1. Operations Conference
May 22, 2015
Climate Change & Emission Reductions: Risks and Opportunities for Natural Gas
Bringing it Home

2. Pipeline Safety Initiatives are Driving Natural Gas Emissions Down
Safe and Reliable Gas Delivery is Core Business of Natural Gas Utilities
Pipeline Safety Initiatives are Driving Natural Gas Emissions Down
EPA Seeking Reductions in CO2 and Methane
AGA: Focused on Data Driven Decisions & Practical Solutions
[First – make points]
Long day – and some of us may be sagging after all the fun we had last night - get you up and moving and learn who is in the room
Straw poll
First, do I have any press in the room?
Raise your hand if you have responsibility over environmental compliance or policy.
– Now, who believes our climate is changing or at least might be changing ? – raise your hands
Ok – stand up if you think carbon dioxide and methane emissions from human activities are contributing?
And of those who aren’t sure, or who definitely think there is no global warming or climate change going on – i.e. if you are still sitting down – raise your hand if you think political pressures could require our industry to reduce the amount of methane emitted from natural gas production, transmission and distribution systems?

3. I. Methane Context - Why methane reductions?
Baseline – How much do we emit?
Reductions – Voluntary or Rule?

4. Context: Natural gas systems represent a small share of annual GHGs
Even though methane emissions from the natural gas value chain are a relatively small part of the pie, this is still important to address because it affects the perceived value of our product: natural gas. (Dr. Ramon Alvarez study – 3.2%, 1.4%, 1%) So it is important to get the facts straight. AGA has been advocating for fact based decisions, and we are working to get the facts through peer-reviewed, scientifically sound studies.
The U.S. natural gas system is comprised of thousands of well and drilling rigs, well completion equipment, numerous processing facilities, trillions of cubic feet of underground storage capacity, millions of meters, and an extensive transmission and distribution network comprised of 2.4 million miles of pipeline.
EPA categorizes the natural gas system into four distinct stages: production, processing, transmission and storage, and distribution. Methane and, to a lesser extent, CO2 are two the principal emissions related to the operation of natural gas systems.
Methane emissions from natural gas systems represent the second largest source category for methane in the United States, constituting 23 percent of all methane released. In 2012, natural gas system methane emissions equaled 130 MMTe or 2.0 percent of total U.S. greenhouse gases.
Source: Inventory of U.S. Greenhouse Gas Emissions and Sinks , Environmental Protection Agency

5. Methane is the second largest contributor to greenhouse gas emissions after CO2. Major economic sectors that produce methane emissions are agricultural processes including livestock management and rice cultivation, and natural gas systems. Other major contributors include landfills, petroleum production, and coal mining. In 2012, methane emissions were 567 MMTe and accounted for 9 percent of all U.S. GHG emissions.

6. Technological advances, industry best practices, and infrastructure investment… add up to a declining emissions trend
Stage
1990
2005
2007
2008
2009
2010
2011
Field Production
60.8
75.5
83.1
76.4
61.9
57.2
53.4
Processing
17.9
14.2
15.2
15.9
17.5
16.5
19.6
Transmission and Storage
49.2
39.5
40.8
41.2
42.4
41.6
43.8
Distribution
33.4
29.8
29.3
29.9
28.9
28.3
27.9
Total
161.2
159.0
168.4
163.4
150.7
143.6
144.7
EPA Estimates of Natural Gas System Methane Emissions Show a Continued Decline Source: Inventory of U.S. Greenhouse Gas Emissions and Sinks , Environmental Protection Agency

7. Emissions Have Declined Even as Pipeline Miles Have Grown
Source: AGA Analysis based on Department of Transportation data and EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks

8. Baseline Emissions
How much to we emit?
And why does it matter?

9. Natural Gas is a Climate Solution – But Do We Need to Reduce Emissions More?
2012 Study by Dr. Ramon Alvarez:
Switching to natural gas provides immediate climate benefits - IF methane emissions –
3.2 % - Power Plants – Coal to Nat Gas
1.4% - Light Duty Vehicles – Gasoline to Nat Gas
1% - Heavy Duty Vehicles
EPA Inventory: Methane already down to 1.2% of annual production… and we think it is actually lower

10. Emissions Leakage Rates
Only
0.24%
of produced natural gas is emitted from systems operated by natural gas utilities
Production
130 Bcf
0.41%
Processing
122 Bcf
0.38%
Transmission
& Storage
84 Bcf
0.27%
Approximately 1.2% of gross natural gas production is estimated to be emitted throughout the supply chain.
Distribution
66 Bcf
0.24%
Source: U.S. Department of Energy and U.S. Environmental Protection Agency

11. EPA Inventory
Annual Inventory of Greenhouse Gas Emissions in the U.S. (April 15, 2015) covers emissions
Emissions from entire natural gas value chain in 2013 = 1.2% of annual produced natural gas
Of this – only 0.24% of produced natural gas was emitted from distribution systems
Estimates are based on 20-year old emission factors for plastic pipe, cast iron, bare steel, etc.
Newer data show distribution system emissions are actually much lower than EPA estimates

12. Are EPA’s Numbers Too High? Yes
We think EPA’s Inventory numbers are too high – based on 20-year old emission factors
“Bottom-up” studies –
Measure emissions directly from specific sources
Multiply average measured emissions times number of widgets or miles of pipe to estimate overall emissions
Environmental Defense Fund (EDF) Methane Studies:
Production: Texas University (TU)- EDF Production study published Sept –
emissions from well completions much lower than EPA estimated
Partly offset by higher emissions from pneumatic valves
Net result somewhat lower than EPA Inventory estimate
Distribution: Washington State University (WSU) – EDF Multi-City Distribution Study – Distribution emissions up to 70% lower than EPA’s estimate

