GE Energy

November 6, 2012

Unconventional Fuels:Opportunities, Challenges, Solutions

Timothy J. Richards, GEAPEC Energy Group

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The world’s largest natural gas fieldsInitial recoverable resources.

Source: IEA, World Energy Outlook 2011: Golden Age of Gas

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Supply Anxieties? This Time it’s Different

Comparison on selected US and North American natural gas supply curves.

Source: MIT, The Future of Natural Gas

Source: Various

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Demand growthNature abhors a vacuum. Low prices and extreme oil/NG price disparity set feedbacks in motion.

Source: EVA to EPRI, Feb. 2012

Industrial, power sector, LNG exports, GTL, transport?

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* Large range of regional variation exists

Low High

Water availability

Frac flowback water

Produced waterLand clearing

Wastewater treatment/dispos

al

Chemical composition of

frac fluid

Water rights

Venting or flaring from

completions/workovers

Truck traffic

Regional ozone

attainment

Quantity

Source

Uncontrolled release - blowout

Western Issue

Source: GE Energy, Global Strategy & Planning; based on customer discussion not a statistical survey

Degree of public scrutiny*

Water issues elevated in national debate

Environmental issues in upstream gas

INDUSTRY PRIORITY & FOCUS

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Key Unconventional Gas Basins

Barnett Shale• Water availability• Emissions

Haynesville Shale• Wastewater

disposal• Water availability

Marcellus Shale• Wastewater disposal• Water impoundment

ponds

Fayetteville Shale• Wastewater

disposal• Source of water

supply

Source: GE Energy, Global Strategy & Planning

Resource (Size, concentration)

Proximity to (urban or wilderness

areas)

O&G industry maturity

Low

High

Forces driving Environmental

sensitivity

Moderate

High

Rockies basins• CBM Wastewater

disposal• Water availability• Emissions

Large gas plays, in close proximity to urban or pristine areas with little local familiarity to the O&G industry are likely to draw the most intense scrutiny

Environmental focus stronger in some regions

Niobrara Shale• Water

availability• Wastewater

disposal• Emissions

Anadarko Woodford Shale

• Water availability• Wastewater

disposal• Emissions

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Shale Gas: Federal Regulatory OverviewEPA has authority to

regulate…..Safe Drinking Water Act: Fracking cannot be regulated except where diesel fuel used

……and is using it

Clean Air Act: EPA can regulate emissions from O&G operations that are “major sources” Clean Water Act: EPA can regulate direct and indirect (thru POTWs) discharges

Proposed SDWA guidance requires permits if diesel use; produced water can be regulated under existing rules

Current rules prohibit direct discharges; indirect discharges currently unregulated, but pre-treatment standards being developed, likely in 2014

New rules require “green completion” or flaring at wells until 1/1/2015; both after that date; more stringent

emission limits for gathering and processing facilities

Toxic Substance Control Act: EPA has broad authority for chemical testing/disclosure

NGOs petitioned for chemical testing/use disclosure in all O&G exploration/development; EPA denied testing but granted disclosure/reporting request

BLM has power over Federal lands …..

..…and it too is using it

BLM has broad powers over activities on federal lands—38% of US gas wells on federal land

Proposed rule issued in May would require chemical disclosure, data submission on geology/well integrity, and BLM operational approvals

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Shale Gas: State Regulatory Developments

• Vermont/New Jersey have ban/ moratorium, but neither has shale gas resources

• Ohio has comprehensive new law

covering chemical disclosure waste disposal (including for

underground injection well owners)

well construction requirements

pipeline safety requirements local approval of permits but

not a severance tax• New York moving to allow shale

gas development in some counties

• Pennsylvania: state law preempting local ordinances overturned—groundwater contamination a continuing issue

1

2

3

Key criteriaFracking activityRegulatory regimePotential for change

Prohibited

Established

Burdensome

Supportive

High prob. Low prob.

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Key environmental considerationsCategory

Water lifecycle

Issues GE mitigant

•Water scarcity• Potential surface water contamination• Potential groundwater contamination

• Source water filtration•Water reuse/recycling•Mobile evaporators• Fixed treatment solutions

Operational issues

• GHGs• Air quality

• On-site efficient power generation• Pipeline & meter technology• Compressors/pneumatic devices•Well venting/flaring

Seismic issues

• Safety• Potential property damage• Potential groundwater contamination

Community impacts

• Safety• Potential infrastructure damage• Potential property value impact• Nuisance

•Water reuse/recycling•Mobile evaporators• Fixed treatment solutions

• On-site efficient power generation•Water reuse/recycling•Mobile evaporators• Fixed treatment solutions

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Frac gas and oil development Minimal increase to mining sector’s water withdrawals

3,563 BB/yr

Total US water withdrawalsBillion barrels per year (BB/yr)

Source: USGS, 2005 data

Frac fuels–related withdrawals are a drop in the bucket

Other

Mining*

Power

1%

US Frac fuels injected water projectionsBillion barrels per year (BB/yr)

2005 2010 20200

5

10

15

20

25

30

35

40

45

Mining sector w/out frac gas and oil development

Frac gas and oil development contributions

* Fracking fuels water withdrawals fall into the mining sector

Source: USGS 2005; GE Energy, GSP estimates 2012

34.9

+1.4

+3.2

Challenge - filter hydraulic fracturing source water to reduce chemical treatment and cost and meet environmental regulations

Solution - mobile ultra-filtration systems

Challenge - reduce operation costs through solid and bacteria removal and chemical reduction

Solution - one pass filtration

Challenge - cost effectively treat produced and flowback water for reuse or discharge

Solution - mobile and fixed membrane systems and thermal evaporators with service contract

• Source water filtration to reduce chemical pretreatment

• Water reuse/recycling• On-site mobile evaporators• Fixed evaporation & crystallizers

GE solutions for water issues

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Mobile Evaporator

GE solutions for fugitive methane emissions

breakdown by source of emissions

Reciprocating Compressors• Low Emissions Rod

Packing• Reduces packing emissions

70%• Standard offering on small

HP today…extending to high HP

Pneumatic Devices• Becker ZERO BLEED™

• Eliminate atmospheric bleed gas

• Masoneilan LE Packing, EF Seal• Reduces emissions from control

valves <100 ppm

Gas Engine Exhaust• Waukesha 275GL+

• 1.2% greater fuel efficiency

• Reduces CO2 by 1,900 tons/yr

• .5 g/bhp-hr w/o emissions after treatment

Centrifugal Compressors• ICL Compressor Line

• Electric powered not natgas• No venting when stopped• Completely closed design means

no seal leaks• Dry Gas Seal RulePak

• Software for non-ICL compressor seals

Pipeline Leaks & Meters• USM Go, Rightrax RVI XL/ Rovver, X-

ray ERESCO• Ultrasonic, remote visual inspection, and x-

ray tools for monitoring and preventing leaks

• Reduce leak service calls

ecomagination Product

% Total Emissions

Well Venting & Flaring• PEMS, GF868, GM868,

XGM868i• Predictive Emissions

Monitoring System software• Reliable, accurate meters

for new installations or retrofits

39%

14%

13%

7%

5%

5%

4

33

3 2

Source: EPA Estimates, NatGas Star Programhttp://www.epa.gov/gasstar/basic-information/index.html

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Unauthorized Reproduction Prohibited

Natural gas produces far lower operating emissions

7.7

0.5

NOx (grams per bhp-

hr)

95% lower

Diesel

CO (grams per bhp-hr)

Natural Gas

2.7

8% lower 2.5

20 % of wells drilled in 2010/2011 located in Non–Attainment regions

Natural gas also reduces on site vehicular traffic