1. El Paso Corporation
Fiji C. George
Manager, EH&S
Emissions Accounting and
Cap-and-Trade Policy Considerations for
Natural Gas Sector:
El Paso Corporation’s Perspective
May 20, 2008
2. Cautionary Statement
Regarding Forward-looking Statements
This presentation includes forward-looking statements and projections, made in reliance on the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The company has made every reasonable effort
to ensure that the information and assumptions on which these statements and projections are based are current,
reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the
projections, anticipated results or other expectations expressed in this presentation, including, without limitation,
changes in unaudited and/or unreviewed financial information; our ability to implement and achieve our objectives
in the 2008 plan, including earnings and cash flow targets; the effects of any changes in accounting rules and
guidance; our ability to meet production volume targets in our E&P segment; uncertainties and potential
consequences associated with the outcome of governmental investigations, including, without limitation, those
related to the reserve revisions; outcome of litigation; our ability to comply with the covenants in our various
financing documents; our ability to obtain necessary governmental approvals for proposed pipeline projects and
our ability to successfully construct and operate such projects; the risks associated with recontracting of
transportation commitments by our pipelines; regulatory uncertainties associated with pipeline rate cases; actions
by the credit rating agencies; the successful close of our financing transactions; our ability to successfully exit the
energy trading business; our ability to close our announced asset sales on a timely basis; changes in commodity
prices and basis differentials for oil, natural gas, and power and relevant basis spreads; inability to realize
anticipated synergies and cost savings associated with restructurings and divestitures on a timely basis; general
economic and weather conditions in geographic regions or markets served by the company and its affiliates, or
where operations of the company and its affiliates are located; the uncertainties associated with governmental
regulation; political and currency risks associated with international operations of the company and its affiliates;
competition; and other factors described in the company’s (and its affiliates’) Securities and Exchange
Commission filings. While the company makes these statements and projections in good faith, neither the
company nor its management can guarantee that anticipated future results will be achieved. Reference must be
made to those filings for additional important factors that may affect actual results. The company assumes no
obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking
statements made by the company, whether as a result of new information, future events, or otherwise.
2
3. Agenda
Overview
Emissions Accounting & Reporting
Cap and trade policy issues
3
4. Overview of El Paso Corporation
Wyoming
Colorado
Tennessee
Interstate
Interstate Gas
Gas Pipeline
Cheyenne
Mojave Plains Pipeline
Pipeline
Southern
Natural Gas
El Paso Elba Island
Natural Gas LNG
Gulf LNG (50%) Florida Gas
2011 Transmission (50%)
Premier Pipeline Franchise Top 10 independent E&P
$1.3 billion of 2007 EBIT 3.1 Tcfe YE 2007 proved reserves
42,000 miles of interstate pipeline
Top 10 independent domestic
with unmatched connectivity
gas producer
17 Bcf/d throughput (28% of gas
delivered to U.S. consumers)
Nearly $4 billion of organic
projects with firm customer commitment
4
5. El Paso Corporate:
Greenhouse Gas Commitment
“Assess, engage and act”
Commitment statement http://elpaso.com/profile/mainneighbor.shtm
Carbon Disclosure Project (CDP) 5 response
http://www.cdproject.net/online_response_pf.asp?cid=558&year=2
California Climate Action Registry (CCAR)