13. How much to we emit? Reconciling the Gap
“Bottom-up” Studies - Measure Measurements of Methane Flow Rates from Equipment –
Examples:
EPA Inventory based on GRI 1992 Study
Washington State University (WSU)-EDF March 2015 Study
Emissions 1.2 percent of annual production
“Top-Down” Studies - Measure Methane Concentrations in Atmosphere – from planes, towers, or cars
Harvard Boston Study Jan. 2015
EDF-Google Car Methane Mapping – Los Angeles May 2015
Claim Emissions 2-3 times larger than EPA Inventory (2-3% of annual production over value chain)

14. Top-Down/Bottom-Up Reconciliation

15. EDF COORDINATED STUDIES BY SUPPLY CHAIN SEGMENT
1. NOAA Denver-Julesberg
2. NOAA Barnett
3. Coordinated Campaign
4. UT Phase 1
7. CSU Study
8. CSU Study
11. WSU Multi-City
9. Methane Mapping
10. Boston Study
12. Indianapolis Study
13. WVU Study
5. UT Phase 2
6. HARC/EPA
Results public
Submitted, not yet public
Not yet submitted
14. Pilot Project
15. Gap Filling
16. Project Synthesis

16. Methane Reductions
Voluntary? Or
By Rule?

17. EPA Methane Rules & Programs
January White House announced path forward for reducing methane from on oil and gas:
Mandatory regulations for upstream and midstream sources –
Focusing on equipment evaluated in 2014 Technical White Papers:
New Source Performance Standards (NSPS)
Control Techniques Guidelines (CTG) for Existing Sources
Rule Schedule:
Proposal: Summer 2015
Final: Spring 2016
Distribution – Voluntary only
Expanded Voluntary Natural Gas STAR Program

18. EPA Voluntary Methane Program – Enhanced Gas STAR Proposal
EPA went back to drawing board after Gold Star proposal failed
Two alternative frameworks under consideration
Best Practices Approach
Percentage Reduction Approach
EPA likely to propose allowing companies to choose the approach they prefer – Proposal expected in June 2015
EPA to run Best Practices Approach:
Company would commit to apply at least one “Best Practice” across its operations (for gas utility – within any one state) – by 2025
E.g. replace x percent of cast iron pipe by 2025
Early Actors Rewarded – e.g. qualify immediately if already replaced all or most cast iron or unprotected steel main

19. EPA Voluntary Program – Enhanced Gas STAR Proposal
“One Future” Would Run Percentage Reduction Approach:
Consortium of companies working to reduce emissions from value chain by 30% - from 1.2 Percent to 1 Percent or less of annual production – Goal for Distribution Sector would be about 0.2% of throughput
Two options likely within this second approach:
By 2025, reduce company’s emissions intensity to the goal for the sector – e.g. 0.2% of a distribution company’s throughput. OR
By 2025, reduce company’s emissions intensity by 30 percent from the company’s current baseline (e.g. if 0.4% currently, reduce to 0.28% of annual throughput)

20. II. C02 Reductions EPA Rules for Power Plants New & Existing
NSPS for New Power Plants
111(d) Rule for Existing Plants

21. EPA Rule for New Power Plants
Final Rule this summer
Authority: Clean Air Act section 111(b)
New Source Performance Standard (NSPS)
Based on performance of Natural Gas Combined Cycle

22. Existing Power Plant Rule
Authority: Clean Air Act section 111(d)
When EPA issues NSPS for a pollutant not covered by National Ambient Air Quality Standards, State Implementation Plans (SIPs) or other provisions for existing sources –
Section 111(d): EPA to develop Guidelines for State Plans – Similar to SIP process- using the “best system of emission reduction” (BSER)

23. Existing Power Plant Rule
June 18, 2014 Proposed Rule
would establish emission reduction goals for each state based on the “best system of emission reduction” (BSER) considering costs and other factors
Goals set based on four “building blocks”
Increasing the thermal efficiency of coal fired power plants by 6%
Increase level of use (dispatch) of existing natural gas combined cycle (NGCC) plants
Increase the market penetration of zero-carbon electricity sources – renewables & nuclear)
Reduce growth in electricity demand through end use energy efficiency programs

24. Existing Power Plant Rule
Important: EPA proposed to allow states flexibility to achieve goals
Not limited to the four building blocks
So can use e.g. Natural Gas Combined Heat and Power (CHP) or
Replacing electric water heaters with Natural Gas – Direct Use

25. EPA Proposed 111(d) CO2 Rule for Existing Power Plants
AGA did not comment on how to set the state emission reduction goals
AGA has advocated for flexible compliance options:
Natural gas not just for power plants
Reduce cost by looking outside the fence for compliance:
Demand side management
Renewable Energy, and yes…
Natural Gas for homes and businesses
Natural gas used for direct thermal load
heating water and space
Cuts net CO2 emissions by 50% on average
AGA developing “Tool Kit” to help members show states how to use natural gas Combined Heat and Power (CHP) and “Direct Use” to reduce emissions from existing power plants

26. CONCLUSION
AGA is navigating the risks and opportunities of climate policy for its members –
Seeking recognition for the strong environmental value of natural gas as a foundation for a clean energy economy.

27. Find Us Online Pamela A. Lacey Senior Managing Counsel, Environment
Find Us Online