Discussion Guide

Defining, Measuring and Reducing Fugitive Emissions in the Oil and Gas Sector

Banff, Alberta

February 10-11, 2011

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TABLE OF CONTENTS ACKNOWLEDGEMENTS

INTRODUCTION AND BACKGROUND 4

DEFINITIONS 9

TECHNOLOGY AND PROCESSES 11

KEY CHALLENGES 14

IDENTIFYING SOURCES OF FUGITIVE EMISSIONS 14

MEASUREMENT OF FUGITIVE EMISSIONS (VOLUME) 14

RETURN ON INVESTMENT FOR INDUSTRY 15

CROSS-JURISDICTIONAL RESPONSIBILITIES 16

LACK OF PUBLIC AWARENESS 17

CORPORATE COMMITMENT 17

ADDRESSING ENVIRONMENTAL IMPACTS AND CRITICS 17

APPROACHES TO ADDRESSING FUGITIVE EMISSIONS 19

REGULATORY 19

GUIDELINES/BEST MANAGEMENT PRACTICES (VOLUNTARY) 20

TECHNOLOGY 21

OPTIONS FOR PROGRAMS TO REDUCE FUGITIVE EMISSIONS 22

CONCLUSION 23

GLOSSARY OF TERMS 24

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ACKNOWLEDGMENTS

The vision of the Canada School for Energy and Environment is to contribute to a future of abundant supplies of clean energy, a vibrant and healthy environment, and sustainable prosperity and social well-being for Canadians by informing and

collaborating in policy development and by encouraging scientific research and technology commercialization.

Carbon Talks is a project of the Simon Fraser University Centre for Dialogue in association with the Segal School of Business, the School of Public Policy and the School

for International Studies. The goal of Carbon Talks is to advance Canadian global competitiveness by shifting to a low-carbon economy. Carbon Talks would like to acknowledge the generous contributions of the North Growth Foundation and the

Young Family Foundation.

The primary author for this discussion guide is Dr. Daniel Savas, Public Policy Research Consultant. Shauna Sylvester and Bruce Carson reviewed and edited the guide. We

would also like to thank Lynne Patenaude, Blair Batchelor, Bruce Peachey, Andy Ridge, Bob Savage and Zannat Ferdous for their contributions.

The views in this publication are provided here to stimulate discussion and learning. They do not reflect the views of the Canada School for Energy and Environment, Carbon Talks’

staff, funders, collaborators or the SFU Centre for Dialogue.

Carbon Talks is part of the Creative Commons. We invite you to use the material in this handbook, but please credit the Canada School for Energy and Environment, Carbon Talks

and the SFU Centre for Dialogue.

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INTRODUCTION

This discussion guide provides background information on the subject of fugitive emissions in the oil and natural gas industry in Canada. It serves as a resource and reference guide for participants, defining the context and terminology, identifying key challenges, and outlining current and proposed policy directions to address fugitive emissions. It will be used as a tool to stimulate dialogue during the workshop on fugitive emissions hosted by the Canada School of Energy and the Environment, and Carbon Talks in Banff, Alberta on February 10-11, 2011. The workshop is designed to identify common approaches to defining, measuring and reducing fugitive emissions.

BACKGROUND

Fugitive emissions are deemed to be an important part of the debate on climate change, because they represent a significant portion of greenhouse gas emissions contributed by the oil and gas industry to Canada’s overall emissions. Based on the most recent Canadian Greenhouse Gas Inventory (2009), fugitive emissions in the oil and gas industry represent approximately 9% of Canada’s total emissions, and at least half the upstream conventional oil and gas industry emissions. Between 1990 and 2008, fugitive emissions in Canada increased 45% in absolute terms. Still, Canada’s record compares quite favourably to other countries; for example, Canada tied for 20th out of 20 major oil producing countries for the volume of flared gas emissions (a component of fugitive emissions).1

Nationally, the Alberta Government reports significant progress in reducing flared gas emissions; by 2009, flaring of gas had been reduced 80% from 1996 levels, surpassing established regulatory targets by a significant margin. However, reductions in fugitive emissions from equipment defects, leaks, or other unintentional releases of gas are not specified.

Reducing fugitive emissions represents a challenge for all stakeholders connected to the industry, because these emissions require considerable effort to detect, measure accurately, and monitor. There’s a constant tug-of-war between the business case for addressing these emissions and the socio-environmental imperative to do so. Technological innovations in the past decade have enhanced the opportunity for

1 In 2008, Canada produced 1.8 billion cubic metres of flared gas, compared to 40 billion for Russia, and 2.3 billion for the United States. Canada is tied with Kuwait.

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companies to reduce fugitive emissions from their operations and facilities, but uncertainty remains around the scope of the problem (i.e. an accuracy of measurement challenge), and how to address it (e.g. voluntary, regulation, incentives). Governments and industry have worked and continue to work together to develop regulations, best practices codes, and voluntary guidelines. But, not all fugitive emissions are covered to the same extent (e.g. flaring and venting vs. equipment leaks) and much of the regulation is based on an economic model rather than on a need to address environmental impact issues. There is as of yet no coherent policy framework in Canada to deal with fugitive emissions.

A number of key stakeholders in Canada and around the world, are involved in the issue of fugitive emissions in the oil and gas industry.

Key industry associations include: Canadian Association of Petroleum Producers (CAPP), Petroleum Technology Association of Canada (PTAC), Small Explorers and Producers Association of Canada (SEPAC), Canadian Petroleum Products Institute (CPPI), Canadian Pipeline Energy Association (CEPA), and Canadian Gas Association (CGA), Gas Processing Association of Canada (GPAC).

