Draft EPA Greenhouse Gas Inventory seems to show that the Fugitive Emissions have either been cut in half or previously overestimated. But I am going to give my presentation anyway because the numbers are very volatile and the confidence intervals around the numbers are fairly wide. They could be revised upwards. Plus the industry perhaps should be taking some credit for the accomplishments. EPA may credit the improvement to NSPS

3. Organization of the Presentation Why methane losses are a problem Options for reducing methane losses One set of estimates for payback periods for investments to reduce methane losses (I think these are too optimistic) One environmental organization’s view of the decision tree producers should consider My conclusions

4. Advance Look at My Conclusions For natural gas use in transportation applications to expand rapidly, pre-use methane losses need to be reduced probably by 50% This can be done either profitably or at a minimum cost There may be opportunities for New Mexico Companies to build businesses which facilitate this regionally, in the U.S., and possibly World- wide

5. Qualifiers Relative to the Numbers in the Charts that I Present I am presenting other people’s data Some of the data is controversial I am presenting the implications of this data You can adjust the parameters to what you believe is more accurate and recalculate Being a former executive of a major mining company it is a bit uncomfortable for me to use EPA data but except for the payback chart, it seems reasonable and it is the data that you will be forced to contend with.

6. Global Warming Potential GWP I am not able to reconstruct the GWP of methane over 100 years being 25. I have seen estimates ranging from 19 to 33. The 25 is the current IPCC estimate. I suspect it is in the process of being increased. All estimates of GHG with short average lives are difficult to measure. I am more comfortable with half –lives than average lives and I think the half-life of methane is about 8 years. It decomposes due to a variety of reasons which are difficult to measure or model

7. The Problem: Pre-Use Methane Losses Essentially make it Impossible to Use Methane and Still Reduce GHG Remaining for Combustion Without Increasing GHG 25X.02 = 0.5 0.5 of conventional fuel 25X.03 = 0.75 0.25 of conventional fuel 25X.04 = 1.00 0.0 of conventional fuel The current EPA estimate of losses for shale gas is 3%. All papers I have read claim the losses are higher than 3%. Pre-use includes at the well, transportation, storage, and transfer to the vehicle. Obviously there is a lot of variation.

8. Tradeoff Between In-use C0 2 Gain and Pre-use Losses  GWP of Methane is 25 Times the GWP of Carbon Dioxide  Light Vehicle In Use Natural Gas Advantage is 25%  Heavy Duty in Use Natural Gas Advantage is 6%  Power Plant Natural Gas Advantage over Coal is 55% Source: Stephen W. Pacala et al. Feb 13, 2012

9. Years to Achieve Parity with Traditional Fuels (Assumes 3% Losses – Changes If you Assume 1.5% Losses ) Is breakeven point. Solid line is continual fleet use which is what I pay attention to, dashed line is service life of vehicle than return to traditional fuel, dotted line is single such e.g. rental car. Source for this and the next slide: Stephen W. Pacala et al. Feb 13, 2012

10. Years to Breakeven Based on Estimate of Pre-Use Losses In this analysis, gasoline vehicles need 1.5 % losses to breakeven immediately, heavy-duty diesel vehicles need 1% and power plants break even at 3 %. At 4%, power plants breakeven in 20 years. So natural gas is not an environmental panacea if pre-use losses remain high. “Number of Years” means looking ahead 100 years so this is a bit difficult to understand.

12. Prior Slide is EPA 2011 Estimate of Gross Methane Emissions; This is 2013 Draft Net Emissions by Year

13. From EPA 2013 Draft Greenhouse Gas Inventory

14. Options for Reducing Methane Pre- Use Losses Green completions: capture vented, leaked or otherwise wasted natural gas from wells as they are being stimulated (fracked) and readied for natural gas extraction. Plunger lift systems: remove blockages caused by liquids accumulation in older wells, in a way that captures methane. TEG dehydrator emission controls: reduce methane leakage from TEG dehydrators, which remove moisture from natural gas before it is transported, using additional equipment and process optimization. Desiccant dehydrators: nearly eliminate methane leakage during the process of removing moisture from natural gas, with the use of special water-absorbing salts. Dry seal systems mitigate methane leakage from centrifugal compressors which are used during natural gas processing and pipeline transportation with the use of more effective seals. Source of this and the subsequent slides is NRDC, National Resources Defense Council “Leaking Profits”, March 2012

15. Options for Reducing Methane Pre- Use Losses - 2 Improved compressor maintenance: controls leakage from reciprocating compressors, also used during natural gas processing and pipeline transportation, through timely rod packing replacements. Low-bleed or no-bleed pneumatic controllers: limit leakage from pneumatic controllers, which control gas pressure and flow, with the use of special reduced- leakage (“low-bleed” or “no-bleed”) systems. Pipeline maintenance and repair: allows for methane flowing through pipelines to be captured while problems in pipelines are fixed. Vapor recovery units: capture methane leaked from crude oil when it is stored in tanks. Leak monitoring and repair: detects and captures methane leaks, which are typically colorless and odorless, from numerous locations at an oil & gas facility, using advanced leak monitoring equipment and enhanced operational practices.

