The Impact of Using LNG-Derived Natural Gas in the South Coast Air Basin

1. The Impact of Using LNG-Derived Natural Gas in the South Coast Air Basin January 2006

2. Background • Future natural gas demand in the United States will rise • Traditional natural gas sources are increasing in cost and new supplies will not meet demand • Regassification of LNG imports is commercially feasible and economically beneficial • Imported LNG typically has higher heat content (HHC) than current NG in the South Coast • More ethane, propane, butane • Less N2, CO2, and O2

3. Air Quality Background • South Coast is a severe-17 ozone non-attainment and serious PM10 non-attainment area • NOx is an ozone and PM10 precursor • 2003 AQMP: reduce NOx 48% from 2003 to 2010 • Combustion of HHC (e.g. LNG-derived) NG may increase NOx and CO emissions from some types of equipment • 2003 AQMP control measure MSC-07 proposes upper limit on heating value • Condensing (e.g. extracting) out higher hydrocarbons • Adding inerts (e.g. N2, CO2) • Question: what would be the impact of HHC NG on South Coast emissions and air quality?

4. Impact Analysis Approach • Review relevant emission inventories for SCAB natural gas combustion emission categories • Compare to overall SCAB inventory • Review equipment test data comparing the emissions from HHC gas combustion to base gas combustion • Apply emission ratio to SCAB stationary source natural gas combustion inventory categories and assess the inventory impact • Apply applicable SCAQMD regulatory limits, where possible – assess inventory impact

5. SCAB Emission Inventory tons/day Source: CARB, 2003 Inventory for SCAB, anthropogenic only

6. Contributions to 2003 NOx Inventory * Stationary Source Combustion Sources 1049 tons/day NOx * Other fuels include diesel, propane, distillate oil, LPG, gasoline, etc.

7. South Coast Energy from Different Fuels Total energy consumed: 1,723,000 Bbtu/year Based on reported fuel consumption from 2000 Fuel Tax Report, SoCalGas

8. HHC Emission Studies • Initial SoCalGas sponsored tests of gas-fired equipment (2005 Final Report, SoCalGas) • Tests used NG with higher heating values and Wobbe numbers, compared to base gas • Wobbe = heating value / square root of specific gravity • Equipment was NOT modified / adjusted for HHC gas • Gas #6 (HHV=1100, Wobbe=1400) results were used in the analysis • Gas #3 (HHV=1150, Wobbe=1430) used for residential forced air heating units since equipment was not tested on Gas #6 • 2003 LNG Research Study – Phase I for IC engines

9. NOx Test Results for Base and HHC Gas (Gas #6) Emissions (ppm @ 3% O2) ICE Note: For HCFAU, Gas #3 results used. For ICE, 2003 LNG Study Report results (after controls)

10. Emission Impact Analysis • Total Basin natural gas usage: 2.04 Bcf/day • Assessed the emission impact from two scenarios: • Replacement of 1 Bcf/day with HHC gas • Replacement of 0.5 Bcf/day with HHC gas • Adjusted the emissions from each source category with related test results • Assessed impact for the effect of certain SCAQMD rules

11. Applicable Test Results * 5.8 tpd from residential (cooking and other)and 3.3 tpd from gas turbine engines generallyin RECLAIM • LNG study April 2005, except as noted • LNG Research Study – Phase 1, 2003 • Gas #3 results used

12. Rule Adjustments • Almost all in basin sources that emit over 4 tons/day of NOx are in RECLAIM • Net Basin change in emissions from those sources would be zero • RECLAIM applied to: • All electric utilities, co-generation, oil / gas production, petroleum refining, and industrial / manufacturing categories • No rule or permit limits applied to any other categories

13. NOx Impact of HHC Gas NOx tons/day

14. Seasonality • Ozone season is summer/early fall • Emissions are seasonal • Greater electrical generation in summer • Sources under RECLAIM, BACT • Residential emissions reduced in summer • No space heating July through October • Reduced water heating needs • Pool heaters not used during hottest periods • Commercial/Industrial – less seasonality

15. VOC Emission Impacts Emissions (ppm @ 3% O2) Analysis shows a 0.8 ton/day reduction for Scenario 1

16. Latest SCAQMD Modeling Analysis • Black lines are ozone episode isopleths • Colored lines are annual average PM2.5 isopleths • Ozone decreases as NOx increases • PM2.5/PM10 insensitive to NOx changes • Ozone and PM2.5/PM10 decrease as VOC decreases Source: SCAQMD, 2007 AQMP Technical Advisory Group, 12/7/05

17. Other Air Quality Impact Issues • NOx emissions from residential and service / commercial sources are spread throughout the SCAB • For example, emissions changes in San Fernando Valley do not affect peak Inland Empire areas • Weekday/Weekend Effect • Natural gas usage 13% higher on weekdays, but 65% of ozone exceedences occur on weekends • Uncertainty in mobile source emissions greater than potential NOx increase due to HHC combustion • Air quality modeling possible, but may be insensitive to such small emission changes • Ozone and PM2.5/PM10 air quality impacts expected to be negligible, with impact potentially beneficial

18. Preliminary Conclusions • 0.11% annual increase in NOx emissions if 1.0 Bcf/day of LNG-derived natural gas is used • 0.06% increase for 0.5 Bcf/day • Does not account for reductions from proper tuning • Does not account for non-RECLAIM emission limits • Ozone and PM10 air quality impact expected to be negligible, with impact potentially beneficial • Given the small potential impact, other more cost-effective, local approaches should be considered • Expanded use of natural gas instead of higher emitting diesel and gasoline