1. Seep Tents Masters Project Presentation to Stakeholders April 12 th, 2002 Donald Bren School of Environmental Science & Management

2. 2 Agenda Introductions Introductions Background Background Research approach Research approach Water quality & marine ecology Water quality & marine ecology Air quality Air quality Regulatory obstacles & requirements Regulatory obstacles & requirements Economic costs & benefits of seep tents Economic costs & benefits of seep tents Results & Recommendations Results & Recommendations

3. 3 Group Project Members Ali Ger Ali Ger Water quality, marine ecology, cost-benefit analysis Water quality, marine ecology, cost-benefit analysis Misty Gonzales Misty Gonzales Air quality, ozone production modeling Air quality, ozone production modeling Erin Mayberry Erin Mayberry Health valuation, cost-benefit analysis Health valuation, cost-benefit analysis Farah Shamszadeh Farah Shamszadeh Gas price forecasting, cost-benefit analysis, regulatory framework Gas price forecasting, cost-benefit analysis, regulatory framework

4. 4 Background Project proposed by SBCAPCD Project proposed by SBCAPCD Research motivation Research motivation Recent CA energy crisis has renewed interest in capturing this seepage as a potential “green” source of natural gas Recent CA energy crisis has renewed interest in capturing this seepage as a potential “green” source of natural gas The SBCAPCD suggested that capturing natural hydrocarbons might reduce local air pollution The SBCAPCD suggested that capturing natural hydrocarbons might reduce local air pollution

5. 5 Research Approach We take an interdisciplinary approach to evaluating a proposed project by estimating: We take an interdisciplinary approach to evaluating a proposed project by estimating: Impacts on water quality and marine ecology Impacts on water quality and marine ecology Effects on air quality Effects on air quality Regulatory obstacles and requirements Regulatory obstacles and requirements Economic costs and benefits of installing additional seep gas capture tents Economic costs and benefits of installing additional seep gas capture tents Majority of the data for this group project came from the UCSB Hydrocarbon Seeps Project and SBCAPCD Majority of the data for this group project came from the UCSB Hydrocarbon Seeps Project and SBCAPCD

6. 6 Tent design? Source: http://seeps.geol.ucsb.edu/

7. 7 Temporal Seep Flux Temporal decline statistically deduced from ARCO capture data

8. 8 Spatial Seep Flux Spatial flux is variable Spatial flux is variable High flux areas are optimal tent locations High flux areas are optimal tent locations Grided Libe Washburn’s flux buoy data over 100’ x 100’ plots Grided Libe Washburn’s flux buoy data over 100’ x 100’ plots Statistically deduced function for decrease in capture for each additional tent Statistically deduced function for decrease in capture for each additional tent

9. 9 Environmental Impact marine environment Important to understand how additional seep tents may impact: Important to understand how additional seep tents may impact: Seep gas total flux rates Seep gas total flux rates Fate and transport of hydrocarbon gases Fate and transport of hydrocarbon gases Marine ecology Marine ecology Interactions with seep ecosystem structure Interactions with seep ecosystem structure

10. 10 Seep Environment biogeochemistry & ecology Seeps release between 80,000 to 200,000 m 3 of gas per day Seeps release between 80,000 to 200,000 m 3 of gas per day Mostly methane with trace amounts of toxics Mostly methane with trace amounts of toxics Most toxics and hydrocarbons disperse and/or biodegrade readily Most toxics and hydrocarbons disperse and/or biodegrade readily Toxicity reduces away from the seeps Toxicity reduces away from the seeps Impacts on water quality not known (negligible) Impacts on water quality not known (negligible) Hydrocarbons provide organic enrichment Hydrocarbons provide organic enrichment Result in localized rings of increased sediment biomass around the seep vents Result in localized rings of increased sediment biomass around the seep vents