On the government side, the following bodies play a role in regulating or developing frameworks to regulate industry on fugitive emissions:

Environment Canada, Natural Resources Canada, Canadian Council of Ministers of the Environment (CCME)

Alberta Environment, Alberta Energy, Energy Resources Conservation Board of Alberta (ERCB)

International Panel on Climate Change (IPCC)

Multi-stakeholder groups include most prominently the Clean Air Strategic Alliance (CASA), which brings governments, industry and non-government sectors together to solve air quality issues.

There are also a number of engineering/consulting firms that have studied and reported on fugitive emissions for various industry and government clients. For example, Clearstone Engineering, SNC-Lavalin Environment, New Paradigm Engineering, Deep Blue Associates, Envirotech Engineering (including its division Target Emissions Services that specializes in fugitive emissions services),

In the NGO community, the Pembina Institute, the World Wildlife Fund, David Suzuki Foundation, Ecojustice are very much focused on GHG emissions, notably in the oil sands, and are thus interested in the issue of fugitive emissions.

Other organizations include: Canadian Environmental Technology Association of Canada (CETAC), a national organization with regional offices - funded in part by Environment Canada.

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A variety of regulatory and guideline frameworks exist at several levels of government to address fugitive emissions in Canada. Below is a brief overview2 of some key frameworks, several of which are covered in more detail later in this Guide:

Environment Canada, Canadian Council of Ministers of the Environment (CCME)

National Pollutant Release Inventory (NPRI - 1992, 2002) – initially created through a multi-stakeholder process to track the reduction of releases of air pollutants and the identification of areas where reductions are required to improve air quality. In 2002, the addition of Criteria Air Contaminants (CACs) to the reporting requirements included Volatile Organic Compound (VOC) emissions, the main focus of reporting on fugitive sources of leaks. Of note, NPRI is not a comprehensive inventory for fugitive VOCs from the upstream oil and gas industry. It does include mandatory greenhouse gas reporting for the largest facilities (e.g. oil sands, pipelines, etc.).

Code of Practice and Guidelines for the Measurement and Control of Fugitive Volatile Organic Compound Emissions from Equipment Leaks (1993-95, 2003) – serve as a guideline for minimizing the VOC emissions from fugitive sources of petroleum refineries and organic chemical plants through measurement, performance guidelines, record keeping and work practices.

National Framework for Petroleum Refinery Emissions Reductions (2005) – aims to develop a more effective approach to reduce emissions at oil refineries and assist local jurisdictions (municipal and provincial levels) to establish annual facility-wide emissions caps for a range of air pollutants for the downstream industry. One of the main elements covered is the strategy to monitor and report refinery emissions and reductions.

Base Level Industrial Emissions Reduction (BLIERs) process (2009-2010, continuing) – the upstream oil and gas sector sub-group of the process recommended that regulated codes of practice be the form of the qualitative BLIER for fugitive Volatile Organic Compounds from equipment leaks, storage, loading/unloading. This was also adopted by the oil sands sector sub-group.

Government of Alberta

Guide 60 (1996) – provided regulatory requirements and guidelines for gas flaring and venting, as well as information for permit applications, measurement and reporting of flared and vented gas.

Directive 060 (1999) – following multi-stakeholder consultations via the Clean Air Strategic Alliance (CASA), the Alberta Energy Utilities Board implemented Directive 060. This Directive defined firm short-term flare reduction targets, enhanced

2 The summaries are built largely from a 2007 Report to Environment Canada prepared by SNC-Lavalin Environment Inc.

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regulations for emissions measurement, and thresholds for action to reduce emissions from flaring and venting.

Directive 060 (2007) – the Energy Resource Conservation Board3 updated Directive 060, including, among other things, requirements for the evaluation of venting, and the reporting of economic evaluations. There is also Section 8.7 devoted to unintentional fugitive emissions from equipment leaks that mandates detection and monitoring programs to meet or exceed CAPP best management practice guidelines for fugitive emissions.

Government of British Columbia

British Columbia has in place requirements for flaring, venting, incinerating, and fugitive emissions which mirrors Alberta’s Directive 060. In March 2008, the BC Oil and Gas Commission produced a set of guidelines that generally applies to any well site, facility and pipeline regulated under the Petroleum and Natural Gas Act and Pipeline Act.

Government of Ontario

Ministry of the Environment - Regulation 127/01 - Airborne Contaminant Discharge Monitoring and Reporting Regulation – requires that facilities emitting certain quantities of substances report to the government and requires that the reports be available to the public. This regulation harmonizes the province’s air emission reporting system with that of the federal government’s NPRI program.

City of Montreal

By-Law 90-633 (Article 7.11) – regulates the emissions of organic compounds from fugitive sources at various facilities. Facility operators are required to put in place a program for the detection and the correction of leaks of organic compound. US Environmental Protection Agency (EPA) Method 21 is followed in this By-Law to detect, repair, and monitor fugitive emission leaks.

Other Canadian Jurisdictions

In general, in those jurisdictions with no significant industry to speak of, no regulation has been developed for fugitive emissions. Most provinces and the northern territories have a case-by-case evaluation process where the operator of a plant would need to submit an application for an operating license, to be assessed by the local jurisdiction. Upon review, the authority would require control or abatement measures to be implemented, and if necessary a program for the specific

3 As of 2008, the Alberta Energy and Utilities Board was realigned into two separate regulatory bodies – Energy Resource Conservation Board (ERCB) and the Alberta Utilities Commission (AUC). It is the ERCB which is responsible for Directive 060.

