                                                                               
MEMORANDUM   

TO:		Jodi Howard, EPA/OAQPS/SPPD

FROM:	Bradley Nelson, EC/R, Inc.

DATE:	April 6, 2016

SUBJECT:	Evaluation of Cost Methodologies for Optical Gas Imaging (OGI) Monitoring 
--------------------------------------------------------------------------------


      The purpose of this memorandum is to provide the results of the cost analyses for fugitive monitoring using optical gas imaging (OGI) at oil and natural gas production well sites and compressor stations. In the September 18, 2015 proposed Oil and Natural Gas Sector NSPS (80 FR 56593), the EPA concluded that the best system of emission reductions (BSER) for oil and natural gas production well sites and compressor stations was the implementation of a semiannual OGI monitoring and repair program. The cost of monitoring these sites was based on the hiring of a contractor to perform the OGI monitoring. The costs for the contactor-based OGI monitoring were obtained from a Carbon Limits document that provided costs for performing contractor-based OGI monitoring at well sites and compressor stations. Comments received by the EPA on the fugitive monitoring costs in the proposed NSPS indicated that many companies would purchase an OGI camera and perform the semiannual fugitive monitoring in-house. Other commenters believed the cost methodology used by Colorado (CO) in their cost benefit analysis should be used to determine BSER in the proposed rule. This memorandum provides the results of the OGI monitoring costs using a contractor-based OGI monitoring program, using a company-based OGI monitoring program and using the CO OGI cost methodology. 