11. 11 Environmental Impact marine impacts Impacts on soft bottom sediments Impacts on soft bottom sediments Biomass is relatively low Biomass is relatively low Recovery from disturbance is quick Recovery from disturbance is quick Tent installation Tent installation Short-term: One-time impacts to seafloor communities Short-term: One-time impacts to seafloor communities Long-term: Undetectable impacts Long-term: Undetectable impacts Pipeline Pipeline Short/Long-term: Possible ecosystem level impacts if piping is not placed sufficiently far from critical habitats (kelp beds) Short/Long-term: Possible ecosystem level impacts if piping is not placed sufficiently far from critical habitats (kelp beds)

12. 12 Environmental Impact air quality - methane Primary component is methane Primary component is methane Contributes to global warming Contributes to global warming Seepage accounts for between 0.001- 0.004% of total methane flux to atmosphere (2-5 x 10 10 g/yr) Seepage accounts for between 0.001- 0.004% of total methane flux to atmosphere (2-5 x 10 10 g/yr)

13. 13 Seep gas contains reactive organic gases (ROGs) Seep gas contains reactive organic gases (ROGs) Ozone is a serious health concern Ozone is a serious health concern Magnitude of seep contribution to ozone formation varies depending on: Magnitude of seep contribution to ozone formation varies depending on: Climate Climate Levels of ROGs and NO x Levels of ROGs and NO x Environmental Impact air quality - ozone ROG + NO X hv O 3

14. 14 Environmental Impact air quality - speciation

15. 15 Environmental Impact ozone production model Relates seep gas emissions to ozone formation (reactivity) Relates seep gas emissions to ozone formation (reactivity) Estimates the change in ozone associated with seep gas capture Estimates the change in ozone associated with seep gas capture Results input to health benefit model Results input to health benefit model Monetizes benefits of improved air quality from seep tents installation Monetizes benefits of improved air quality from seep tents installation

16. Ozone Production Model Volume (%)

17. 17 Environmental Impact ozone model output % SB ROGs relative reactivity (molO 3 /molC) % of total SB ozone Seep gas total 33.80.025.1 Biogenics total 48.50.1351.3 Wildfire total 0.60.512.8 Urban mix* (SB total-natural) 17.10.2840.8 TOTAL SB (natural+anthro) 1000.13100.0

18. 18 Environmental Impact ozone model output % SB ROGs relative reactivity (molO 3 /molC) % of total SB ozone Seep gas total 26.40.025.1 Seeps gas (-1 tent) 21.70.024.3  0.84% O 3 reduced first year  0.4% annually over 20 years

19. 19 Regulatory Requirements processing facility Current regulatory obstacles limit development or use of onshore gas processing facility Measure A96 requires voter approval on onshore infrastructure for offshore projects Measure A96 requires voter approval on onshore infrastructure for offshore projects Project would be dependent on the county voters’ approval of processing facility Project would be dependent on the county voters’ approval of processing facility Coastal Act s.30263 implies new facilities will not be developed unless existing facilities used at maximum capacity Coastal Act s.30263 implies new facilities will not be developed unless existing facilities used at maximum capacity

20. 20 Regulatory Requirements processing facility Most likely existing facility: Ellwood Oil and Gas Processing Facility Most likely existing facility: Ellwood Oil and Gas Processing Facility Existing tent gas processed there Existing tent gas processed there Closest onshore support facility to the seep field Closest onshore support facility to the seep field Ellwood facility currently under-utilized, but designated as non-conforming land use Ellwood facility currently under-utilized, but designated as non-conforming land use Unlikely that facility will accept additional gas for processing Unlikely that facility will accept additional gas for processing

21. 21 Regulatory Requirements emission reduction credits Unlikely for 3 reasons: 1. Difficult to prove tents would permanently reduce ROGs 2. S.B. in attainment for federal ozone standards 3. Seeps are natural source of ROGs Exception would have to be made to issue credits to a project that reduced seep gas Exception would have to be made to issue credits to a project that reduced seep gas