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process and industry. The significance of those emissions would need to be evaluated and either local regulations or other applicable references such as CCME Codes and Guidelines, the National Framework for Petroleum Refinery Emissions Reductions, and even other provincial regulations would be consulted to find the most suitable approach to address the problem. In general, refineries and terminals, in the absence of local regulations and acts, will follow the CCME Code of Practice, following a Leak Detection and Repair (LDAR) program to monitor and report their fugitive emissions.

Canadian Association of Petroleum Producers (CAPP)

Best Management Practice for Management of Fugitive Emissions (2007) – guidelines to assist the upstream oil and gas industry meet requirements of section 8.7 of the Energy Resources and Conservation Board (ERCB) Directive 060 and in cost effectively managing the most likely sources of significant fugitive emissions.

Guide for Calculating Greenhouse Gas Emissions (2003) – developed to assist companies in standardizing their approach for estimating greenhouse gas (GHG) emissions from combustion, fugitive, process venting and indirect sources.

Canadian Petroleum Products Institute (CPPI)

Code of Practice for Developing an Emission Inventory - guidelines and standards pertaining to equipment leaks and storage tanks. These standards are similar to those found in the CCME Code/Guidelines.

International Panel on Climate Change (IPCC)

Revised Guidelines for National Greenhouse Gas Inventories, Chapter 4 – Fugitive Emissions (2006) – provides a series of methodologies for measuring fugitive emissions.

U.S. Environmental Protection Agency (US EPA)

Method 21 (developed in the 1970s) set up the earliest framework for detection (but not measurement) of Voluntary Organic Compound emissions from equipment leaks.

Currently, in the US, there are two main equipment leak standards, found in the Code of Federal Regulation part 63 and are National Emissions Standards for Hazardous Air Pollutants. These have been developed to target both general Volatile Organic Compounds and Hazardous Air Pollutants. These standards are applied on a process unit basis, which means that any facility having both types of emissions would need to develop monitoring programs tailored to target them.

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DEFINITIONS

In advance of discussing approaches to address fugitive emissions, it is useful to understand what is meant by the term. What comprises a fugitive emission differs slightly between different stakeholders in the oil and gas industry. All of the definitions cover similar aspects of fugitive emissions, but differ in the perspective from which they approach the issue.

General Definition:

Broadly speaking, as the term would suggest, “fugitive emissions” are gases released to the atmosphere that are difficult to identify, measure, and monitor.

The gases included in the fugitive emissions category can divided into two broad groups:

Toxic - hydrogen sulphide, sulphur dioxide, Volatile Organic Compounds (VOCs), and benzene, toluene, and ethyl-xylene (BTEX)

Non-toxic - methane, carbon dioxide, and ethane.

The toxic/non-toxic distinction is important, because the odour of toxic gases makes them easier to identify and monitor than non-toxic gases. Moreover, there’s a more compelling motivation for companies and governments to deal with toxic gases when an immediate public safety or health concern surfaces. The public is more likely to react to the risk, because it’s noticed as an imminent threat. This is less the case with invisible, odourless gases like methane which, while toxic, are less noticed, and thus can be more easily ignored, though their environmental impacts can be quite significant.

Different stakeholders provide a further distinction on fugitive emissions:

Unintentional emissions from equipment leaks, transportation and storage, loading and unloading, accidents, equipment failure.

Intentional (or planned) emissions from activities such as flaring and venting, general loading and unloading, and for oil sands, mine-face and tailings ponds.

This unintentional/intentional distinction is important, because it has implications for discussions on the need for policies to encourage action on emissions reductions, and the appropriate regulations or guidelines.

Canadian Oil and Gas Industry: The Canadian oil and gas industry, represented by CAPP, generally separates emissions that are intentional from those that are unintentional. Intentional or planned emissions occur when gases are let into the atmosphere by design or operational practice (e.g.

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flaring, venting, and incineration). Unintentional or fugitive emissions occur largely through non-routine equipment leaks, accidents, and equipment failure as a result of poor design, wear and tear, or improper installation.

Energy Resource Conservation Board of Alberta (ERCB), Canadian Council of Ministers of Environment (CCME), Environment Canada, Pembina Institute:

The ERCB (Directive 060), Alberta Environment, CCME, and the Pembina Institute perceive fugitive emissions exclusively in terms of the unintentional release or loss of gas resulting from production, processing, transmission, storage, and delivery. This would largely include releases due to leakage from equipment and machinery. Intentional emissions include, flaring, venting, and incineration. The ERCB’s Directive 060 distinguishes between “routine” or continuous flaring, venting and incineration, and “non-routine” flaring, venting, and incineration which are intermittent or infrequent events that result in planned maintenance, process upsets, and emergencies. Fugitive emissions are treated separately.

Global Reporting – International Panel on Climate Change (IPCC):

For the IPCC, fugitive emissions are intentional or unintentional releases of greenhouse gases from the production, processing, transmission, storage, and delivery of fossil fuels. However, for the IPCC, a “released gas” is only considered a fugitive emission if it is combusted before disposal (e.g. flaring at production facilities). If the heat generated during combustion is captured for use (e.g. heating) or for sale, then the emissions are considered fuel combustion sources, not fugitive emissions. This definition reflects the reporting needs to meet Kyoto requirements; the focus is on emissions that might impact climate change.

