MEMORANDUM

To: Docket # EPA-HQ-OAR-2011-0512

From: Alexis McKittrick and Mark DeFigueiredo, EPA/CCD

Date: February 20, 2014

Subject: Review for Potential Disclosure Concer ns for Proposed New Inputs to Emission Equations in the Proposed “Revisions a nd Confidentiality Determinations for Petroleum and Natural Gas Systems”

In the proposed rulemaking titled “Revisions an d Confidentiality Determinations for Petroleum and Natural Gas Systems” (referred to hereaf ter as the Subpart W 2014 Proposed Amendments), the EPA is proposing a number of changes to the subpart W reporting requirements, including the addition of several new data elements. Th ese proposed new data elements include data elements that are the actual values used to calculate GHG emissions. As explained in the preamble to the proposed rule, we assigned thes e proposed new inputs to the Inputs to Emission Equations data category and evalua ted potential disclosure concerns for these data elements. We followed the same steps set forth in a supporting memorandum 1 accompanying the rule deferring the reporting of inputs to emission equations. 2 These steps are the following:

 Step 1: Determine whether each input is already publicly available.

 Step 2: For inputs that are not publicly available, evaluate whether release of the information is likely to result in substantial competitive harm.

 Step 3: For inputs that are likely to cause substantial competitive harm if disclosed, evaluate potential alternative calcu lation methods.

 Step 4: For inputs that are likely to cause substantial competitive harm if disclosed, evaluate potential alternative verification methods.

The purpose of this memorandum is to document this evaluation. The lis t of the proposed new inputs to emissions equations are provided in Appendix A.

1 See memorandum titled “Process for Evaluating and Potentia lly Amending Part 98 Input s to Emission Equations,” Docket ID EPA-HQ-OAR-2010-0929.

2 See rulemaking, 76 FR 53057, August 25, 2011, titled “Change to the Reporting Date for Certain Data Elements Required Under the Mandatory Reporting of Greenhouse Gases Rule.”2

Evaluation of the Proposed Subpart W Inputs

Step 1: Public Availability In the first step, we conducted a literature search to identify publicly available data that are identical to the proposed ne w inputs. Data sources revi ewed included the following:

 Department of Energy, Energy Information Administration - www.eia.gov

 Department of Energy, Federal Energy Regulatory Commission – www.ferc.gov

 Department of Transportation, Pipeline and Hazardous Materials Sa fety Administration: Data and Statistics - www.phmsa.dot.gov

 American Petroleum Institute: Industry Statistics - www.api.org/statistics

 American Gas Association - www.aga.org

 Railroad Commission of Texas - www.rrc.state.tx.us/data/index.php

Public data identified during our literature search were evaluate d on whether they were the same as the proposed inputs by considering the number of reporters represented by the data, the age of the data, and frequency of availability. Although we were able to locate some data that were similar to some of the proposed inputs, we were unable to locate any public sources of data that are exactly the same as the proposed new inputs, reported by the same reporters, and available on a recurring basis. As a result, the EPA proceeded to Step 2 of the evaluation.

Step 2: Review for Potential Disclosure Concerns In Step 2, we examined both the market struct ure for each industry sector affected by the proposal 3 and the proposed new inputs to determine whether disclosure c oncerns existed. We focused on the market structure of each industry sector because the structure of the market in which a reporter does business has a significant impact on the ability of a competitor to use the reported information to gain competitive advantage. Typically, economists use market concentration to assess market conditions and use tools such as the Herfindahl-Hirshchman Index to assess market concentration. Howeve r, Herfindahl-Hirshman Index values are not available for the petroleum and natural gas sector s. As a result, the EPA conducted a qualitative analysis of the market structur e for each of the affected indus try sectors and assessed potential concerns for each industry sector. The results of our analysis for each sector are summarized below.