OGI Cost Methodologies
      For the proposed rule, the costs for monitoring and repair of fugitive emissions components were based on contractor-based OGI monitoring and a company-based Method 21 monitoring program. Based on the cost per ton of emission reduction results of these monitoring programs, semiannual OGI monitoring was selected as the BSER for oil and natural gas production well sites and compressor stations. Comments on the proposed rule stated that many companies would purchase an OGI camera and perform their own OGI monitoring. Other commenters stated that the EPA should have used the CO methodology for calculating OGI monitoring. This memorandum outlines the costs for OGI monitoring from each of the methodologies and compares the costs of each of these approaches.
Contractor-Based OGI Monitoring
      The contractor-based OGI costs, as included in the proposed rule, were calculated using OGI contractor cost data from the Carbon Limits report. This report presented a cost of $600 for monitoring a well production site using OGI and $2,300 for monitoring a gathering and boosting station, a transmission station or a storage facility using OGI. These contractor costs reflect the full cost for performing leak inspections charged at the time by external service providers to facility owners. These costs include travel costs, OGI calibrations, OGI monitoring, and report preparation costs. Costs for repair were assumed to be performed by the site operators during the OGI monitoring and are not included in the OGI contractor cost.
      Costs for preparing an OGI fugitive emission monitoring and repair plan on a company district level for production well sites were estimated using hourly estimates for each of the plan elements. The costs are based on the following assumptions:
 Labor cost for each of the monitoring plan elements, such as reading the rule, developing a fugitive emissions monitoring plan for each company defined area, and activities planning were estimated to be $57.80 per hour for production well sites and compressor stations.
 Reading of the rule and instructions was estimated to take 1 person roughly 4 hours to complete at a cost of $231 for affected oil and natural gas well sites and compressor stations.
 Development of a fugitive emission monitoring plan was estimated to take 2.5 people a total of 60 hours to complete at a cost of $3,468. This fugitive monitoring plan was assumed to encompass 22 production well sites in a company district. For gathering and boosting stations, this plan was assumed to encompass 7 gathering and boosting stations within a 210 mile radius of the company district. The fugitive monitoring plan was assumed to represent one single affected facility for transmission and storage facilities.
 Initial activities planning are estimated to take 2 people a total of 8 hours per person for each monitoring event. Cost for annual monitoring was estimated to be $925, semiannual monitoring $1,850, and quarterly monitoring $3,699. For compressor stations, initial activities planning was estimated to take 2 people a total of 16 hours per person at a cost of $1,850 per year.
 Notification of compliance status was estimated to take 1 person 1 hour to complete at a cost of $58 for gathering and boosting stations, transmission stations, and storage facilities. For companies that own and operate production well sites, the cost for notification of compliance status was estimated to be $58 per well site for a company district that owns 22 well sites for a total of $1,272 per company. For gathering and boosting stations, the cost for notification of compliance status was estimated to be $58 per station for a company that owns 7 gathering and boosting stations within a district for a total of $405. The cost for notification of compliance status for transmission and storage facilities was assumed to be $58 per facility.
 Cost of a Method 21 monitoring device to perform resurveys of repaired components was estimated to be $10,800 per company defined area for well production sites and gathering and boosting stations and $10,800 per facility for transmission and storage facilities.
 Subsequent activities planning are estimated to take 2 people a total of 8 hours per person to complete at a cost of $925 per monitoring event. For oil and natural gas production well sites, this cost was divided among the total number of well sites owned in a company district, which was assumed to be 22. The cost per well site was estimated to be $42 per monitoring event. For compressor stations, subsequent activities planning was estimated to be a total of 24 hours per year at a cost of $1,387 per year.
      Costs for implementing a fugitive emission monitoring plan were estimated for each of the monitoring and repair elements. The costs are based on the following assumptions:
 The cost for OGI monitoring using an outside contractor was assumed to be $600 per production well site for each monitoring occurrence and $2,300 for each monitoring occurrence at a gathering and boosting, transmission station or storage facility. 
 Annual repair costs were estimated to be $299 per monitoring event for production well sites, $3,346 per monitoring event for gathering and boosting stations, $3,361 per monitoring event for transmission stations, and $6,946 per monitoring event for storage facilities. These costs were estimated assuming that 1.18 percent of the components are found to leak during monitoring and 75 percent are repaired online and 25 percent are repaired offline.
 Cost to resurvey the repaired components that could not be fixed during the initial survey using a Method 21 device or other approved method was estimated using a resurvey time of 5 minutes per leak at a cost of $58 per hour. This assumes the company is able to perform the resurvey without retaining contractors. 
 Preparation of annual reports was estimated to take 1 person a total of 4 hours to complete at a cost of $231.
      The initial setup cost or capital cost for oil and natural gas production well sites was calculated by summing up the costs for reading the rule, development of fugitive emissions monitoring plan, initial activities planning, notification of initial compliance status, and purchase of a Method 21 device. The total capital cost of these activities was calculated to be $16,696 per company district for annual monitoring, $17,620 per company district for semiannual monitoring, and $19,470 per company district for quarterly monitoring. Assuming that each company owns and operates 22 well sites within a company defined area, such as a district or field, the capital cost per well site was estimated to be $759 for annual monitoring, $801 for semiannual monitoring, and $885 for quarterly monitoring. For gathering and boosting stations the capital cost for reading the rule, development of fugitive emissions monitoring plan, initial activities planning, notification of initial compliance status, and purchase of a Method 21 instrumentation was calculated to be $16,753 per facility. This capital cost was assumed to be shared with other gathering and boosting stations within the district. These stations are estimated to be approximately 70 miles apart. Therefore, within a 210 mile radius of a central location, there would be an estimated 7 gathering and boosting stations, and the capital cost of each of these stations was estimated to be $2,393. The capital cost for transmission and storage facilities were estimated to be $16,407 per facility and includes the cost for reading the rule, development of fugitive emissions monitoring plan, initial activities planning, notification of initial compliance status, and purchase of Method 21 device. Tables summarizing these costs for production well sites, gathering and boosting stations, transmission stations and storage facilities are provided in Appendix A (see Tables A-1 through A-4)
      For the production well sites and compressor stations, the annual cost includes: subsequent activities planning, OGI survey, cost of repair of fugitive emissions found, resurvey of repaired components, preparation and submittal of an annual report, and the amortized capital cost over 8 years at 7 percent interest. These capital and annual costs for production well sites and compressor stations are presented in Table 1.
Company-Based OGI Monitoring 
      The company-based OGI monitoring costs were calculated assuming that a company would purchase an OGI camera and monitor fugitive components at production well sites or compressor stations using company personnel. The cost of the OGI camera was estimated to be $95,000 based on comments from the American Petroleum Institute. In addition, a cost of $1,995 for OGI operator certification was included in the capital costs, and costs for travel to and from the well sites were included in the annual costs. 
      Costs for preparing an OGI fugitive emission monitoring and repair plan for production well sites or compressor stations within a company defined area were estimated using hourly estimates for each of the plan elements. The costs are based on the following assumptions:
Table 1. Summary of Capital and Annual Costs for Owner or Operator OGI Monitoring at Production Well Sites and Compressor Stations
                                    Segment
                              Capital Cost ($)[a]
                                  Annual Cost
                                       