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TECHNOLOGIES AND PROCESSES

Advances in environmental technologies over the past decade or so have made it increasingly possible to overcome some of the key obstacles in identifying, measuring, and monitoring fugitive emissions in the oil and gas industry. As a result, companies are now better able to construct economic evaluations of the costs to take action to reduce these emissions, if they so choose. In turn, governments can, and have, established regulations to encourage and/or compel companies to act.

Below is a brief description of some of the technologies used to identify and measure fugitive emissions (intentional and unintentional). It is not a comprehensive review. Descriptions have been synthesized from information provided in a 2006 PTAC Report.4

Soap Solutions

A soap solution is applied directly on the component and leaks are detected by the appearance of bubbles. This technique is qualitative only but leak rates can be evaluated by the degree of bubbling action.

Odourants

Odourants are usually used in gas distribution systems for leak detection in consumer sites. The odourants are powerful sulphur containing components that are readily detected in small concentrations by humans. While it is impractical to inject odourants on a continuous basis it may be useful to periodically inject some into a gas stream to help provide a gross indication of where there are leaks occurring.

Static Leak Indicators

This includes a number of technologies used to detect higher risk leak sources as soon as they occur:

Bag and Streamer. An impermeable expandable bladder, such as a wide rubber band, or plastic material can be wrapped around the flange and sealed. As a leak develops the bladder expands and provides a visual display. A small hole in the side of the bag provides a means for the gas to escape without rupturing the bag. This hole could also contain a whistle or a streamer to provide an audible or visual signal.

4 PTAC report prepared by Bruce Peachey of New Paradigm Engineering Ltd – Upstream Oil and Gas Fact Finding Report on Fugitives (2006). More detailed descriptions of the technologies are presented in the Report, found at: http://www.ptac.org/links/EnergyEfficiencyKC/eekc0506.pdf . Another complete list of technologies is available in an Environment Canada report (2007) prepared by SNC-Lavalin Environment - Comparison of Codes of Practice and Regulations for Reducing Fugitive Emissions from Equipment Leaks in the Oil & Gas and Chemical Sectors.

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Colour Indicating Tape. A chemical agent that reacts in the presence of natural gas, or a lack of oxygen, and changes colour can be added to one side of a transparent tape. This tape can be wrapped around the flange with the reagent exposed to the vapour space inside the flange. If a leak occurs the reagent changes colour indicating a leak.

Chronic Leak Monitoring. Continuous monitoring on individual potential leak sources may be possible utilizing equipment to detect a leak at a specific source which sends an electronic signal or triggers an audible alarm for the operator. Various detection principles may be used such as combustible detectors, ultrasonic/sonic, thermal conductivity, vibration, or infrared.

Electronic Screening Devices There are a variety of hand held instruments that can be used to check leaks where a soap solution fails such as leaks with large holes or gaps.

Gas Monitors. Various handheld gas monitors or “sniffers” are available. A sample of a gas stream in the area of a suspected leak is drawn into the device and one of a number of analyzers is used to determine if a hydrocarbon is present. Most detectors will provide a positive response if a gas other than air is encountered.

Ultrasonic Leak Detectors. Ultrasonic detectors can listen for leaks using acoustic analysis. The main use for these devices is to check for leakage from relief valves and other devices that might allow gas to be lost to flare or other relief or closed collection systems. The devices allow the survey technician to hear the flow through the valve even though there may be no external indication (ice build-up or vibration).

Laser or Infrared Detectors. New devices have been developed and are coming into greater use; they allow the plume from the leak to be detected at a distance. These systems are generally mobile and are better for detecting leaks outdoors and in hard to reach locations where use of hand-held devices would be difficult or require cranes or lifts.

Emission Flow Measurement Once leaks are located, many of them will be easily stopped, by tightening a fitting, packing or flange. However, in some cases it is often desirable to determine the leakage rate, especially if repair or mitigation of the leak requires a process unit shutdown or other actions that would make repairs costly. A number of methods of varying cost, complexity and accuracy are available for quantifying leak rates.

HI-FLOW Sampler. Accurately measures the leak rate. The device captures the entire leak and the ambient air around the leak using a vacuum. It is completely portable with battery power to provide the collection of the sample. A hot wire anemometer is used to determine flow rate.

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Rotameters. These are devices that provide a quick and fairly precise flow measurement based on a variable area principle. The rotameter is positioned in the vertical position and the flow to be measured is brought in from the bottom. As the flow increases, the float starts to rise and allows the gas to pass between the float and the inside walls of the tapered tube. The height of the float inside the tube can be correlated to a flow rate and is read off a scale on the side of the tapered tube.

Bagging. An impermeable bag of known volume is attached to the leaking source. The time it takes to fill the bag is recorded to determine flow rate. The contents of the bag can be sub sampled for compositional analysis or by a hand held monitor to determine combustible gas content

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KEY CHALLENGES

There are a number of challenges facing industry, government, and other stakeholders in addressing fugitive emissions. The main challenges are discussed below.

Identifying sources of fugitive emissions

While unintentional fugitive emissions are known to be caused by a variety of factors (e.g. equipment leaks, improper/incomplete assembly of components, inadequate material specification, manufacturing defects, damage during installation, etc.), the task of singling out the specific component (e.g. seals, valves, fittings, burners, etc.) among hundreds or thousands in a large facility that is the source of the leak is quite complex unless the leak is of a toxic nature in which case the odour is an immediate signal. When multiplied by the number of sites under consideration, the task is quite daunting. In addition, the components which are sources of the leaks emit no emissions most of the time, so the issue is first and foremost one of detection, followed by assessing when, how, and if they should be repaired, which are maintenance management issues.