22. 22 Cost-Benefit Analysis approach Purpose: guide regulators in project decisions Purpose: guide regulators in project decisions 2 views taken: entrepreneur and policymaker 2 views taken: entrepreneur and policymaker Entrepreneur needs to know project profit Entrepreneur needs to know project profit Policymaker also considers value of improved air quality Policymaker also considers value of improved air quality Monetize health benefits Monetize health benefits Other benefits likely small and difficult to quantify (i.e. marine ecology) Other benefits likely small and difficult to quantify (i.e. marine ecology)

23. 23 Profit = Gas Sales Revenue + Credits - Costs Social Value = Gas Sales Revenue + Health Benefits - Costs Profit = Gas Sales Revenue + Credits - Costs Social Value = Gas Sales Revenue + Health Benefits - Costs Cost-Benefit Analysis integrated analytical model Integrates ozone reduction and health benefit valuation models, emission reduction credits, gas price forecast and project cost estimates over a 20-year planning horizon for 1-20 tents Integrates ozone reduction and health benefit valuation models, emission reduction credits, gas price forecast and project cost estimates over a 20-year planning horizon for 1-20 tents Determines viability from entrepreneurial and social perspectives Determines viability from entrepreneurial and social perspectives

24. 24 Cost-Benefit Analysis health benefit valuation Monetary value of improved health from ozone reduction Monetary value of improved health from ozone reduction Determined using range of studies from economic literature – all cited in EPA CBA of Clean Air Act standards Determined using range of studies from economic literature – all cited in EPA CBA of Clean Air Act standards Benefits-transfer approach—uses data from S.B. and other regions to estimate benefit values for S.B. Benefits-transfer approach—uses data from S.B. and other regions to estimate benefit values for S.B. 20+ studies condensed to 3 scenarios 20+ studies condensed to 3 scenarios Most likely scenario: health benefits = $2.1 million for 1st tent averaged over 20 years Most likely scenario: health benefits = $2.1 million for 1st tent averaged over 20 years

25. 25

26. 26 Cost-Benefit Analysis natural gas price forecast Natural gas prices forecasted for 20-year life of project Natural gas prices forecasted for 20-year life of project Multiplied by gas captured in each year to achieve revenues Multiplied by gas captured in each year to achieve revenues Four gas price forecasts calculated: Four gas price forecasts calculated: Conservative and High ARIMA time series model, Conservative constant pricing (Structural), and Hotelling (scarcity-driven) Conservative and High ARIMA time series model, Conservative constant pricing (Structural), and Hotelling (scarcity-driven) Most likely is conservative annual average generated by ARIMA Most likely is conservative annual average generated by ARIMA $2.45 per 1000 cubic feet (MCF) $2.45 per 1000 cubic feet (MCF)

27. 27 Cost-Benefit Analysis emission reduction credits Credits worth $5,000/ton ROGs reduced Credits worth $5,000/ton ROGs reduced 80% transfer ratio: 1.2 tons ROGs captured for each 1 ton of credits 80% transfer ratio: 1.2 tons ROGs captured for each 1 ton of credits Multiplied by amount of ROGs reduced by project scenario, then by transfer percentage Multiplied by amount of ROGs reduced by project scenario, then by transfer percentage Not included in most likely scenario Not included in most likely scenario

28. 28 Cost-Benefit Analysis project costs Installment Installment 1-10 tents $3-$1.5 M marginal cost scale 1-10 tents $3-$1.5 M marginal cost scale 11-20 tents constant $1.5 M marginal cost 11-20 tents constant $1.5 M marginal cost Piping: $1 M/mi to Ellwood Piping: $1 M/mi to Ellwood Plus 100 ft for each add’l tent Plus 100 ft for each add’l tent Maintenance: $100,000/ tent/year for 20 yrs Maintenance: $100,000/ tent/year for 20 yrs

29. 29 C-B Analysis Model most likely scenario Most likely project scenario based on best available data Most likely project scenario based on best available data

30. 30 C-B Analysis Model

31. 31 C-B Analysis Model alternate scenarios Bold text – optimized for social value Plain text – optimized for profit