Onshore Petroleum and Natural Gas Production Sector. The onshore petroleum and natural gas production segment covers emissions related to onshore production wellheads. The market structure for petroleum and natural gas was considered separately for this segment. Onshore petroleum production is a regionally concen trated market, with wells located in fixed

3 The offshore petroleum and natural gas production sector would not be affected by the proposed amendments.3

geological formations. Decisions on where to drill wells may be based on proprietary information during the early development of a form ation when lease prices have not stabilized and operators are taking risks by drilling explorations wells in formations that do not have proven production records. After se veral wells have been drilled in an area, information about production becomes publicly available and any ea rly advantage gained by the operator drilling exploration wells dissipates. Once a well has b een drilled, decisions to produce are based on market prices and the ability to control flow from the well. Although this could pose a potential data sensitivity with respect to exploration wells, such a concern is ameliorated by the fact that onshore production data are reported at a sub- basin level, as defined by county boundaries, which is a scale that is large enough that disclo sure of the data collec ted under subpart W would not be likely to reveal any propr ietary information about the faci lity or cost to do business.

The onshore natural gas production market overlap s many of the geological formations of petroleum production. Furthermore, the market itself is structured the same, with a large number of operators within each formation. Like onshor e oil production, disclosu re of data for onshore natural gas production at the sub-basin level woul d not be likely to reveal any proprietary information about the facility or cost to do business.

Natural Gas Processing Sector. Natural gas processors are regionally located close to production wellheads. The market itself is large, with roughly 500 firms. These firms are located in close proximity to given natural gas plays. We do believe that this regional concentration would not pose data sensitivity concerns, because th e “inputs to equations” data elements in this segment would not be likely to reveal any proprietary informati on about the facility, cost of natural gas, or cost to do business.

Natural Gas Transmission Compression Sector. Natural gas transmission compression operators transport natural gas fr om processors to end users. Fi rms are regionally concentrated, having control over particular segments of the pipeline infrastructure. Although the number of firms and the regional concentration could pose data sensitivity issues, we do not believe this is an issue for three reasons: (1) existing pipe line construction and na tural gas transmission technology and operations development informati on is generally well-known and understood; technological innovation is mainly in the area of pipeline secu rity; (2) the rate charged for transport is highly regulated, preventing use of the data for strategic price competition; and (3) once pipeline and compression are built in a given corridor, there is little incentive for a competitor to build additional pipeline and compression along the same route. As a result, the “inputs to equations” data elements in this segmen t would not be likely to reveal any proprietary information about the facility or cost to do business.

Natural Gas Distribution. Natural gas distributers own a nd operate the distribution mains and services and function as the middle man be tween transmission lines and end-users. This4

market is regionally located with distributers having exclusive access to specific cities and other localities. Both publicly- and pr ivately-owned companies are highl y regulated, unable to charge market based rates for service. The regulation by government and the monopoly rights distributors hold over given regions prevents comp etitors’ use of the data for strategic purposes. As a result, the “inputs to equations” data elements in this segment would not be likely to reveal any proprietary information about the facility or cost to do business.

Underground Natural Gas Storage. Underground natural gas storage is used to smooth out volatility in consumption and us e of natural gas. The market is regional; facilities are located either near major distribution centers or near o il and gas fields. Even with the regional market structure, competitors are not known to engage in strategic competiti on in building storage facilities. First, facilities are built in response to other upstream factors, such as increased gas supply coming to distributors, not to undermine other competitors. Second, storage firms are constrained by the geographical and geological requirements needed for underground storage, preventing firms from moving in and increasing their market share. Finally, storage technology is widely known and not used to garner a comp etitive advantage. As a result, the “inputs to equations” data elements in this segment woul d not be likely to reveal any proprietary information about the facility or cost to do business.

Liquefied Natural Gas Storage Sector. Liquefied natural gas (LNG) storage operates much the same as underground natural gas storage, with storage used to smooth volatility related to consumption. The small size of the LNG storag e market could create the possibilities for disruptive competitive undercutting; however, in this case, we believe that this is unlikely for the following two reasons: First, LNG storage is pr imarily owned by highly regulated distributors, preventing competitive firms from undercutting the market. Second, LNG storage occurs in response to increase supply upstr eam or decreased demand downstream and is not responsive to cost advantages. As a result, the “inputs to equati ons” data elements in this segment would not be likely to reveal any proprietary information a bout the facility or co st to do business.

