# Regulatory Impact Analysis: Emission Standards for New and Modified Sources in the Oil and Natural Gas Sector

Interagency Review Briefing July 2, 2015Deliberative - Do Not Cite or Quote 

# Overview ► 

## Preliminaries ► 

## Emissions reductions ► 

### Methane ► 

### Volatile Organic Compounds (VOC) ► 

### Hazardous Air Pollutants (HAP) ► 

## Engineering cost analysis ► 

## Benefits analysis ► 

### Climate ► 

### Health and Welfare ► 

## E conomic impacts analyses ► 

## Energy system impacts ► 

## Labor impacts

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# Scope of Coverage – 2012 NSPS vs. 2015 Proposal

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### Emission Source 2012 NSPS (VOC) 2015 NSPS Proposal (GHG/Methane and VOC) Compressors through gas processing, 

### excluding well site compressors across the source category, excluding 

### well site compressors Pneumatic Controllers well sites through gas processing across the source category Pneumatic Pumps not covered across the source category Well Completions hydraulically fractured gas wells hydraulically fractured gas wells and hydraulically fractured oil wells Equipment Leaks natural gas processing plants natural gas processing plants, well sites, and compressor stations Liquids Unloading not covered not covered Notes: 1 ”Across the category” means the production, processing and transmission/storage segments. 2 We are not proposing any additional requirements for emission sources addressed under the 2012 NSPS.Deliberative - Do Not Cite or Quote 

### ► 

## Analytical years ► 

### 2020 • Assumed to represent the first year the full suite of proposed standards is in effect 

### • Represents a single year of potential impacts ► 

### 2025: • I llustrates how new sources accumulate over time under the proposed NSPS 

### ► 

## Baseline ► 

### Impacts incremental to 2012 NSPS ► 

### State rules accounted for where possible ► 

### Limited information on voluntary action in baselin e ► 

### AEO 2014 is used to estimate future activities ► 

## 2012 dollar year ► 

## Discount rates: ► 

### Costs: estimates based on 3 and 7 percent ► 

### Benefits: climate benefits presented using multiple discount rates ► 

## N umbers in presentation rounded to two or three significant digits ► 

## Three NSPS Options Analyzed in RIA (details on next page) 

# Preliminaries

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# Regulatory Options Analyzed in RIA

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Sources Controls Option 1 Option 2 (proposed) Option 3 Well Completions Hydraulically Fractured Development Oil Wells REC or Combustion Combustion REC/ Com
bustion REC/ Com
bustion Hydraulically Fractured Wildcat and Delineation Oil Wells Combustion X X X Fugitive Emissions Well Pads Monitoring and Maintenance Annual Semiannual Quarterly Gathering and Boosting Stations Monitoring and Maintenance Annual Semiannual Quarterly Transmission Compressor Stations Monitoring and Maintenance Annual Semiannual Quarterly Pneumatic Pumps Well Pads Route to control X X X Gathering and Boosting Stations Route to control X X X Transmission and Storage Compressor Stations Route to control X X X Pneumatic Controllers Natural Gas Transmission and Storage Stations Emissions limit X X X Reciprocating Compressors Natural Gas Transmission and Storage Stations Annual Monitoring and Maintenance X X X Centrifugal Compressors Natural Gas Transmission and Storage Stations Route to control X X XDeliberative - Do Not Cite or Quote 

## Sources 

## Incrementally Affected Sources 

## 2020 2025* Hydraulically Fractured and 

## Re-fractured Oil Well Completions 15,000 15,000 Fugitive Emissions 22,000 140,000 Pneumatic Pumps 3,000 18,000 

## Compressors 68 410 Pneumatic Controllers 210 1,300 

## Total 40,000 180,000 

# No. of Incrementally Affected Facilities

6 * In addition to newly affected sources in 2025, incrementally affected sources in 2025 include sources that become affected in the 2020- 24 time period and are assumed to be in continued operation in 2025. These estimates are the same regardless of regulatory option analyzed in RIA. Totals may not sum due to independent rounding.Deliberative - Do Not Cite or Quote