                                       
                        Annual OGI Monitoring ($/year)
                      Semiannual OGI Monitoring ($/year)
                       Quarterly OGI Monitoring ($/year)
Production Well Site[b]
                                 $759/801/885
                                    $1,318
                                    $2,285
                                    $4,220
Gathering & Boosting Station[c]
                                    $2,393
                                    $7,777
                                    $13,534
                                    $25,049
Transmission Station
                                    $16,407
                                    $10,117
                                    $15,868
                                    $27,369
Storage Facility
                                    $16,407
                                    $13,798
                                    $23,230
                                    $42,093
a. The capital costs presented for well sites (gas, oil, and oil with associated gas) shows the annual, semiannual and quarterly monitoring costs, respectively. The capital cost for annual, semiannual and quarterly monitoring are the same for all other segments. 
b. The capital cost for production well sites are divided between 22 well sites in the company district. 
c. The capital cost for gathering and boosting stations are divided between 7 stations within a 210 mile radius of a central location.
      
 Labor cost for each of the monitoring plan elements, such as reading the rule, developing the district monitoring plan, and activities planning were estimated to be $57.80 per hour for production well sites and compressor stations.
 Reading of the rule and instructions was estimated to take 1 person roughly 4 hours to complete at a cost of $231 for affected production well sites and compressor stations.
 Development of a fugitive emission monitoring plan was estimated to take 2.5 people a total of 60 hours to complete at a cost of $3,468. This fugitive monitoring plan was assumed to encompass 22 production well sites in a company defined area. For gathering and boosting stations, this plan was assumed to encompass 7 gathering and boosting stations within a 210 mile radius of the company defined area. The fugitive monitoring plan was assumed to represent one single affected facility for transmission and storage facilities.
 Initial activities planning are estimated to take 2 people a total of 8 hours per person for each monitoring event. Cost for annual monitoring was estimated to be $925, semiannual monitoring $1,850, and quarterly monitoring $3,699. For compressor stations, initial activities planning were estimated to take 2 people a total of 16 hours per person at a cost of $1,850 per year.
 Notification of compliance status was estimated to take 1 person 1 hour to complete at a cost of $58 for gathering and boosting stations, transmission stations, and storage facilities. For companies that own and operate production well sites, the cost for notification of compliance status was estimated to be $58 per well site for a company district that owns 22 well sites for a total of $1,272 per company. For gathering and boosting stations, the cost for notification of compliance status was estimated to be $58 per station for a company that owns 7 gathering and boosting stations within a district for a total of $405. The cost for notification of compliance status for transmission and storage facilities was assumed to be $58 per facility.
 Purchase on an OGI camera was estimated to be $95,000 per company district, which includes 22 well sites. For gathering and boosting stations, the cost of the OGI camera was divided between 7 gathering and boosting stations within a 210 mile radius. The purchase of an OGI camera was assumed for each affected transmission or storage facility.
 The capital cost includes OGI operator certification for one operator at the company.
 Subsequent activities planning are estimated to take 2 people a total of 8 hours per person to complete at a cost of $925 per monitoring event. For oil and natural gas production well sites, this cost was divided among the total number of well sites within a company defined area. The cost per well site was estimated to be $42 per monitoring event. For compressor stations, subsequent activities planning were estimated to be a total of 24 hours per year at a cost of $1,387 per year.
      Costs for implementing a fugitive emission monitoring plan were estimated for each of the monitoring and repair elements. The costs are based on the following assumptions:
 The cost for OGI monitoring was estimated using OGI surveying data from Colorado and an hourly rate of $57.80 per hour. The time estimated to survey a well site was estimated to be 6.1 hours for a total of $353 per survey. For gathering and boosting stations, the survey time was estimated cost to be 10.6 hours or $613 per survey. The time to perform OGI monitoring at transmission stations was estimated to be 15.2 hours or $879 per survey. The time to survey a storage facility was estimated to be 28.1 hours or $1,624 per survey.
 Annual repair costs were estimated to be $299 per monitoring event for production well sites, $3,346 per monitoring event for gathering and boosting stations, $3,361 per monitoring event for transmission stations, and $6,946 per monitoring event for storage facilities. These costs were estimated assuming that 1.18 percent of the components are found to leak during monitoring and 75 percent are repaired online and 25 percent are repaired offline.
 Cost to resurvey the repaired components that could not be fixed during the initial survey using OGI was estimated using a resurvey time of 5 minutes per repaired component at a labor rate of $58 per hour. This assumes the company is able to perform the resurvey without retaining the contractors for the contractor OGI option. 
 Travel time to and from the site for OGI monitoring was estimated to be a total of 15,000 miles per year at a cost of $0.54 per mile for a total cost of $368 per well (22 wells total) for semiannual monitoring at production well sites. The travel cost for gathering and boosting and transmissions stations was estimated to be a total of 4,000 miles per year for each survey at a total cost of $2,160. No travel costs were assumed for storage facilities, because these are manned facilities. 
 Preparation of annual reports was estimated to take 1 person a total of 4 hours to complete at a cost of $231.
      For well sites and compressor stations, the annual cost includes; subsequent activities planning, OGI survey, cost of repair of fugitive emissions found, resurvey of repaired components, preparation and submittal of an annual report, and the amortized capital cost over 8 years at 7 percent interest. These costs are presented in the cost tables in Appendix A (see Tables A-1 through A-4) and summarized in Table 2.
Table 2. Summary of Capital and Annual Costs for Company-Based OGI Monitoring at Production Well Sites and Compressor Stations
                                    Segment
                              Capital Cost ($)[a]
                                  Annual Cost
                                       
