Improved Natural Gas Extraction as a Strategy for Reducing Climate Impacts of Transportation

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Improved Natural Gas Extraction as a Strategy for Reducing Climate Impacts of Transportation James Littlefield Booz Allen Hamilton October 2, 2013 National Energy Technology Laboratory LCA XIII, Orlando

Agenda Technology Description LCA Boundaries Natural Gas Modeling Framework Co-product Management GHG Results Role of Reduced Extraction Emissions 2

Favorable resource and technology characteristics drive commercialization of GTL Technological and economic advantages Can use growing domestic resource base of natural gas Upgrades economic value of natural gas by converting it to transportation fuels Feedstock and product infrastructure are already in place Commercial development has matured in last decade Two GTL projects in Qatar came online Two domestic projects have been proposed (in Louisiana and Northeast U.S.) 1, 2 3 1 Office of the Governor Bobby Jindal: State of Louisiana. (2011). Gov. Jindal Announces Sasol Selected Calcasieu Parish as Location for Potential $8-10 Billion Gas-to-Liquids Complex. Retrieved on November 28, 2012, from http://gov.louisiana.gov/index.cfm?md=newsroom&tmp=detail&articleid=3022. 2 Oil products plant considers adding GTL capacity. (n.d.). Oil and Gas Journal, 110, 14.

Natural Gas 423,745 MMBtu/day (9,374 ton/day) Butane 499 tons/day (used for gasoline blending) GTL is one example of the advanced energy technologies that NETL researches Hydrogen Production Natural Gas 1 Oxygen to Reformer 3 Natural Gas 16 Tail Gas Recycle 4 600# Steam to Preformer FG 19 17 20 18 2 Preformer Reformer FG Liquid Product Separation 15 14 24 Butane 13 12 Syngas 600# Steam to Steam Cycle 5 High Pressure Steam to Steam Cycle 25 To Lights Recovery 10 C4 Isomerization Alkylation Naphtha Hydrotreating Wax Hydrocracking Distillate Hydrotreating FG Aqueous Oxygenates Dehydration/ Compression/ HC Recovery CO2 Removal 9 F-T Liquids FG to Lights Recovery FG to Lights Recovery FG to Lights Recovery FG to Lights Recovery ZnO Polishing Naptha Reforming C5/C6 Isomerization 22 Diesel Pool 21 6 F-T Synthesis Alkylate Note: Block Flow Diagram is not intended to represent a complete material balance. Only major process streams and equipment are shown. Compressor 7 8 CO2 Gasoline Pool 23 Diesel 34,543 bbl/day Gasoline 15,460 bbl/day Electricity 40.8 MW (979 MWh/day) Catalytic reforming converts natural gas to synthesis gas Steam methane reforming increases hydrogen content in synthesis gas Liquid synthesis in low-temperature, slurry-bed Fischer-Tropsch reactor with cobalt catalyst 93% of CO 2 is captured for sequestration (1,532 tons CO 2 /day) 4

GTL LCA boundaries include upstream and downstream activities Functional unit of 1 MJ of combusted diesel or gasoline (diesel shown here) Upstream natural gas is based on a detailed model GTL co-products are managed with displacement 5

NETL s NG model is a network of flexible processes Surface Water for Hydrofracking (Marcellus Only) Transport of Water by Truck (Marcellus Only) Diesel Diethanolamine Steel Well Construction Concrete Acid Gas Removal Venting/Flaring Flowback Water Treated by Crystallization (Marcellus Only) Diesel Electricity Flowback Water Treated at a WWTP (Marcellus Only) Water Withdrawal & Discharge During Well Operation Dehydration Venting/Flaring Venting/Flaring Electricity Steel Venting/Flaring Venting/Flaring Venting/Flaring Venting/Flaring Well Completion Liquids Unloading Workovers Other Point Source Emissions Other Fugitive Emissions Valve Fugitive Emissions Other Point Source Emissions Other Fugitive Emissions Venting/Flaring Gas Centrifugal Compressor Reciprocating Compressor Electricity Electric Centrifugal Compressor Pipeline Operation (Energy & Combustion Emissions) Pipeline Operation (Fugitive Methane) Pipeline Construction Concrete Delivered Natural Gas Valve Fugitive Emissions Venting/Flaring Extraction Processing Raw Material Acquisition Raw Material Transport Over 20 unique unit processes Bottom-up engineering calculations instead of top-down data Tunable to any natural gas extraction technology 6