How detection can be done effectively, and economically, represents a key challenge for industry (e.g. devise strategies to minimize potential for big leaks, set-up early detection and repair systems, take advantage of technological advances, set up regular maintenance systems, etc.). Part of the challenge is the need to conduct regular monitoring of facilities to identify leaks or faulty leak-causing components, or components in need of repair. Even though it is known that the majority of fugitive emissions come from a relatively small number of sources, having regular monitoring can mean the need to hire and train qualified personnel, purchase special technological devices or machinery, and develop a consistent and systematic plan or approach to carry it out, all of which require commitment, investment of financial resources, and long-term thinking about outcomes and value.

On the intentional side of fugitive emissions (e.g. flaring and venting), the source(s) is (are) largely known, because the emissions are largely “by design”. This doesn’t make them less important, just less problematic when it comes to identifying their source.

Measurement of fugitive emissions (volume)

Accurately assessing the volume of fugitive emissions – both intentional and unintentional – is difficult technically and practically, and, even with the advanced technologies, there is still a substantial amount of uncertainty involved.

The IPCC, in its Revised 2006 Guidelines asserts that volumes for intentional fugitive emissions (through flaring and venting) “may be highly suspect since these values are

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usually estimates and not based on actual measurements”. IPCC equations for calculating estimates of fugitive emissions talk of “orders of magnitude” of uncertainty.5 CAPP’s Best Management Practice guidelines (2007) for unintentional emissions from equipment leaks state that the decision to repair or replace a component should be based on “sufficiently accurate” measurement or estimation of leak rates, (i.e. within + 25%), or enough to establish a positive net financial benefit. A number of studies show that accurate measures of fugitive emissions using advanced technologies are often three to four times higher than estimates. Thus, while fugitive emissions represent approximately 9% of Canada’s total greenhouse gas emissions, there’s general agreement that this is a conservative estimate rather than an accurate measurement.

The uncertainty surrounding the volume of fugitive emissions is due to a number of factors, including: the absence of adequate systems/methods designed to provide “activity data” (clear volume measures), the complexity of the facilities (e.g. large number of facilities, large number components at facilities representing possible leak sources – seals, valves, valve covers, cylinder heads, connectors, etc.), the nature of the data collection exercise (e.g. type of information to collect – the IPCC identifies at least fourteen oil and gas industry segments from which data should be collected), and the nature of the emissions, themselves (i.e. as gases, they dissipate into the atmosphere, which means volume records will not account for the totality of fugitive emissions – intentional or unintentional).

For all stakeholders, the volume of released gas is a critical component in the decision making process. Not knowing the precise volume of fugitive emissions represents an obstacle for companies to take action, because return-on-investment calculations are less precise or reliable. Regulators, like the ERCB or Alberta Environment, rely on engineering estimates for defining the regulations. However, they’re less worried about accuracy than ensuring a high degree of consistency in the methods used to collect the data, and greater frequency in the measurements taken. For them, measuring fugitive emissions more often and using the same method(s) will provide better and more credible year-over-year comparisons than doing it infrequently or with different methods, even if the most accurate technologies are used.

Return on investment for industry

For oil and gas companies, dealing with fugitive emissions at their facilities has the potential to generate economic opportunities (e.g., increased production via reduced gas losses, sale of conserved gas, potential for obtaining carbon credits by reducing overall GHG emissions, equipment repairs contribute to overall facility energy efficiency, enhanced corporate reputation, reduced penalties, etc.). The challenge for them is to set up fugitive emissions management programs that can deliver the expected return-on-investment (e.g. cost of program vs. net benefits in return to the bottom line).

5 In many instances, the uncertainty value is + 100% of the value calculated.

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The particular challenge for companies in this regard is making the decision to allocate financial resources to fugitive emissions reductions when the rate of return on the investment is lower than that for other possible allocations (e.g. drilling a new well). Moreover, the time lag between the investment and the return is typically greater with fugitive emissions than with other production related activities (e.g. repairing equipment can involve plant shutdowns, data collection among multiple sites and components takes time). It simply takes longer to see the “rewards” of trying to implement a program to reduce fugitive emissions. With the rate of return and time period working against it, the fugitive emissions issue can easily fall down a company’s priority ladder.

A further complication is that decision to act on fugitive emissions is very often tied to the economics of the industry (i.e. the price of gas) rather than on strict environmental concerns. So a company’s return-on-investment can fluctuate based on what they calculate they can earn on the sale of gas they capture; if the price of gas goes up, dealing with fugitive emissions makes sense, if it goes down, this is less true.

Cross-Jurisdictional Responsibilities

Canadian authority over air quality is divided between the federal and provincial governments, with territories, regional districts and municipalities also exercising delegated authority. Each jurisdiction employs a variety of laws and regulations to control emissions from industrial facilities, generally encompassing emission limits, permitting requirements, and quantification and reporting requirements. Until now, the permitting of air emissions from industrial facilities has been left to the provinces and municipalities, with limited federal involvement, other than the establishment of ambient air standards. The Canada-Wide Standard (CWS) on particulate matter emissions and ozone mandates the provinces to develop implementation plans, including plans to control emissions from industrial facilities, and report on progress, but there is no formal oversight.