Sources Emissions Reductions, 2020 Emissions Reductions, 2025

Methane (short tons) VOC

(short tons) HAP

(short tons) Methane

(metric tons CO 2 Eq.) Methane

(short tons) VOC

(short tons) HAP

(short tons) Methane

(metric tons CO 2 Eq.) Oil Well Completions 140,000 110,000 14 3,100,000 140,000 120,000 14 3,100,000 Fugitive Emissions 33,000 8,700 330 750,000 210,000 57,000 2,200 4,900,000 Pneumatic Pumps 5,400 1,500 57 120,000 32,000 9,000 340 740,000 Compressors 1,600 43 1 36,000 9,400 260 8 210,000 Pneumatic Controllers 590 16 0 13,000 3,500 97 3 80,000 Total 180,000 120,000 400 4,000,000 400,000 180,000 2,500 9,000,000 

# Emissions Reductions, Proposed NSPS

7 Note: totals may not sum due to independent rounding.Deliberative - Do Not Cite or Quote 

# Secondary Emissions, Proposed NSPS (short tons)

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## 2020 Sources CO 2 

### NOx PM CO THC Oil Well Completions 580,000 300 10 1,600 620 Fugitive Emissions minimal minimal Minimal minimal Minimal Pneumatic Pumps 24,000 12 0 66 25 Pneumatic Controllers 0 0 0 0 0 Compressors 550 0 0 2 1 Total 2020 610,000 310 10 1,700 640 

## 2025 Sources CO 2 

### NOx PM CO THC Oil Well Completions 610,000 310 11 1,700 640 Fugitive Emissions Minimal Minimal minimal Minimal Minimal Pneumatic Pumps 140,000 72 0 400 150 Pneumatic Controllers 0 0 0 0 0 Compressors 3,300 2 0 9 4 Total in 2025 750,000 380 11 2,100 790 Note: totals may not sum due to independent rounding.Deliberative - Do Not Cite or Quote ► 

### Many of the control options capture natural gas that would otherwise be flared or vented ► 

### Estimated recovery ► 8 billion cubic feet (bcf) in 2020 ► 19 billion cubic feet (bcf) in 2025 ► 

### We assume producers are paid $4/Mcf for recovered gas ► EIA’s AEO 2014 forecasted wellhead prices paid to lower 48 state producers to be $4.46/Mcf in 2020 and $5.06/Mcf in 2025. ► The $4/Mcf price assumed in this RIA is intended to reflect the AEO estimate but simultaneously be conservatively low. 

# Product Recovery from Proposed NSPS

9 Sources 

### 2020 2025

Gas recovery ( Mcf) Revenue from

recovery Gas recovery

(Mcf) Revenue from

recovery Oil Well Completions 6,200,000 $25,000,000 6,200,000 $25,000,000 Fugitive Emissions 1,900,000 $7,300,000 12,000,000 $47,000,000 Pneumatic Pumps 0 $0 0 $0 Compressors 76,000 $0 450,000 $0 Pneumatic Controllers 30,000 $0 180,000 $0 Total 8,200,000 $32,000,000 19,000,000 $72,000,000 Note: totals may not sum due to independent rounding.Deliberative - Do Not Cite or Quote 

# Capital and Annualized Engineering Costs, Proposed NSPS*

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Sources 

## 2020 2025
Capital Costs Nationwide

Annualized Costs Capital Costs Nationwide Annualized Costs Oil Well Completions $150,000,000 $120,000,000 $150,000,000 $120,000,000 Fugitive Emissions $8,400,000 $44,000,000 $53,000,000 $280,000,000 Pneumatic Pumps $5,900,000 $840,000 $36,000,000 $5,100,000 Compressors $540,000 $250,000 $3,200,000 $1,500,000 Pneumatic Controllers $48,000 $5,200 $290,000 $31,000 Reporting and Recordkeeping $0 $1,400,000 $0 $4,100,000 Total $160,000,000 $170,000,000 $240,000,000 $410,000,000 * Presented costs estimated using 7 percent discount rate. The choice of discount rate has a small effect on nationwide annualized costs. The compliance costs related to oil well completions and fugitive emissions surveys occur in each year, so the interest rate has little impact on annualized costs for these sources. The annualized costs for pneumatic pumps, compressors, and pneumatic controllers are sensitive to discount rate, but these constitute a relatively small part of the total compliance cost estimates for the proposal. Note: totals may not sum due to independent rounding.Deliberative - Do Not Cite or Quote 