Parameters allow scenario and uncertainty analysis Property (Units) Onshore Associated Offshore Tight Gas Natural Gas Source Barnett Shale Marcellus Shale Contribution to 2010 U.S. Domestic Supply 22% 6.6% 12% 27% 21% 2.5% 9.4% Average Production Rate (Mcf /day) low 46 85 1,960 77 192 201 73 expected 66 121 2,800 110 274 297 105 high 86 157 3,641 143 356 450 136 Expected EUR (Estimated Ultimate Recovery) (BCF) 0.72 1.32 30.7 1.20 3.00 3.25 1.15 Natural Gas Extraction Well Flaring Rate (%) 51% (41-61%) 15% (12-18%) Well Completion (Mcf natural gas/episode) 47 3,600 9,000 9,000 49.6 Well Workover (Mcf natural gas/episode) 3.1 3,600 9,000 9,000 49.6 Lifetime Well Workovers (Episodes/well) 1.1 0.3 Liquid Unloading (Mcf natural gas/episode) 3.57 n/a 3.57 n/a n/a n/a n/a Lifetime Liquid Unloadings (Episodes/well) 930 n/a 930 n/a n/a n/a n/a Valve Emissions, Fugitive (lb CH₄/Mcf natural gas) 0.11 0.0001 0.11 Other Sources, Point Source (lb CH₄/Mcf natural gas) 0.003 0.002 0.003 Other Sources, Fugitive (lb CH₄/Mcf natural gas) 0.043 0.01 0.043 Natural gas extraction parameters include expected values and uncertainty ranges Emission factors for unconventional wells and liquid unloading recently updated based on EPA revisions Similar parameterization approach used for processing and transport CBM 7

NETL s NG model allows calculation of upstream methane emissions 13.4 kg CH 4 emissions per 1,000 kg of delivered natural gas and 165 kg NGL Applying mass allocation between co-products translates to a 1.26% loss of CH 4 per unit of delivered natural gas Comparable to results of a recent 190-well study completed by University of Texas 1 (both studies show ~0.5% extraction loss) 8 1 Allen, David T., et al. "Measurements of methane emissions at natural gas production sites in the United States." Proceedings of the National Academy of Sciences (2013): 201304880.

Co-product management is necessary to calculate LCA results for individual GTL products Natural Gas GTL Plant Diesel Gasoline Electricity Allocation? Mass allocation not possible with electricity as a co-product Economic allocation is possible, but costs are relative and societal values reflected by prices do not necessary indicate relative environmental burdens of co-products Energy allocation is possible, but useful energy in a unit of fuel is different than useful energy in a unit of electricity Displacement? Large scale energy systems can affect demand for competing products Unlike allocation, which severs links between GTL co-products and the energy market, displacement considers broader consequences of co-production Displacement is more appropriate than allocation for this analysis because the scale of the GTL system will affect conventional routes to fuel production. 9

Co-product displacement requires modeling decisions about type and extent of displacement Diesel as functional unit GTL gasoline displaces conventional petroleum gasoline GTL electricity displaces average power produced by the U.S. electricity grid Gasoline as functional unit GTL diesel displaces conventional petroleum diesel GTL electricity displaces average power produced by the U.S. electricity grid Displacement value is inversely proportional to LCA result Low displacement corresponds to high LCA result High displacement corresponds to low LCA result Co-Product Low Value Expected Value High Value Electricity AEO 2035 U.S. Grid Mix (671 kg CO 2 e/mwh) U.S. Grid Mix (707 kg CO 2 e/mwh) Fleet Coal (1,161 kg CO 2 e/mwh) Diesel No Displacement 100% Displacement of Diesel from Imported Crude Mix 100% Displacement of Diesel from Imported Crude Mix Gasoline No Displacement 100% Displacement of Gasoline from Imported Crude Mix 100% Displacement of Gasoline from Imported Crude Mix 10

GHG Emissions (g CO₂e/MJ fuel combusted) GTL GHG results are comparable to NETL s petroleum baseline Natural Gas Extraction and Processing Butane Upstream Natural Gas Transport GTL Plant Operation CO₂ Pipeline Saline Aquifer Sequestration Power Displacement Fuel Displacement Fuel Transport Fuel Combustion Total Petro Baseline, Diesel (90.0) Petro Baseline, Gasoline (91.3) 150 125 100 90.6 89.4 75 50 25 0-25 -50-75 Diesel Gasoline NETL s petroleum baseline is basis for Renewable Fuel Standards (RFS) Expected life cycle GHG emissions from GTL fuels are close to petroleum baseline Uncertainty straddles petroleum baseline Fuel combustion is largest GHG contributor, but upstream natural gas matters too 11

EU PT ECF RMT RMA EU PT ECF RMT RMA Detailed results point to key contributors Diesel Gasoline CO₂ CH₄ N₂O SF₆ CO₂ CH₄ N₂O SF₆ Natural Gas Extraction and Processing 15.2 Natural Gas Extraction and Processing 35.4 Butane Upstream 3.8 Butane Upstream 8.9 Natural Gas Transport 7.8 Natural Gas Transport 18.3 GTL Plant Operation 1.6 GTL Plant Operation 3.7 CO₂ Pipeline 0.4 CO₂ Pipeline 0.8 Saline Aquifer Sequestration 0.3 Saline Aquifer Sequestration 0.7 Power Displacement -3.6 Power Displacement -8.5 Fuel Displacement -7.9 Fuel Displacement -43.0 Fuel Transport 0.4 Fuel Transport 0.4 Fuel Combustion 72.7 Fuel Combustion 72.6 Total 90.6 Total 89.4 12-20 0 20 40 60 80 100 120 GHG Emissions (g CO₂e/MJ diesel combusted) -75-50 -25 0 25 50 75 100 125 150 GHG Emissions (g CO₂e/MJ gasoline combusted) Displacement uncertainty is larger when gasoline is functional unit because GTL plant is optimized for diesel production Fuel combustion may be largest GHG contributor, but methane emissions from upstream natural gas represent greatest opportunity for improvement