There are no apparent issues with cross-jurisdictional responsibilities that are barriers to action on fugitive emissions. All governments appear prepared to cooperate, and take co-ordinated action. No one province is out of step with the rest. The BLIER’s process is perhaps an indication of the degree of co-operation that is occurring on this issue.

However, one key cross-jurisdictional issue for companies is the need to have a level regulatory playing field across jurisdictions; that is, having the same rules wherever they operate to avoid being put in a non-competitive situation. If one jurisdiction is alone in implementing a regulation or devises a royalty framework or a carbon charge/tax, companies in that jurisdiction may see themselves at a disadvantage vis-à-vis their competitors. And, the regulators are conscious of not wanting to create a “less friendly” business climate where companies may choose to develop assets in another jurisdiction.

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Lack of public awareness or engagement

With fugitive emissions that are toxic, or when events occur that affect public safety (e.g. explosion), there is usually enough public outcry to raise awareness and convince regulators and companies of the need to take action. The social license to operate is a key reason for this. However, when fugitive emissions are largely non-toxic, odourless gases (i.e. methane), it is difficult to generate public consciousness or engagement. And, as far as environmental issues in the oil and gas industry are concerned, fugitive emissions simply don’t register on the public’s radar. This can be problematic if public pressure is needed to spark governments or regulators to act.

Corporate Commitment

In Alberta, companies are mandated to meet specific regulatory requirements on fugitive emissions, and to comply with the requirements. A March 2008 CAPP survey of companies indicated significant industry-wide effort to comply with its Best Management Practice Guidelines for fugitive emissions. However, companies are not compelled to go beyond the requirements unless they perceive an incentive to do so. There’s some indication from regulators and environmental groups that few companies choose to do more than the regulations require. Those companies that have decided to lead on this issue, do so because they see future opportunities beyond the strict economic model and implicitly follow tenets of social responsibility. They have also done their return-on-investment due diligence through pilot tests of specific technologies, and found overall potential net positive returns from fugitive emissions reductions high enough to warrant action.

Addressing Environmental Impacts and Critics

Environmentalists and the ENGOs are frustrated with and critical of industry for its perceived inaction, delay, and unwillingness to move in any concerted way to reduce their greenhouse gas emissions. For them, companies’ inability to meet or surpass emissions reductions targets means longer term negative impacts on the environment and the communities in which Canadians live. Critics are particularly adamant that companies can and should act to address fugitive emissions, because they are the “low hanging fruit” of emissions reductions, and don’t accept arguments that it’s uneconomical to do so. Studies and pilot projects have shown that action on fugitives can generate positive returns on investment for companies over the medium to longer term. But this doesn’t seem to spur enough action; companies still choose to make investments which produce greater and more immediate returns for shareholders, despite the greater negative environmental impact. This suggests they’re making a choice for short-term profits over the environment, which undermines companies’ credibility when they claim to want to meet obligations to achieve meaningful progress in emissions reductions.

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Environmentalists are also critical of what they see as built-in bias in regulations for a minimalist approach to emissions reductions, one that is based first and foremost on a return-on-investment analysis – take action only after you’ve calculated that a profit is possible. In a sense, as far as the environmental community is concerned, the regulatory frameworks governing fugitive emissions actually pay companies a dividend for reducing the pollution they put into the atmosphere. In what other industry, they argue, would an industry be paid to mitigate the harmful effects of their actions?

Moving forward, and as the push for serious action on emissions reductions gains momentum across Canada and globally, industry will be compelled to respond more effectively to critics through concrete actions. Their ability to do so in the future will undoubtedly be contained by the extent to which they are able to address current arguments that they’re dragging their heels on fugitive emissions, instead of making this an “easy win”.

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APPROACHES TO ADDRESS FUGITIVE

EMISSIONS

In this section, we outline a series of approaches (current and potential) to address the issue of fugitive emissions.

Regulatory Approaches The Alberta Energy Resource Conservation Board’s Directive 060 addresses fugitive emissions from flaring, incinerating, and venting. This Directive represents a comprehensive and detailed set of regulations for upstream petroleum industry and gas transmission facilities. It provides specific parameters for a variety of aspects, including: evaluation of flaring, venting, incineration to determine if action is required, reporting of economic evaluation data including thresholds for the need to act, gas reduction targets, performance requirements, key tests to trigger the decision to act (e.g. public concern, health impact, environmental impact or benefits), consultation and notification requirements, permitting requirements, etc. One section of Directive 060 mandates companies to develop and implement programs to detect and repair fugitive emissions from leaks. Programs must meet or exceed best management practice guidelines laid out by the Canadian Association of Petroleum Producers for fugitive emissions. However, there is no requirement to quantify emission reductions; and it appears companies are reluctant to do so because of the costs involved. There is a general belief across stakeholder groups that reductions are happening, they are just not being quantified.

Base Level Industrial Emissions Requirements Process (2009). Held under the multi-stakeholder Comprehensive Air Management System (CAMS), the process comprised representatives from the federal and provincial governments, industry, and ENGOS. Environment Canada chaired the CAMS Steering Committee and industry sector subgroups. The BLIERs group informed the possible development of measures and a regulated code of practice for fugitive emissions across all Canadian jurisdictions, and made recommendations to CCME Ministers. The BLIERs are intended to be quantifiable requirements that can be imposed by regulations or permits on existing and new facilities. There are also to be quantitative performance standards, and may be developed on an equipment basis and then rolled up to a facility level. It is intended that the stringency of base-level requirements would match what leading jurisdictions – inside or outside Canada – require for comparable industrial sources in attainment areas (areas where air quality standards are being met), adjusted where necessary for Canadian circumstances.