First company in CCAR history to certify without significant errors
First company to achieve Climate Action Leader™ for 2007
First natural gas company to join CCAR
Reported third party verified entity wide emissions to DoE’s 1605(b)
program in 2007
Serves on Advisory Committee—The Climate Registry (TCR)
El Paso Natural Gas and Colorado Interstate Gas are TCR “Founding
Reporters”
2008 Southern Gas Association (SGA) Environmental Excellence Award
for leadership on GHG matters
5
6. U.S. Natural Gas Industry ~ 21.65 tcf
PoR under S. 2191
Production = End-users ~
Gathering and Transportation
19.94 tcf
Processing = and Storage
~18.5 tcf (dry) delivered
Imports-
~14.7 tcf Industrials and Power Plants
~4.1 tcf
Processing Plant
Compressor
Station
Local Distribution
Companies
Underground
• Over 450,000 Gas Wells LNG/ Propane
Storage Fields
Exports-
LNG Terminals Air Plant
• ~14,000 operators ~0.72 tcf
• Gathering Pipelines
•173 “large”
• Processing Plants
operators account
for ~78% of gas •~530 plants
• Pipelines • Over 1200 LDCs
production
• Of ~14.7 tcf, ~2.75
• 60 interstate •65% of gas delivered
• 467 “intermediate” tcf is re-injected pipelines and 72
operators - ~15.6% • Utilities/ Power Plants
intrastate
• ~12 tcf or ~64% of
• Industrials
• ~ 13,000 - dry production is • Storage
remaining • 0.6 tcf feedstock
processed • Interstate Systems
• Not Regulated • Regulated by States
Regulated by FERC
• ~638MMbbl
• Intrastate Systems
• Regulated in Some States
Regulated by States
6
7. 2005 Emissions Profile For the Natural
Gas Sector
U.S. GHG Emissions by (Million tonnes of CO2e) Total
Other
Fuel/Source—2005
CO2 CO2e
Gases
CH4
83.0
–
35.2
47.8
Production
Oil
1% (Power)
53.0
–
11.9
41.1
Processing
68.8
–
36.8
32.0
Transmission and Storage
27.4
–
27.4
–
Distribution
232.2
–
111.1
120.9
Gas Industry Total
CO2 from
Coal
Transportation 7260.4
631.6
539.3
6,089.5
U.S. Total
28% (Power)
26%
3.2%
0.0%
2.0% 20.6%
Gas Industry Share of U.S.
CO2 from
Gas (Power)
Industrial
4%
Combustion
12%
Relative to total U.S. CO2eq emissions
HFC, PFC, SF6
2%
Natural Gas combustion ~ 17%
N20 (Soil Mgmt,
CO2 from
Combustion)
Commercial Natural Gas Industry Share ~ 3%
7%
Combustion
3% Methane (Landfill, Methane emissions ~ 1.5%
CO2 from
Mining, Ag, Gas)
Residential CO2 from 8%
Combustion Process and
Non-Energy Use
5%
4%
Methane Emissions from the gas sector are
a small fraction of the total U.S. emissions
7
9. El Paso’s Experience
in GHG Emissions Accounting
Development of GHG Team (2005)
2004 GHG Inventory – U.S. Operations (2005)
Gap Analysis (2005)
Corporate GHG Inventory Goals (2006)
“Pre-certified” 2005 GHG Inventory – CCAR Standards (2006)
Corporate Inventory Management Plan/Technical Manual (2007)
Certified 2006 GHG Inventory, CA Operations – Reported to CCAR (2007)
Climate Action Leader™ – CA (2007)
GHG IMS (2007)
Verified 2006 GHG Inventory, U.S. Operations – Reported to 1605(b) (Dec. 2007)
Working on Certifiable 2007 GHG Inventory, U.S. Operations – for reporting to CCAR (2008)
A three year effort….
Established a process focused on continuous improvement
9
10. 2006 El Paso’s GHG Emissions
Total Emissions by Gas*
Total Emissions by Emission Category*
Emissions Emissions
Emission Category Contribution GHG Contribution
MMT CO2e MMT CO2e
CH4 8.70 55.9%
Stationary Combustion 6.58 42.3%
CO2 6.72 43.2%
Process & Fugitive 8.21 52.8%
Mobile Combustion 0.05 0.3% N2O 0.14 0.9%
Indirects 0.71 4.6% HFCs 0.001 0.01%
Total 15.56 100% Total 15.56 100%
Indirects
Mobile
N2O
0.71
HFCs
Combustion
4.6% 0.14
0.05 0.001
1%
0.3% 0%
Stationary
Combustion
CO2
6.58
CH4
6.72
42.3%
8.70
43%
Process &
56%
Fugitive
8.21
52.8%
*As reported to 1605(b), does not include ANR
10
11. GHG Emission Categories and Sources:
Natural Gas Transmission
Vast number of discrete but “small sources”
Direct Emissions
Stationary Combustion Fugitive
Reciprocating IC engines Transmission and Gathering Pipelines
Transmission/Storage Station Piping