# Climate, Health, and Welfare Benefits ► 

## Methane ► 

### Climate benefits from methane reductions (including ozone and stratospheric water vapor) (monetized in main BCA) ► 

### Health and welfare benefits from reductions in methane - related ozone precursor (long term) (not monetized) 

### ► 

## VOCs (not monetized) ► 

### PM 2.5 

### precursor – health, visibility ► 

### Ozone precursor – health, vegetation, climate ► 

## HAPs – health (not monetized) ► 

### Benzene ► 

### Toluene ► 

### Formaldehyde ► 

### Carbonyl sulfide ► 

### Ethyl benzene ► 

### Mixed xylenes

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# Climate Benefits from Methane Reductions ► 

### Estimated global social benefits of methane emission reductions using direct estimates of the social cost of methane (SC-CH 4

### ) ► SC-CH 4 estimates monetized value of impacts associated with marginal changes in methane emissions in a given year ► Used direct SC-CH 4 estimates developed by Marten, Kopits, et al. (2014), which are consistent with the U.S. government’s SC -CO2 estimates (e.g., same models and assumptions) ► 

### Direct estimates preferable to approach used in past sensitivity analyses ► Previous rulemakings used GWP -weighted estimates of SC-CO2 to approximate SC-CH 4 and presented results in sensitivity analysis ► GWP approach likely underestimates SC-CH 4 (e.g., Marten and Newbold (2012), Waldhoff et al. (2015))
• For example, misses important temporal and non - linear effects ► 

### EPA conducted letter review of applying the SC-CH 4 

### in regulatory analyses ► Charge focused on EPA’s interpretation of the limitations of the GWP approach to monetization of CH 4 emissions changes, appropriateness of SC-CH 4 estimates for regulatory analysis, consistency of estimates with U.S. Government’s SC -CO2 estimates ► Reviewed by three experts in climate change economics and integrated assessment modeling ► Reviews will be made public and included in rulemaking docket 12Deliberative - Do Not Cite or Quote 

# Climate Benefits from Methane Reductions ► 

## Conclusions from the letter review of applying the SC-CH 4 

## estimates in regulatory analyses ► 

### Reviewers found estimates to be consistent with the SC-CO2 estimates and that direct estimates are preferable to the GWP - based approach ► 

### Two reviewers concluded that use of the SC-CH 4 

### estimates is appropriate, provided that EPA discuss the limitations, similar to the discussion provided for SC-CO 2 

### and other economic analyses ► 

### All three reviewers encouraged continued improvements in the SC-CO 2 

### estimates and suggested that as those improvements are realized they should also be reflected in the SC-CH 4 

### estimates ► 

### One reviewer suggested that use of the SC-CH 4 

### estimates should lag this process ► 

## EPA is seeking comment on use of the SC-CH 4 

## estimates in the oil and gas benefits analysis

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# Social Cost of Methane Estimates

Year Social Cost of Methane (in 2012$ per metric ton)

5 Percent Average 3 Percent

Average 2.5 Percent

Average 3 Percent

95th percentile 2012 $430 $1,000 $1,400 $2,800 2015 $490 $1,100 $1,500 $3,000 

### 2020 $580 $1,300 $1,700 $3,500 2025 $700 $1,500 $1,900 $4,000 2030 $820 $1,700 $2,200 $4,500 2035 $970 $1,900 $2,500 $5,300 2040 $1,100 $2,200 $2,800 $5,900 2045 $1,300 $2,500 $3,000 $6,600 2050 $1,400 $2,700 $3,300 $7,200

14 Source: Marten, Kopits, et al. 2014 Notes: The values are emissions-year specific and are adjusted for inflation using the GDP implicit price deflator. The estimates in this table have been adjusted to reflect the minor technical corrections to the SC-CO 2 estimates described above.Deliberative - Do Not Cite or Quote 

# Estimated Global Benefits of Methane Reductions *

15 *The SC
-CH 4 values are dollar-year and emissions-year specific. SC-CH 4 values represent only a partial accounting of climate impacts. 