For fugitive emissions from equipment leaks, the upstream oil and gas and oil sands sector subgroup recommended a regulated code of practice setting out detection and

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repair of VOCs (volatile organic compounds) equipment leaks and operating practices at upstream oil and gas facilities. This could be done by updating the CAPP best management practice with additional elements or the development of a new code of practice under the Canadian Environmental Protection Act (1999). For flaring and venting, the proposal is to adopt Alberta’s minimum requirements under Directive 060.

Future work on which cross-jurisdictional consensus within the BLIERs process is being sought includes:

Implications of tradeoffs of measures on greenhouse gas emissions

Cost impacts for industry and governments of implementation

Timelines for implementation or phase-in schedule for proposed measures

Development of a Code of Practice for fugitive equipment leaks and storage losses

Determination of how Alberta ERCB Directive 060 could be made into a national standard.

Guidelines / Best Management Practices (Voluntary) The Canadian Association of Petroleum Producers, Canadian Council of Ministers of the Environment, and International Panel on Climate Change have established guidelines to assist industry with fugitive emissions. From simple “decision tree process”6 models (i.e. what action(s) to take based on risk assessment, availability of data, and economic cost-benefit), to volume estimation methodologies (which include complex mathematical equations), these guidelines provide a framework for companies on how to proceed when it comes to addressing fugitive emissions at their facilities.

CAPP defined its position on unintentional fugitive emissions with its 2007 Best Management Practice document, designed to comply with Directive 060’s mandatory requirements to deal with equipment leaks. The emissions of primary concern are methane (CH4) and non-methane volatile organic hydrocarbons (NMVOC). The key principles in CAPP’s approach are: minimize the potential for big leaks, provide early detection and repair, and focus efforts where they are most likely to offer significant, cost-effective control opportunities through improved design, directed inspection and

6 The decision tree process is designed to guide companies’ decisions regarding action to reduce emissions. Once a leak is detected, a procedure is followed to determine whether it is worthwhile economically to repair the leak within a reasonable period of time or postpone it until the next facility turnaround if a major shutdown is required. If it is determined that the leak may not be economical to repair, this is documented based on reliable quantification of the amount of leakage and the repair costs. If a leak poses a health, safety, or environmental concern, then it needs to be repaired regardless of whether it is economical to fix.

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management, operating practices, and the application of new technologies. It is further underlined that if the leak poses a health, safety, or environmental concern, it needs to be addressed regardless of whether or not it is economical to repair. The document outlines strategies for determining the types of components to be targeted, assessing the leak rate and volume, and evaluating the feasibility of repair based on whether or not there is a positive net financial benefit. It encourages company management to support these programs through adequate funding and resource allocation, and ongoing commitment.

CCME was among the first bodies in Canada to act on fugitive emissions. Based on the US Environmental Protection Agency’s experience, it issued in 1933 the Environmental Code of Practice for the Measurement and Control of Fugitive VOC Emissions from Equipment Leaks to give the petroleum refineries and organic chemical plants a basic management plan for oxides of nitrogen (NOx) and volatile organic compounds (VOC). Using this Code of Practice as a reference, more and more provinces developed their own regulation to manage VOC fugitive emissions among the industries under their respective jurisdiction. In doing so, the legislators, after consultations with the industry, adapted the regulations to the particular context of each location. The Code was updated in 2003.

IPCC asserts that fugitive emissions in the oil and gas sector are difficult to quantify accurately because of the diversity of the industry, the large number and variety of potential emission sources, the wide variation in emission-control levels, and the limited availability of emission-source data. To help countries, it has developed a three-tier approach7 for estimating fugitive emissions. Interestingly, the IPCC holds Canada up as an example of a country that has moved quite a way down the road to setting up a complete inventory for the oil and gas sector, using consistent definitions and classification schemes that are applied at the macro- (i.e. country-wide) and micro- (i.e. specific company) level.

Technology Technological advancements in the identification/detection and measurement of fugitive emissions (in the oil and gas industry) appear to offer significant promise for dealing with the detection, measurement, and monitoring of fugitive emissions.

7 Tier 1 is a top-down approach where average production-based emission factors are applied to reported oil and gas production volumes. It’s typically applied in countries with very limited oil and gas industries. Tier 2 is considered a mass balance approach, intended primarily for systems where the majority of gas production is flared or vented. The total amount of gas produced with oil is assessed, and then control factors are applied to account for conserved, re-injected and utilized volumes. The result is a determination of the amount of gas either flared or lost directly to the environment. Tier 3 is a rigorous assessment of fugitive emissions from individual sources or components using a bottom-up approach that requires process infrastructure data and detailed production data. Results are aggregated from individual facilities to determine total country emissions.

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Notably, these technologies provide companies the ability to accurately measure volumes, and the capacity to determine potential economic benefits for acting to reduce these emissions. The key issue with the technology is cost. Many of these technologies are priced in the thousands of dollars, and require qualified personnel to operate. Despite the net positive financial benefit the technologies may provide, the economic evaluations undertaken do not necessarily or always produce a result that triggers implementation of a direct inspection and maintenance program that uses them.

