Areas to Cover

1. Methane Vent Mitigation Proposal for Demonstration ProjectsPTAC TIS November, 2001New Paradigm Engineering Ltd., Edmonton,Clearstone Engineering Ltd., Calgary

2. Areas to Cover • Introductions • Why focus on Methane Vent Mitigation? • What might be Achieved Economically? • What is Happening Now? • Why isn’t more Happening? • How Are Demonstration Projects Going to Help? • Proposal Details and Process • Next Steps?

3. About New Paradigm Engineering Ltd. • Independent consulting company, Inc. 1991 • Engineer “new paradigms” for industry • Small but supplement manpower with other specialists and consultants as needed for the work. • Last three years spent on assessing existing and new options for reducing methane emissions, through a series of Vent Options Studies and other activities. • Vent Option Studies Total - $190k (2000-01) • CHO Audits and Equipment Trials - $75k (1999-2001) • New Technology Development - $80k (1998-2001)

4. About Clearstone Engineering Ltd • In business since 1989 • Process and Environmental Engineering Specialists • Methane Related Experience: - Quantification of CH4 losses, and evaluation of control opportunities at gas production, processing, transmission and distribution facilities in Canada, US, Europe and Asia. - Preparation of CAPP’s control options document and emissions inventory for CH4 and VOCs - Work for IPCC & UNFCCC on fugitive emissions

5. Methane from the Upstream Industry • Over $400-$800M/yr of methane vented or emitted from upstream sites (@$3-$6/GJ) • Equivalent to over 20% of Upstream O&G Industry energy use • At the same time methane is also being flared. • Methane emissions from Upstream Sources • Almost 50% of oil & gas GHG emissions • Over 8% of Canada’s GHG emissions • Over 30% of Alberta’s emissions • GHG, Flaring and Odour Issues affecting O&G Development • Methane emissions have almost doubled since 1990

6. Methane - An Economic GHG Target • It has an economic value ($3-$6/GJ) • It can provide the energy to support it’s own use • It has a greater impact; 1 t CH4 = 18-21 tCO2e • Lower cost to convert than to sequester CO2 • Sequestration of CO2 usually in the US$20/tonne range • Many methane mitigation options are economic • <$US1.50/tCO2e to convert methane into CO2 • Many opportunities to use existing technology to reduce emissions. • Many designs based on gas at C$0.30/GJ and no concerns about methane.

7. What Comes with the Methane Vents? • Lost Opportunities to Increase Sales Revenues or to Reduce Energy Costs • Heavier Hydrocarbons that Could be Recovered • Volatile Organic Compounds (VOC’s), H2S and BTEX emissions • Source of Odours, Health Concerns and Public Resistance to Further Development and Lead to Flaring • Regulatory Pressure to Change

8. What Can Be Economically Achieved? • Work by New Paradigm, Clearstone & Others shows: • Fuel Displacement • Vent or flared gas can be used to fuel equipment. • Small investments and rapid payouts (months) • No point reducing vent/flare if you can use it as fuel • Vent Volume Reductions • Economic at many sites – payouts months to years • Manage Large Surpluses • Sell Gas, Power, or Liquids – Payouts 2-4 years • Methane Conversion to CO2 for Credits

9. Upstream Oil & Gas Methane Emission Sources Ref: CAPP Pub #1999-0009

10. Conventional Heavy Oil Potential • Methane Sources – Production Casing (95%), Tanks (5%) • An estimated 25-50%  Displace fuel on leases • Payouts can be as short as 1-4 months • Likely 25-35%  Used for Managed Options • Compression and Sales • Power Generation • Small Scale EOR • Fuel is essentially FREE! • Remainder  Convert to CO2 for Credits

11. Methane Sources – Mainly Gas Operations Example Source – Data from One Producer

12. Conventional Gas Production Potential • Methane Sources – Dehydrators (25%), Instruments (50%), Pumps (20%), Incomplete Combustion (5%) • Almost all  Displace fuel on leases with fired heaters • In example case – Methane vents could displace up to 30% of the fuel used by direct fired heaters. • Sites without fired equipment  Reduce Volume • Change chemical pumps to drip pots • Replace instruments to low vent types • Where it is uneconomic to reduce vents  Convert

13. Compression and Processing Potential • Methane Sources – Fugitives (70%), Incomplete Combustion (18%), Compressor Ops (12%) • About 16% of methane Gas Transmission • Fugitives  Detection, Isolation and Repair of Leaks • Most of the emissions are from <0.5% of the fittings • To be economic – minimize cost of finding the leakers as the cost to fix usually minimal. • Compression a Large Fuel Demand • Improve combustion efficiency • Conserve starting gas, blowdowns, and seals – use as fuel

14. Summary of THC Emissions by Industry Sector

15. Oil Production Potential • Methane Sources – Mainly Tank Vents, Instruments and Pumps • Need better data to breakdown relative shares. • Oil Production only 8% of methane but 32% THC due to product losses from tank vents. • Liquids Recovery • Use methane in vents to fuel vent condensors to recover liquids • Displace Fuel • Use gas from instruments and chemical pumps for building heat and burners.