                                       
                        Annual OGI Monitoring ($/year)
                      Semiannual OGI Monitoring ($/year)
                       Quarterly OGI Monitoring ($/year)
Production Well Site[b]
                              $4,677/4,719/4,803
                                    $1,893
                                    $2,815
                                    $4,622
Gathering & Boosting Station[c]
                                    $14,707
                                    $10,511
                                    $16,941
                                    $29,801
Transmission Station
                                   $113,402
                                    $27,226
                                    $33,842
                                    $47,074
Storage Facility
                                   $113,402
                                    $29,628
                                    $38,646
                                    $56,681
a. The capital costs presented for well sites shows the annual, semiannual and quarterly monitoring costs, respectively. The capital cost for annual, semiannual and quarterly monitoring are the same for all other segments. 
b. The capital cost for production well sites are divided between 22 well sites within a company defined area.
c. The capital cost for gathering and boosting stations are divided between 7 stations within a 210 mile radius of a central location.
      

Colorado Cost Methodology for OGI Monitoring
      The cost methodology used by Colorado in their cost benefits analysis for monitoring and repair of leaks from production well sites and compressor stations was evaluated for annual, semiannual and quarterly OGI monitoring. Their cost methodology involved calculating an hourly inspection rate based on the total annual cost for performing OGI monitoring divided by an assumed annual work hours of 1,880. A listing of the items included in calculating the capital and annual cost for OGI monitoring is provided in Table 3. The capital cost items include requirements for the final NSPS which were not included in the CO analysis and include reading the rule, development of the monitoring plan, activities planning, and notification. The total annual cost of OGI monitoring was calculated to be $176,629, which calculates to an hourly rate of $93.95 per hour, assuming 1,880 annual work hours.
      The hourly rate was used to estimate the annual cost of monitoring production well sites and compressor stations using the CO time estimates for OGI monitoring and repair. In addition, 2 hours for subsequent planning for each monitoring event was also included in the monitoring costs. Travel and reporting are already included in the hourly rate. Table 4 provides a summary of the annual costs of annual, semiannual and quarterly monitoring using the calculated hourly rate. Appendix A (see Tables A-5 and A-6) provides a more detailed summary of these costs.
OGI Monitoring Cost Comparison
      As shown In Table 5, the costs for monitoring and repair of production well sites and compressor stations provide a range of costs at each monitoring frequency depending on the cost methodology used. For nearly every monitoring frequency, the contractor-based OGI monitoring annual cost is the middle cost with company-based OGI monitoring the highest and the CO methodology being the lowest annual cost. Based on the comparison of these cost methodologies, we believe that the contractor-based costing methodology provides a fair estimate of the costs associated with implementing and operating an OGI monitoring program for production well sites and compressor stations.
    Table 3. Cost Items for Calculating the Hourly Cost for OGI Monitoring
OGI Monitoring Items
Capital Cost
Annual Cost ($/year)
Read rule and instructions
$231