Options for Programs to Reduce Fugitive Emissions Current regulatory frameworks mandate companies to meet minimum requirements for fugitive emissions reductions. Regulators in Alberta believed that there was a “market opportunity” for companies to pursue reductions more aggressively (i.e. they can make money from the conserved gas). However, the opportunity has not been taken up as much as expected. As a result, other options have been considered or are being considered to motivate the industry to do more. These include:

Tighten Current Regulations. Change Directive 060 thresholds to mandate companies to act when the economic calculation provides lower net positive present value.

Pay Carbon Credits. Protocols are being developed to give companies carbon credits (valued at between $10-$13/ton) to spur action to increase reductions beyond the mandated level. The feeling is that this could act as a short-term incentive to raise the bar on reductions, and then mandated reductions at new levels over a longer term horizon could be introduced. The protocols are tied to a specific fugitive emissions source, and to a specific technology designed to assist in the detection and quantification of emissions. Companies could, in effect, realize economic gains from the carbon credits and from the sale of the conserved gas.

Purchase Offsets or Pay into Technology Fund. The top 100 oil and gas facilities in Alberta have the choice of purchasing offsets to cover unmet emissions reductions or pay into a technology fund at the rate of $15/ton. Currently, about half the companies purchase offsets, the other half pay into the fund.

Tax or Royalty Rebates. Companies would obtain rebates for the development and implementation of direct inspection, quantification, and management of fugitive emissions programs based on a set of standardized rules, thresholds, targets, and schedules.

Direct Subsidies. Companies would receive subsidies for any expenses incurred in the development and implementation of direct inspection, quantification, and management programs. This would largely cover the purchase of advanced technologies, but could be extended to the hiring of qualified personnel.

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CONCLUSION

The purpose of this document is to provide workshop participants with a starting point for the discussions. The information provided here is not intended to be a comprehensive, authoritative report on fugitive emissions. Instead, it is designed to trigger you to ask questions, consider options, and develop your own views on how best to work towards effective actions to reduce fugitive emissions.

This is a very complex, multi-layered issue with many stakeholders working across many jurisdictions. The workshop dialogue is designed to explore how to define and measure fugitive emissions, to identify opportunities to reduce barriers to action on emissions reductions, to single out common approaches that will help move the agenda forward in a constructive and effective manner, and to think about practical actions that can be taken to ensure change happens.

Some questions for you to consider as you prepare for the workshop:

Do we have a clear definition of fugitive emissions?

Are our tools (the processes and technologies) for measuring fugitive emissions adequate?

How big a problem are fugitive emissions?

Why are fugitive emission rates increasing in absolute terms?

Why are companies not doing more to reduce fugitive emissions?

What does success look like for reducing fugitive emissions?

What’s required from different stakeholders?

What barriers must be overcome to achieve success?

What would motivate you or your company to move towards further reduction of fugitive emissions?

What policy and/or regulatory frameworks can help achieve the optimal results desired?

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GLOSSARY OF TERMS Acronyms

BLIERs Base Level Industrial Emissions Reduction

BTEX benzene, toluene, ethyl-xylene

CACs Criteria Air Contaminants

CAMS Comprehensive Air Management System

CAPP Canadian Association of Petroleum Producers

CASA Clean Air Strategic Alliance

CCME Canadian Council of Ministers of the Environment

CEPA Canadian Pipeline Energy Association

CETAC Canadian Environmental Technology Association of Canada

CGA Canadian Gas Association

CPPI Canadian Petroleum Products Institute

CWS Canada-Wide Standard

ENGOs Environmental Non-Governmental Organizations

ERCB Energy Resource Conservation Board

GPAC Gas Processing Association of Canada

HAP Hazardous Air Pollutants

IPCC International Panel on Climate Change

LDAR Leak Detection and Repair

NFPRGR National Framework for Petroleum Refinery Emissions Reductions

NMVOC non-methane volatile organic hydrocarbons

NPRI National Pollutant Release Inventory

PTAC Petroleum Technology Association of Canada

SEPAC Small Explorers and Producers Association of Canada

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USEPA United States Environmental Protection Agency

VOCs Volatile Organic Compounds

Terms

Decision Tree for Directed Inspection and Monitoring: A decision making model developed by the US EPA in its Method 21 in the 1970s. It is designed to provide a process to effectively manage emissions. The process helps companies decide what actions to take in given contexts. For example: as a first step, they need to determine if there are health, safety or environmental concerns with fugitive emissions. If yes, they should repair the leaking component. If not, they need to determine if the leak is easy to fix. If yes, does doing so require a shutdown; if yes, then the leak should be added to the list of things to fix/repair during the next scheduled shutdown; if no, the leak should be repaired. If the leak is not easy to fix, then companies should measure or estimate the size of the leak and evaluate the cost effectiveness of fixing it. If it’s economical to fix it, then it should be fixed within the context of a planned shutdown. If not, then the leak is to be evaluated at the next scheduled leak survey.

Downstream: Downstream is a term commonly used to refer to the refining of crude oil, and the selling and distribution of natural gas and products derived from crude oil. Such products include liquified petroleum gas (LPG), gasoline or petrol, jet fuel, diesel oil, other fuel oils, asphalt and petroleum coke. The downstream sector includes oil refineries, petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies. The downstream industry touches consumers through thousands of products such as petrol, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides,pharmaceuticals, natural gas and propane.

Upstream: Upstream is a term commonly used to refer to the searching for and the recovery and production of crude oil and natural gas. The upstream oil and gas sector is also known as the exploration and production (E&P) sector. It includes the searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring the crude oil and/or raw natural gas to the surface.

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