16. Energy Losses from Thermal Heavy Oil Operations

17. Thermal Heavy Oil Potential • Main problem is energy efficiency more than methane venting • Highest per bbl oil energy cost  low value bbls • Initial focus of options studies on small thermal operations in Lloydminster area • Greatest challenge as no economies of scale • Improve Efficiency of Surface Facilities • Increase Percentage of Energy Going into the Reservoir • Investigate low cost fuel switching

18. Methane Sources: Small isolated vents; Fugitives too small to stop; Incomplete Combustion (engines, burners) Pressurized Streams Relatively Easy Conversion cost is lower than any CO2 reduction options Flares, combustion units and catalytic converters Dilute Sources Require More Research: Collection and Concentration of Methane Conversion Energy Recovery Methane Conversion Any Sector

19. Methane Conversion Calculations • The “math and science” of converting methane to CO2 • Stoichiometric formula is: • CH4 + 2O2  CO2 + 2H2O + Energy • Molar basis – 1 mole methane  1 mole of CO2. • Mass Basis – 1t CH4 + 4t O2  2.75t CO2 + 2.25t H2O • GHG emissions based on mass; 1 t CH4 = 21 t CO2(eq) • 1 t CH4 converted to CO2 forms 2.75 tonnes of CO2. Emission reduction = 21 – 2.75 = 18.25 tCO2(eq). • If vent gas displaces fuel gas then 21 tCO2(eq) is saved.

20. Methane Conversion Economics • GHG credits normally considered as a change from 1990 levels so may have to determine base line emissions level • Need someone to test the system. • Value of GHG credits • Recent trades US$0.50-$2/tCO2(eq) to C$4.50-$17.00 • Some on-line trading going on: GERT, KEFI & Others • For positive economics conversion of 50 m3/d of methane cost of system must be about C$5k • Payout in 10 years @ C$1.50/tCO2e • Payout in 1 year @ C$15/tCO2e

21. What is Happening Now? • Reporting through Voluntary Change Registry (VCR) • Not all companies are participating • Focus is on high-level volumes and not economics • Often results achieved or hidden by takeovers and mergers • Too high a level to help others • Options good for one situation may not be good for all • Leading Producers are Making Gains in Some Sectors • Other companies or even departments don’t hear about it. • Management often assumes that cost is high and gains are for public image, not economic indicators.

22. Real Life Examples CHO Fuel displacement • Husky using vent gas at many leases year round using engine waste heat for tracing lines to stop freezing. • Devon (Anderson) used basic separators and methanol on 82 wells and saved $1.6 million/yr and over 145,000 t CO2(eq)/yr in GHG emissions. $3000/well & $230/mo. • Others have used small compressors, CaCl dryers, electric tracing off drive engine to utilize vent gas. • Demonstration Projects would provide resources to document these successes more fully.

23. Why isn’t More Happening? • High Demands on Resources • Exploration, acquisition and asset growth require money and people. Few people have time to work on vent issues. • Focus on own Business Units, rather than Corporate or Industry Targets • Economic Value of Vent Gas Not Recognized • Responsibility Passed to Field Staff w/o Resources • It is a change from “Common Practice” • Lower Cost to Change New Sites than Fix up Old Ones

24. How Are Demonstration Projects Going to Help? • Provide knowledgeable resources to help sort out what to do and provide assistance. • Method to pass results on to others at no cost to Producer and no staff time away from everyday work. • Results and Analysis Reported in a consistent fashion • Transfer what is learned in one area or sector to others with similar issues. • Help Leaders improve and get better. • Motivate Followers to learn and get started.

25. Demonstration Project Goals • Encourage and support producers (Producer Benefits). • Audits to highlight and quantify the main sources • Recommendations to achieve cost effective solutions • Enable proactive decisions rather than reactive band-aids • Focus on the largest emission areas first • Promote communication (Industry & Society Benefits) • Develop both technical and economic results • Consistent reporting by a third party • Provide manpower and funds to communicate widely • Papers, presentations, web-sites and courses.