Development of Equipment Leaks Monitoring Plan
$3,468

Initial Activities Planning
$1,850

Notification of Initial Compliance Status
$1,272

Vehicle (4 x 4 Truck)
$22,000

OGI Monitoring Device
$95,000

OGI Operator Certification
$1,995

M21 Monitoring Device
$10,800

OGI Camera Maintenance/Repair

$7,500
Inspection Staff

$75,000
Supervision

$15,000
Overhead

$7,500
Travel

$11,250
Recordkeeping

$7,500
Reporting

$7,500
Fringe

$22,500
Subtotal Costs
$136,615
$153,750
Annualized Capital Cost (8 years @ 7% interest)
$22,879
---
Total Annual Cost
$176,629
Annualized Hourly Rate (1,880 hours per year)
$93.95

	

Table 4. Summary of Capital and Annual Costs Using Colorado Costing Methodology for OGI Monitoring at Production Well Sites and Compressor Stations
                                    Segment
                              Capital Cost ($)[a]
                                  Annual Cost
                                       
                                       
                        Annual OGI Monitoring ($/year)
                      Semiannual OGI Monitoring ($/year)
                       Quarterly OGI Monitoring ($/year)
Production Well Site[b]
                                    $6,210
                                    $1,126
                                    $2,252
                                    $4,504
Gathering & Boosting Station[c]
                                    $19,516
                                    $6,563
                                    $10,871
                                    $19,486
Transmission Station
                                   $136,615
                                    $6,982
                                    $11,708
                                    $21,162
Storage Facility
                                   $136,615
                                    $11,777
                                    $21,300
                                    $40,344
a. The capital costs presented for well sites shows the annual, semiannual and quarterly monitoring costs, respectively. The capital cost for annual, semiannual and quarterly monitoring are the same for all other segments. 
b. The capital cost for production well sites are divided between 22 well sites in the company defined area. 
c. The capital cost for gathering and boosting stations are divided between 7 stations within a 210 mile radius of a central location.
      
                                       
                                       

   Table 5. Comparison of the Costing Methodologies by Monitoring Frequency
Monitoring Frequency/Source
Contractor-Based OGI Monitoring Annual Cost ($/year)
Company-Based OGI Monitoring Annual Cost ($/year)
Colorado OGI Monitoring Annual Cost ($/year)
Annual OGI Monitoring
Production Well Sites
$1,318
$1,893
$1,126
Gathering & Boosting Stations
$7,777
$10,511
$6,563
Transmission Stations
$10,117
$27,226
$6,982
Storage Facilities
$13,798
$29,628
$11,777
Semiannual OGI Monitoring
Production Well Sites
$2,285
$2,815
$2,252
Gathering & Boosting Stations
$13,534
$16,941
$10,871
Transmission Stations
$15,868
$33,842
$11,708
Storage Facilities
$23,230
$38,646
$21,300
Quarterly OGI Monitoring
Production Well Sites
$4,220
$4,622
$4,504
Gathering & Boosting Stations
$25,049
$29,801
$19,486
Transmission Stations
$27,369
$47,074
$21,162
Storage Facilities
$42,093
$56,681
$40,344
      

      
      
      
      
      
      
      


Appendix A
OGI Monitoring Cost Calculations

Appendix A-1

Appendix A-2

Appendix A-3

Appendix A-4


Appendix A-5


Appendix A-6


Appendix A-6 continued.