17. Note: If payback period is so short, why are these approaches not more readily embraced?

18. Figure 13: Green Completion Evaluation Flowchart Can methane be collected for local fuel use? Is gas sales pipeline infrastructure in place? Is well pressure sufficient to flow to a pipeline? Evaluate overall economics. Is a green completion profitable? Document economic infeasibility. Implement Green Completion Is additional compression economic? Yes No

19. Figure 15: Plunger Lift System Evaluation Flowchart Does liquid loading in the gas well impede the gas flow rate? Is well pressure and gas flow rate sufficient to power the plunger lift system? Evaluate overall economics. Is a plunger lift system profitable? Document economic infeasibility. Install Plunger Lift System Plunger lift system is not necessary. Document technical infeasibility. Yes No

20. Yes

21. Figure 19: Desiccant Dehydrator Evaluation Flowchart Is the gas flow rate less than 5 MMcfd and wellhead temperature less than 70 F? Evaluate TEG glycol dehydrator units and TEG glycol emission control technology Evaluate overall economics. Is a desiccant dehydrator profitable? Install Desiccant Dehydrator No Yes

22. Figure 22: Wet to Dry Compressor Seal Evaluation Flowchart Inventory number of compressors with wet seals Implement Dry Seal Conversion Document technical and/or economic infeasibility. Determine the technical feasibility of converting to dry seals. Is it technically feasible? Use a high-flow sampler, or equivalent system to estimate methane leakage to confirm methane reduction target opportunity Evaluate economics. Is conversion to dry seals profitable? Yes No

23. Establish rod packing leak rate for new rod packing. Determine the leak rate threshold where it is profitable to replace the rod packing. Monitor the leak rate to determine the optimal rod packing replacement timing. Replace Worn Rod Packing Figure 24: Rod Packing Replacement Evaluation Flowchart

24. Figure 27: Pneumatic Controller Evaluation Flowchart Evaluate the technical feasibility of replacing the high-bleed controller with a bleed reduction kit. Is it technically and economically feasible? Inventory high-bleed pneumatic controllers and estimate methane release rate per controller. Evaluate the technical feasibility of replacing the high-bleed device with a low-bleed controller of instrument air. Is it technically and economically feasible? Replace or Retrofit Controller Perform routine maintenance to repair leaking gaskets, tube fittings and seals Yes No

25. Figure 30: Pipeline Maintenance and Repair Evaluation Flow chart Will pipeline maintenance and repair work require methane gas to be vented to atmosphere? Document technical and/or economic infeasibility Is a hot tap technically feasible, safe and profitable? Perform Hot Tap Procedure Can the pipeline be de- pressured into a low pressure fuel system? Is a pipeline pump- down technique feasible, safe, and profitable ? De-pressure LP Fuel System Use Pipeline Pump-down Method Yes No

26. Figure 33: Vapor Recovery Unit Evaluation Flowchart Identify possible vapor recovery locations Implement Vapor Recovery Document technical and/or economic infeasibility Qualify the vapor loss and determine the gross value of gas Evaluate technical options for vapor recovery, such as venturi jet ejectors, vapor jets, or rotary vane, screw or scroll type compressors Evaluate economics. Is tank vapor recovery profitable? Can separator pressure be optimized to reduce tank vapor loss? Yes No

27. Figure 37: Leak Monitoring and Repair Evaluation Flowchart Complete a leak detection survey Document technical and/or economic infeasibility Identify leaking components and develop a repair plan. Is the repair plan profitable? Repair or Replace Leaking EquipmentDo the leaks pose a safety, health, environmental or operation concern? Re-evaluate technical and economic feasibility at next survey No Yes

28. Conclusions For natural gas use in transportation applications to expand rapidly, pre-use methane losses need to be reduced probably by 50% (we may be there already based on new data) This can be done either profitably or at a minimum cost There may be opportunities for New Mexico Companies to build businesses which facilitate this regionally, in the U.S., and possibly World- wide