32. 32 C-B Analysis Model results Under likely project conditions, installing new seep tents NOT practical from social or entrepreneurial viewpoint Under likely project conditions, installing new seep tents NOT practical from social or entrepreneurial viewpoint Business’ point of view: project is not attractive, unless unlikely conditions: Business’ point of view: project is not attractive, unless unlikely conditions: Emission reduction credits are issued Emission reduction credits are issued High market gas pricing conditions are sustained High market gas pricing conditions are sustained Society’s point of view: costs to private firm outweigh society’s benefit Society’s point of view: costs to private firm outweigh society’s benefit

33. 33 C-B Analysis Model results: credits If health value is greater or project costs are lower, ERCs could be issued to compensate an entrepreneur for their losses on the project If health value is greater or project costs are lower, ERCs could be issued to compensate an entrepreneur for their losses on the project Example: Scenario 6 Example: Scenario 6 project loses $1.7 million without credits project loses $1.7 million without credits For a credit of 5% of this project’s ROG reduction the owners of the tents compensated $2 million (industry standard 10% rate of return) For a credit of 5% of this project’s ROG reduction the owners of the tents compensated $2 million (industry standard 10% rate of return) policymaker could create incentive to produce $2.1 million air quality improvement for $2 million in ERCs policymaker could create incentive to produce $2.1 million air quality improvement for $2 million in ERCs

34. 34 C-B Analysis Model cost-effectiveness analysis Prudent to compare cost-effectiveness seep tents to other abatement technology Prudent to compare cost-effectiveness seep tents to other abatement technology Seep tents are cost effective technology for ROG abatement Seep tents are cost effective technology for ROG abatement $1,800/ton with seep tents vs. $5,000/ton using other abatement technologies $1,800/ton with seep tents vs. $5,000/ton using other abatement technologies Seep tents are not a cost effective technology for methane emission abatement Seep tents are not a cost effective technology for methane emission abatement $550/ton with seep tents vs. ~$3.80 /ton in Canada’s pilot program (GERT) $550/ton with seep tents vs. ~$3.80 /ton in Canada’s pilot program (GERT)

35. 35 Recommendations further research More precise and complete research into More precise and complete research into Chemistry of the Santa Barbara airshed Chemistry of the Santa Barbara airshed Marine ecology of the seep field (no ecosystem- level studies) Marine ecology of the seep field (no ecosystem- level studies) Use of Santa Barbara County hospital data to derive the exact relationship between illness and ozone in place of using a benefits transfer method Use of Santa Barbara County hospital data to derive the exact relationship between illness and ozone in place of using a benefits transfer method

36. 36 Recommendations seep tents projects If a seep tents project is proposed in the future, we recommend that an entrepreneur consider: 1. Permitting associated with onshore gas processing 2. Acquisition of ERCs

37. 37 Recommendations policy 1. Verify precise amount of ozone reduced by seep tents to accurately determine value of health benefits and amount of emission reduction credit 2. Revise permit and credit conditions to account for the seeps’ spatial and temporal variability 3. Institute a socially responsible value for credits that reflects the health and other possible external benefits 4. Compare cost effectiveness of seep tents to other methods of abating tropospheric ozone

38. 38 Acknowledgements Bruce Luyendyk, Jordan Clark, Libe Washburn, James Boles (UCSB Hydrocarbon Seeps Research Group) Bruce Luyendyk, Jordan Clark, Libe Washburn, James Boles (UCSB Hydrocarbon Seeps Research Group) Tom Murphy, Doug Allard Patricia Holden, Mike Edwards, Steve Sterner, Michelle Pasini, and Jim Fredrickson, Sally Holbrook Tom Murphy, Doug Allard Patricia Holden, Mike Edwards, Steve Sterner, Michelle Pasini, and Jim Fredrickson, Sally Holbrook Our advisors: Chris Costello and Natalie Mahowald Our advisors: Chris Costello and Natalie Mahowald Spring quarter advisor Mel Willis Spring quarter advisor Mel Willis Peter Cantle (SBCAPCD) Peter Cantle (SBCAPCD)

39. Questions?