EPA New Source Performance Standards (NSPS) regulate VOC emissions from the oil and gas sector Final Oil & Gas Sector NSPS rule under CAA established August 16, 2012 Methane is a key component of the VOC category for the oil and gas sector Reduces emissions from some processes by as much as 95% Well completions and workovers Centrifugal compressors Reciprocating compressors Storage tanks Pneumatic controllers Does not regulate all upstream natural gas processes Liquid unloading Pipeline transmission 13

NETL s parameterized modeling approach can estimate the GHG changes caused by NSPS Reduced emission completions (RECs) for unconventional wells Can reduce unconventional completion emissions by 95% (NSPS, 2012) New completion and workover emission factor = 9,000*(100% - 95%) = 450 Mcf natural gas/episode A higher extraction flaring rate is also expected for RECs, so increase unconventional flaring rate from 15% to 51% Replacement of compressor wet seals with dry seals Can reduce centrifugal compressor CH 4 emissions 95% (NSPS, 2012) New emission factor for centrifugal compressors (at processing site) = 0.0069 kg CH 4 /kg natural gas compressed * (100% - 95%) = 0.00035 kg CH 4 /kg natural gas compressed Routine replacement of compressor rod packings Can reduce reciprocating compressor CH 4 emissions 95% (NSPS, 2012) New emission factor for reciprocating compressors (at processing site) = 0.0306 kg CH 4 /kg natural gas combusted * (100% - 95%) = 0.00153 kg CH 4 /kg natural gas combusted Replacement of pneumatic controllers High bleed controllers have leak rates of 6-42 scf/hr (EPA, 2006b) Low bleed controllers have leak rates less than 6 scf/hr and are used by offshore gas wells (EPA, 2006b) New emission factor for onshore conventional and unconventional valves = existing emission factor for offshore valves = 0.0001 lb CH 4 /Mcf 14

GHG Emissions (g CO₂e/MJ fuel combusted) NSPS implementation significantly reduces life cycle GHG emissions from GTL fuels 150 125 Natural Gas Extraction and Processing Butane Upstream Natural Gas Transport GTL Plant Operation CO₂ Pipeline Saline Aquifer Sequestration Power Displacement Fuel Displacement Fuel Transport Fuel Combustion Total Petro Baseline - Diesel (90.0) Petro Baseline - Gasoline (91.3) 100 75 90.6 85.3 89.4 77.0 50 25 0-25 -50-75 Current NSPS Current NSPS Diesel Gasoline GTL diesel GHG emissions are reduced by 5.8% GTL gasoline GHG emissions are reduced by 13.9% Expected values are below baseline, but uncertainty still straddles baseline NSPS reduces upstream CH 4 losses from 1.23% to 0.83% (CH 4 emissions per unit of delivered natural gas) 15

Conclusions and Recommendations Life cycle GHG emissions from GTL fuels are competitive with those from petroleum fuels Combustion of produced fuel is greatest contributor to life cycle GHG emissions, but does not present opportunities for GHG reductions Tighter regulations on natural gas extraction can make GHG emissions from GTL fuels lower than those from petroleum fuels, but there is uncertainty Co-product management contributes to uncertainty, with greatest uncertainty when gasoline is the functional unit Full report available at www.netl.doe.gov/energy-analyses (Analysis of Natural Gas-to-Liquid Transportation Fuels via Fischer-Tropsch, September 2013) 16

Contact Information Office of Fossil Energy www.fe.doe.gov NETL www.netl.doe.gov Timothy J. Skone, P.E. Senior Environmental Engineer Office of Strategic Energy Analysis and Planning (412) 386-4495 timothy.skone@netl.doe.gov Joe Marriott, Ph.D. Lead Associate Booz Allen Hamilton (412) 386-7557 marriott_joe@bah.com James Littlefield Associate Booz Allen Hamilton (412) 386-7560 littlefield_james@bah.com Greg Cooney Associate Booz Allen Hamilton (412) 386-7555 cooney_gregory@bah.com 17

18 Supporting Material: Cost Parameters

Natural Gas Prices ($/MMBTU) Supporting Material: Cost Analysis $22 $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 Prohibitive Economics Market Conditions on 05/17/13 14% IRR 26% IRR 20% IRR Supportive Economics $0 Diesel $65 $85 $105 $125 $145 $165 $185 $205 $225 Approx Brent Crude Price $54 $71 $88 $105 $121 $138 $155 $171 $188 Envelope of economic viability depends on natural gas and diesel prices as well as returns expected by investors Window of viability widens if capital costs can be reduced by leveraging technology development or creating long-term contracts for natural gas 19