Liquefied Natural Gas Import/Export Sector. Currently the U.S. has only 12 LNG import terminals and one LNG export terminal. There are nine onshore import terminals and three offshore import terminals. LNG technology is not proprietary. The technology is relatively simple and has been available for many years. The market is regional and small with import terminals located along the Gulf and East coasts . Although there are a small number of facilities that import and/or export LNG, they may be view ed as a part of the la rger natural gas supply sector that is a much larger market. The pr oduct delivered or consumed by LNG Import/Export is identical to the product generated in onshore a nd offshore natural gas production. Functionally, Import and Export terminals may be considered as a large producer or consumer of natural gas. Import and Export terminals are generally located in regions of supply rest rictions or excess to maximize price margins. However, the trading prices of natural gas are pub licly available and the5

building of new import and export terminals is limited by capital and permitting, not by market structure. Release of information about import/ex port terminals would not be likely to change the operations of other firms in the market. As a resu lt, the “inputs to equations” data elements in this segment would not be likely to reveal any pr oprietary information about the facility or cost to do business.

Step 3 and Step 4 In light of the above analysis for Steps 1 and 2, the EPA did not proceed to further evaluate the proposed “inputs to equations” data elemen ts in subpart W under Steps 3 and 4.Appendix A: List of Proposed Ne w Inputs to Emission Equations

Rule Citation Proposed Data Element Natural Gas Pneumatic Device Venting §98.236(b)(2) Estimated average number of hours in the calendar year that the natural gas pneumatic devices reported in para graph (b)(1)(i) of th is section were operating in the calendar year. Natural Gas Pneumatic Pump Venting §98.236(c)(2) Average estimated number of hours in the calendar year the pumps were operational.

Acid Gas Removal §98.236(d)(1)(ii) Total feed rate entering the acid ga s removal unit, using a meter or engineering estimate based on process knowledge or best available data, in million cubic feet per year. §98.236(d)(2)(i)(B) Annual volume of gas vented from the acid gas removal unit, in cubic feet. §98.236(d)(2)(iii)(B) For each unit for which Calculation Methodology 4 in §98.233(d) is used, the natural gas feed temperature (degrees F). §98.236(d)(2)(iii)(C) For each unit for which Calculation Methodology 4 in §98.233(d) is used, the natural gas feed pressure, in pounds per square inch. §98.236(d)(2)(iii)(D) For each unit for which Calculation Methodology 4 in §98.233(d) is used, the natural gas flow rate, in st andard cubic feet per minute. §98.236(d)(2)(iii)(E) For each unit for which Calculation Methodology 4 in §98.233(d) is used, the acid gas content of the feed natural gas, in mole percent. §98.236(d)(2)(iii)(F) For each unit for which Calculation Methodology 4 in §98.233(d) is used, the acid gas content of the outlet natural gas, in mole percent. §98.236(d)(2)(iii)(G) For each unit for which Calculation Methodology 4 in §98.233(d) is used, report the unit operating hours, exclud ing downtime for maintenance or standby, in hours per year. §98.236(d)(2)(iii)(H) For each unit for which Calculation Methodology 4 in §98.233(d) is used, the exit temperature of the natural gas, in degrees Fahrenheit. §98.236(d)(2)(iii)(I) For each unit for which Calculation Methodology 4 in §98.233(d) is used, solvent pressure, in pounds per square inch. §98.236(d)(2)(iii)(J) For each unit for which Calculation Methodology 4 in §98.233(d) is used, solvent temperature, in degrees Fahrenheit. §98.236(d)(2)(iii)(K) For each unit for which Calculation Methodology 4 in §98.233(d) is used, solvent circulation rate, in gallons per minute).7