## Discount rate and statistic Proposed NSPS 

## 2020 2025 Metric tons of methane reduced 0.16 million 0.36 million Metric tons of CO 2 

### Eq. 4.0 million 9.0 million 5% (average) $ 93 million $ 250 million 3% (average) $ 210 million $ 550 million 2.5% (average) $ 280 million $ 700 million 3% (95th 

### percentile) $ 550 million $ 1,400 millionDeliberative - Do Not Cite or Quote 

# Emissions Changes across RIA Options Option 1 Option 2



## (proposed) Option 3 Pollutant 2020 2025 2020 2025 2020 2025 Change in Direct Emissions Methane 170,000 330,000 180,000 400,000 190,000 470,000 VOC 120,000 160,000 120,000 180,000 130,000 200,000 HAP 290 1,800 400 2,500 510 3,200 Change in Secondary Emissions CO 2 1,000,000 1,200,000 580,000 720,000 580,000 720,000 NOX 530 600 290 370 290 370 PM 19 20 11 11 11 11 CO 2,900 3,300 1,600 2,000 1,600 2,000 THC 1,200 1,300 660 810 660 810 Change in CO 2 Eq. Emissions CO 2 Eq.

(million short tons) 4.4 9.9 4.4 9.9 4.7 11.7 CO 2 Eq. (million metric tons) 3.7 7.4 4.0 9.0 4.2 10.6

16 Note: short tons per year, unless otherwise noted.Deliberative - Do Not Cite or Quote 

# Net Benefits Across Options ($ millions)

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## Option 1 Option 2

(proposed) Option 3 2020 2025 2020 2025 2020 2025 Total Monetized Benefits $ 190 $450 $ 210 $ 550 $ 220 $ 640 

### Total Costs $80 $ 220 $ 170 $410 $ 210 $ 660 Net Benefits $ 110 $ 230 $40 $ 140 $ 10 -$ 20
Note: The benefits estimates are calculated using four different estimates of the social cost of methane (SC
-CH 4) (average at 2.5 percent discount rate, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of this table, we show the bene fits associated with the average at a 3 percent discount rate. However we emphasize the importance and value of considering the benefits calculated using all four SC-CH4 estimates; the additional benefit estimates range from $93 million to $550 million in 2020 and $250 million to $1,400 million in 2025 for the proposed option. The CO 2-equivalent (CO 2 Eq.) methane emission reductions are 4.0 million metric tons in 2020 and 9.0 million metric tons in 2025 for the proposed option. Also, the specific control technologies for the proposed NSPS are anticipated to have minor secondary disbenefits. The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue from additional natural gas recovery as a result of the NSPS. When rounded, the cost estimates are the same for the 3 percent discount rate a s t hey are for the 7 percent discount rate cost estimates, so rounded net benefits do not change when using a 3 percent discount rat e.Deliberative - Do Not Cite or Quote 

# Energy System Impacts ► 

## We used the U.S. Energy Information Administration’s National Energy Modeling System (NEMS) used to develop Annual Energy Outlook 2014 ► 

## Baseline projections consistent with Annual Energy Outlook 2014 ► 

## We project baseline and regulatory impact scenarios for 2020 and 2025, 

## and 2020-2025 total ► 

## Present estimates of change in crude and natural gas: ► 

### D rilling ► 

### Production ► 

### Prices ► 

### Trade

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# Oil and Natural Gas Wells Drilled, Proposed NSPS

19 Projection, 2020 Projection, 2025 Projection, 2020-25 2012 Baseline NSPS Baseline NSPS Baseline NSPS Successful Wells Drilled (Onshore Lower 48 States) Natural Gas 10,965 20,298 20,299 24,727 24,800 142,764 142,638 Crude Oil 26,517 24,660 24,660 27,648 27,638 155,201 155,202 Total 37,482 44,959 44,959 52,375 52,438 297,965 297,840 Percent Change from Baseline Natural Gas 0.00% 0.30% -0.09% Crude Oil 0.00% -0.04% 0.00% Total 0.00% 0.12% -0.04%Deliberative - Do Not Cite or Quote 