Turbines
Components
Process heaters
Reciprocal and Centrifugal Compressors
Process boilers
M&R Stations
LNG vaporizers
Storage Wells
Flares/Thermal Oxidizers
Vehicle Fleet A/C Systems
Mobile combustion
Process Plant piping & components
Vehicle fleet
Aviation fleet
Indirect Emissions
Process/Vented
Generation of electricity used by:
NG blowdowns
Stations/office buildings
Dehydrators
Electric driven compressors
Amine units
Electric driven pumps (pump-jacks)
Pneumatic devices
Gas-assisted pumps
Work-over & Completion Venting
Storage Tanks
11
12. Unique Natural Gas Sector Inventory
Challenges
Relative to electric sector, GHG inventorying is a “new” technical challenge
100% of the emissions non directly measured (non CEMS)
Several thousand emission sources for a single company
Over 50% of the emissions profile is methane
High uncertainty of fugitive methane factors
Outdated and unrepresentative
Not “cap-and-trade” quality
Facility level versus emission unit level combustion (CO2) emissions
Lack of fuel metering at every unit
Computation of Indirect Emissions can be time consuming
Frequent acquisition/divestiture activity
Complex ownership
Remotely located
Data collection issue
12
13. El Paso’s GHG Reporting
Recommendations
Consistent “national” program
Single registry
Consider the fact that majority of the affected sources (outside power) have
limited experience
Use experience from existing programs
CCAR, TCR, CARB: AB32, and 1605(b)
Seek input from industry “leaders” who have undertaken inventory
development
Limit to Scope I emissions
Phased approach
Reporting no more than once a year
Consider a “de-minims” list similar to CAA’s Title V program
Establishment of appropriate quality assurance programs
13
15. Natural Gas Sector Business Impacts:
Impact of Allowance Price on Fuel
Natural Gas Gasoline Coal
$/Tonne CO2 ($/MMBtu) ($/gallon) ($/MMBtu)
$10 $0.53 $0.10 $0.95
$20 $1.06 $0.21 $1.90
$30 $1.60 $0.31 $2.85
$40 $2.13 $0.41 $3.80
$50 $2.66 $0.51 $4.75
15
16. Natural Gas Sector Business Impacts:
Summary of Allowance Prices
Bill Design Study $/tonne CO2 $/tonne CO2
2015 2030
S.2191 Upstream - EPW version CRA/EEI $48 $76
S.2191 Duke Univ.
Downstream - Prior to $18 $38
EPW
Upstream - EPW version EPA
S.2191 (avg of $38 $78
ADAGE cases)
S. 2191 (Low Cost) Upstream - EPW version NAM $42 $228
S.2191 (avg of all Upstream - EPW version $36 $94
EIA (2006$)
cases)
Upstream - EPW version CATF (2004$)
S.2191 (avg of all $17 $45
cases)
S.2191 (avg of all Upstream - EPW version $52 $93
MIT (2005$)
cases)
$36 $93
AVERAGE (S.2191) PROJECTIONS
$38 $78
MEDIAN (S.2191) PROJECTIONS =
Upstream EIA
S. 1766 (Core $10 $25
case)
S. 280 (CORE) Downstream EIA $15 $48
17. Natural Gas Sector Business Impacts:
Example of Compliance Liability
IMPACTS TO NATURAL GAS SECTOR—2015
Processing/ Transmission
Bill/Design Framework Production Importers & Storage Distribution
1 S.2191 (Median
Allowance Price)—
$Billion $50.39
1 S. 1766— $Billion $13.60
2 S. 280—$Billion $1.25 $0.80 $1.04 $0.41
1Based on 2006: Median Price Forecast ($37.83/tonne) and 2006 U.S. Processing: Natural Gas = 14.68 Tcf; natural gas liquids =
637 MMBbl; U.S. gas imports = 4.18 Tcf
2Based on 2005 emissions from USEPA Inventory and S.280 EIA analysis
17
18. Natural Gas in a Carbon Constrained
Environment: “Mega” Design Issues
Point of regulation
Upstream (fuel proxy method) OR
Downstream (actual emissions) OR
Hybrid
Treatment of fugitive emissions
In the cap or via offsets?
Treatment residential and commercial sector
In the cap or via codes/standards?
Emissions reporting
Protocols? Frequency?
Existing regulatory framework
FERC, PUC
Transitional assistance
Free Allocation vs. Auctions
Supply/demand dynamics
18
19. Natural Gas in a Carbon Constrained Environment:
Cost Flow Through and Price Signals
In an upstream program, would natural gas entities be able to pass
through the full compliance costs downstream per the economic
theory?