Appendix A: List of Proposed Ne w Inputs to Emission Equations

Rule Citation Proposed Data Element §98.236(d)(2)(iii)(L) For each unit for which Calculation Methodology 4 in §98.233(d) is used, solvent weight, in pounds per gallon. Dehydrators §98.236(e)(1)(iii) Dehydrator feed natural gas water cont ent, in pounds per million standard cubic feet. §98.236(e)(1)(iv) Dehydrator outlet natural gas wate r content, in pounds per million standard cubic feet. §98.236(e)(1)(vi) Dehydrator absorbant circulation rate (gal/min). Well Venting for Liquids Unloading §98.236(f)(1)(vi) Cumulative amount of time wells were vented (sum of “T p ” from Equation W-7A or W-7B of this subpart) in hours. Completions and Workovers with Hydraulic Fracturing §98.236(g)(6) If you used Equation W-10B to calcu late annual volumetric total gas emissions for completions that vent gas to the atmosphere, then you must report the vented natural gas volume, in standard cubic feet, for each well in the sub-basin. Onshore Production Storage Tanks §98.236(j)(2)(ii)(B) The number of at mospheric tanks in the sub- basin that did not control emissions with flares. Transmission Storage Tanks §98.236(k)(2)(ii) Measured leak rate (average l eak rate from a continuous flow measurement device) in sta ndard cubic feet per hour. §98.236(k)(2)(iii) Duration of time that venting o ccurred in hours (may use best available data if a continuous flow m easurement device was used). §98.236(k)(3)(ii) Measured leakage rate (average l eak rate from a continuous flow measurement device) in sta ndard cubic feet per hour. §98.236(k)(3)(iii) Duration of time that flaring occurred in hours (may use best available data if a continuous flow m easurement device was used). §98.236(n)(7) Mole fraction of CH 4 in the feed gas to the flare. §98.236(n)(8) Mole fraction of CO 2 in the feed gas to the flare. §98.236(o)(3)(i)(D) If the measurement methods specified in paragraphs §98.233(o)(2) or (o)(4) are conducted: For each as found leak measurement performed on an emission vent, report the measured fl ow rate, in standard cubic feet per hour.8

Appendix A: List of Proposed Ne w Inputs to Emission Equations

Rule Citation Proposed Data Element §98.236(o)(3)(ii)(B) The compressor mode-source co mbination reporter emission factor, in standard cubic feet per hour. §98.236(o)(3)(ii)(C) The total number of compre ssors measured in the compressor modesource combination in the current re porting year and the preceding two reporting years. §98.236(o)(4)(ii) Continuous leak measurement da ta. If the measurement methods specified in paragraphs §98.233(o)(3) or (o)(5) are conducted, report the measured volume of flow during the reporting year, in million standard cubic feet. §98.236(o)(5)(i) Centrifugal compressors with wet seal degassing vents in onshore petroleum and natural gas production must report the number of centrifugal compressors that have wet seal oil degassing vents §98.236(p)(3)(ii)(B) For each compressor mode-source combination where a reporter emission factor as calculated in Equation W-28 was used to calculate emissions in Equation W-27, report the compressor mode-source combination reporter emission factor, in standard cubic feet per hour (EF m,s in Equation W-28). §98.236(p)(3)(ii)(C) For each compressor mode-source combination where a reporter emission factor as calculated in Equation W-28 was used to calculate emissions in Equation W-27, report the total number of compressors measured in the compressor mode-source combination in the current reporting year and the preceding two reporting years (Count m in Equation W-28). §98.236(p)(4)(ii) If the measurement methods specified in paragraphs §98.233(p)(3) or (p)(5) are conducted, repo rt the measured volume of flow during the reporting year, in million standard cubic feet. Equipment Leaks by Population Counts §98.236(r)(1)(iii) Average estimated time that the emission source type was in operation in the calendar year, in hours. Enhanced Oil Recovery (EOR) Injection Pump Blowdown §98.236(w)(4) Total volume of EOR injection pump system equipment chambers, in cubic feet. §98.236(w)(7) Mass fraction of CO 2 in critical phase EOR injection gas. Natural Gas Processing §98.236(aa)(3)(vi) For natural gas processing, the average mole fraction of CH 4 in produced gas received. §98.236(aa)(3)(vi) For natural gas processing, the average mole fraction of CO 2 in produced gas received.