# Domestic Natural Gas and Crude Oil Production, Proposed NSPS

Projection, 2020 Projection, 2025 Projection, 2020-25 2012 Baseline NSPS Baseline NSPS Baseline NSPS Domestic Production (Onshore Lower 48 States) Natural Gas (tcf) 22.075 26.577 26.576 28.931 28.927 167.585 167.576 Crude Oil (million bbls/day) 4.599 7.234 7.234 7.064 7.062 7.174 7.173

Percent Change from Baseline Natural Gas 0.00% -0.01% -0.01% Crude Oil 0.00% -0.03% -0.01%

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# Crude Oil and Natural Gas Wellhead Prices, Proposed NSPS

Projection, 2020 Projection, 2025 Projection, 2020-25 2012 Baseline NSPS Baseline NSPS Baseline NSPS Lower 48 Average Wellhead Price (Onshore Lower 48 States) Natural Gas (2012$ per Mcf) 2.562 4.458 4.458 5.064 5.071 4.670 4.673 Crude Oil (2012$ per barrel) 94.938 92.913 92.913 104.889 104.887 98.932 98.931 Percent Change from Baseline Natural Gas 0.00% 0.14% 0.06% Crude Oil 0.00% 0.00% 0.00%

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# Net Imports, Crude Oil and Natural Gas, Proposed NSPS

22 Projection, 2020 Projection, 2025 Projection, 2020-25 2012 Baseline NSPS Baseline NSPS Baseline NSPS Net Imports Natural Gas (tcf) 1.515 - 1.901 - 1.900 -3.211 -3.208 - 15.371 - 15.367 Crude Oil (million bbls/day) 8.432 5.781 5.781 6.004 6.005 5.914 5.916
Percent Change from Baseline Natural Gas -0.05% -0.09% -0.03% Crude Oil 0.00% 0.02% 0.02%Deliberative - Do Not Cite or Quote 

# Labor Associated with Pollution Controls ► 

## In addition to qualitative discussion of the potential employment impacts of environmental regulation, the RIA presents estimates of labor required to install, maintain, and operate control equipment associated with the proposed NSPS ► 

## Labor component of engineering cost analysis provided basis for the estimates ► 

## Divided estimates into one-time labor and annual labor ► 

## Estimate jobs in full -time equivalents (FTE) by dividing labor hours by 

## 2080 (40 hours x 52 weeks) ► 

## Note that this type of FTE estimate cannot be used to identify the specific number of people involved or whether new jobs are created for new employees, versus displacing jobs from other sectors of the economy

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# Labor Associated with Pollution Controls

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### Sources One-time FTE Annual FTE 

## 2020 Oil Well Completions 0 350 Fugitive Emissions 73 170 Pneumatic Controllers 0 0 Pneumatic Pumps N/A N/A Reciprocating Compressors 0 0 Centrifugal Compressors 0 0 Reporting and Recordkeeping Requirements 0 19 Total 73 530 

## 2025 Oil Well Completions 0 350 Fugitive Emissions 73 1,040 Pneumatic Controllers 0 0 Pneumatic Pumps N/A N/A Reciprocating Compressors 0 0 Centrifugal Compressors 0 0 Reporting and Recordkeeping Requirements 0 60 Total 73 1,400 Note: totals may not sum due to independent rounding.Deliberative - Do Not Cite or Quote 

# Appendix

25Deliberative - Do Not Cite or Quote Source: Adapted from American Gas Association and EPA Natural Gas STAR Program Crude Oil to Refineries (not included in this source category) Production & Processing 1. Drilling and Well Completion 2. Producing Wells 3. Gathering Lines 4. Gathering and Boosting Stations 5. Gas Processing Plant 3 1 2

4 5

6 7

8 10a 10b

10c

10d 9 Natural Gas Transmission & Storage 6. Transmission Compressor Stations 7. Transmission Pipeline 8. Underground Storage
Distribution 9. Distribution Mains 10. Regulators and Meters for: a. City Gate b. Large Volume Customers c. Residential Customers d. Commercial Customer Natural gas systems encompass wells, gas gathering and processing facilities, storage, and transmission and distribution pipelines . 

# Oil and Gas Sector Description

Natural gas distribution is currently out of the scope of the white papers and 2015 NSPS Proposed Rule