Regulatory/Legal/Contractual issues may prohibit pass through
Processors/Transmission Companies generally do not own title to
the gas
Long term contractual arrangements and regulated by FERC
(transmission)
Therefore, any new carbon costs must be re-negotiated and incase of
transmission companies approved by the FERC
Discounting practices in the natural gas transmission sector may prevent
full transmittal of price signal
Double counting
Cost of service (~$0.10-0.50/MMbtu) <<< Projected Allowance Prices
(>$1.60/MMBtu)
19
20. Natural Gas in a
Carbon Constrained Environment: Fairness
Fairness – the coal “downstream” vs. gas “upstream”
Upstream gas “covered entities” (processors/importers) have limited
ability to influence reductions on the end-users
Lack of ownership of gas and inability to attach carbon costs to gas
prices
Emissions profile for natural gas covered entities are < 5% of the
entire natural gas related emissions in the US economy
If 100% of the allowance costs are passed through, natural gas end
users would see the “market price” of the allowances as an
incremental cost to fuel prices – i.e. a Btu tax
Insignificant emissions profile, limited reduction opportunities
Since regulated at the stacks, coal end users retain the cap-and-trade”
advantages”
The potential flexibility to achieve reductions at the lowest marginal cost (<
market price of the allowance)
State/Regional “downstream” design vs. “upstream” Federal
Program?
Example, a gas power plant in RGGI would face higher “Btu tax”
due to federal upstream design + face a downstream
state/regional program focused on its emissions
20
21. Natural Gas in a Carbon
Constrained Environment: Coverage
Total Natural Gas Consumed in the Economy = ~21.6 tcf
• However, ~ 1.7 tcf is consumed prior to end users
• ~ 0.6 tcf is used as “feedstock”
• ~ 0.72 tcf is exported
Processors
~ 18.5 dry production of which ~14.7 tcf of gas processing;
Therefore, about ~3.8 tcf is not processed
Within the processed amount (14.7 tcf), ~ 12 tcf is processed put into the natural gas value chain
~2.75 tcf of gas is processed but re-injected in Alaska
Coverage ~ 55% of the total natural gas consumed in the economy
Imported gas ~ 4.1 tcf
~ 0.5 tcf is imported and processed
Coverage ~ 19% of gas consumed
Coverage - Processors + Importers ~71% of gas consumed
Pipelines
~ 14 tcf (interstates)
~ 4.3 tcf (intrastates)
84% of gas consumed
In all cases, 111 MM tonnes of fugitive emissions can not covered since upstream
method is a fuel proxy method
A well designed “downstream” design can offer equal or higher
coverage
21
22. Natural Gas in a Carbon Constrained Environment:
Potential Effects of an Upstream Design
Partial or no pass through of price signals to the end users
Intended mitigation measures by end users are not realized
However, the upstream regulated entities are “saddled” with
huge compliance costs (potentially greater than gross
revenues)
Incomplete coverage at processor/importer or transportation
upstream design
Since required reductions aspired by the program are not
being achieved this may drive up allowance prices in the
market
Therefore, an upstream program is a potential “recipe” for
higher compliance costs without environmental benefits
22
23. Natural Gas in a Carbon Constrained Environment:
Efficient Cap-and-trade Program
Would “fugitive” emissions be part of the cap or
available as offsets?
Dispersed along thousands of miles of pipelines and
thousands of components
Substantial uncertainty related to entity-wide fugitive
emissions methodology
Methodologies exists to quantify “discrete” projects
EIA (S.2191) considered fugitive emissions as part
of the cap
23
24. Natural Gas in a
Carbon Constrained Environment
A well thought out cap-and-trade program
is needed for natural gas
24
25. Summary and Conclusions
National bill likely in < 5 years
Natural Gas will be regulated…but how?
Upstream regulatory design requires significant
review of legal, regulatory and technical Issues with
respect to natural gas sector
Unintentional consequences to natural gas sector
could be significant
Will Natural Gas be the “bridge” fuel in
a carbon constrained environment?
25
26. El Paso Corporation
Fiji C. George
Manager, EH&S
Emissions Accounting and
Cap-and-Trade Policy Considerations for
Natural Gas Sector:
El Paso Corporation’s Perspective
May 20, 2008