26. Work Scope – Prioritized Target Sectors • Conventional Heavy Oil • Gas Production Facilities • Oil Production Facilities • Thermal Heavy Oil Operations • Gas Processing/Compression Facilities • Methane Conversion – Credit/Offset Trading • Effort varies with the sector, what has already been done by the Producers and size of the operation

27. Proposed Process #1 - Producer Decisions • Initial audit by team • Type and volumes of sources • Identify Local Opportunities • Highlight best options for the area • Recommend Implementation Method and estimate Budget • Producer reviews audit with team support • Decides which opportunities to pursue • Plans project • Sets budget • Decides if they want to make results public • Decides if they want to be named or be anonymous

28. Proposed Process #2 – Demo Approval • Team Prepares summary of demonstration details • Key emissions targeted, budget and plan • Assessment of value as a model for the sector • Prepare plan and budget for detailed case study and communications. • Participant’s Panel (funders plus demo hosts) • Reviews opportunity summary and plan. • Allocates a percentage of the pre-committed funds to the demo project. • Locates additional funding if appropriate ($100k min assumes $15k/demo and only 6 demos.)

29. Proposed Process #3 – Demo Execution • Producer Proceeds with Project Implementation • May or may not wait for Demo Approval • Controls project schedule, cost and scope • Adjusts as appropriate • Team provides support as requested and reports on progress as appropriate. • Team Prepares Follow-up Report • Compare Plan to Actual • Demonstrated reductions and economics, etc. • Takes information “on the road” to communicate to others

30. Proposed Deliverables per Sector • Audit Report on Volumes and Proposed Actions • Analysis & Recommendations to Producer • Action Plan Preparation • Producer decides on what emissions to tackle and assigns resources. Summary taken to Participant Panel • Follow-up Report • Full Document with results, technical and economic, lessons learned, recommendations for others • Powerpoint format (paper and electronic) • Presentations (CIM and others), Courses

31. Demonstration Summaries • Standard format and contents: • Site Layout, • Emission Sources and Volumes • Potential Options Identified • Options Selected and Why • Implementation Plan and Budget • Project Execution • Technical and Economic Results, • Operator Issues, • Post Project Emissions Audit, • Implementation/Regulatory Issues

32. Funding • Producers fund initial audits and implementation • Retains control at all times, not committed to do anything that is uneconomic, unsafe, experimental, etc. • Site audits $2k-$25k/each (depends on scope) • Potential for 50% of audit (up to $5k) paid for NRCan • Implementation $50k?? (depends on opportunities) • Participating Organizations fund non-economic activity • Prescreening of proposed demo sites • Preparation of a comprehensive report for each demo • Communication of results by Team • Min $100k from CAPP, Alta Gov’t, Federal Gov’t, others

33. Agreement Terms • For Initial Audit and Planning (Producer/Team) • Standard P.O. or Invoice to either New Paradigm or Clearstone, based on standard rates & scope set by Producer • Agreement to Participate (Producer/Participants) • Producer agrees to make information available to the Team that is necessary to complete an analysis. • May include information exclusions if defined up front. • Participants - no responsibility for execution, or liability for releasing information provided by the Producer. • Funding Agreements (Participants/Team) • Similar in scope but vary with funding agency.

34. Summary of Proposal • Want to develop the project as a Win-Win • Producers get needed support to achieve economic results, emissions reductions while retaining control • Funding Participants get results communicated widely to stimulate new activity and understanding of issues; leading to more and accelerated emission reductions • Proponents get to apply their knowledge and receive compensation for analyzing and promoting the results • Demonstrate potential benefits for all Conventional Upstream Oil and Gas Sectors

35. Next Steps? • Applications are being submitted to a number of potential funding sources (Industry and Gov’t) • Seeking upfront commitment to an initial $100k • Funds only spent if Producer’s come forward • PTAC considering administering NRCan funds for audits • Producers Approached by Team to Discuss: • Potential target projects that might serve as demos • Potential concerns with information releases • Potential agreement terms • Initiate the first demonstration to serve as a model

36. Questions and Discussion? • Producers: • Do you believe there are economic solutions? • Do you want support to assess, implement and report on your successes? • What are your initial concerns? • Potential Funders • Can you allocate funds up front, before Producers sign on • What are your initial concerns? • Other Stakeholders (Vendors, Researchers, NGO’s) • What are your thoughts and concerns?

37. Acknowledgements • Support of Husky (Ron Schmitz) and Alberta Environment (Bob Mitchell) for this information session. • Current Participants for Conventional Heavy Oil – AEC, Devon, Husky, CNRL, Nexen, Exxon-Mobil, EnerPlus Group, CAPP, AERI • Current Participants for Thermal Heavy Oil – Nexen, Husky, CAPP • Current Participants for Conventional Oil and Gas – BP Energy, Husky, CAPP • Support from the Petroleum Technology Alliance Canada (www.ptac.org)

38. Contact Information New Paradigm Engineering Ltd. C/o Advanced Technology Centre 9650-20 Avenue Edmonton, Alberta Canada T6N 1G1 tel: 780.448.9195 fax: 780.462.7297 email: bruce@newparadigm.ab.ca web: www.newparadigm.ab.ca