Eastman Gasification Overview

March 22, 2005

hFounded in 1920 as part of Eastman Kodak - wood to methanol plant hSpun off from Kodak - January 1, 1994hApproximately $6 B in annual saleshHeadquarters - Kingsport, TNhManufacturing sites around the world

Just the Basics

Gasification 101

Carbon + Oxygen + Water Carbon Monoxide + Hydrogen

C + O2 + H2O CO + H2

The partial oxidation of carbon to produce a "synthesis" gas

Gasification is not combustion!

Coal/Petcoke

Water

Gasification Basics – Slurry Prep

Coal/Petcoke Slurry

55% - 70% Solids

Gasification Basics – Air Separation

AirCompressor

Oxygen

Nitrogen

ArgonAS

U

Oxygen feed to gasifier 95% to 99+% purity

Co-production of N2 and Ar for liquid sales, NOX control,

general inerting

Cryogenic distillation

-180 Deg C

Oxygen

Coal or Petcoke

Water

What is Gasification?

Products (syngas):

CO (Carbon Monoxide)

H2 (Hydrogen)

[CO/H2 ratio can be adjusted]

By-products:

H2S (Hydrogen Sulfide)

CO2 (Carbon Dioxide)

Slag (Minerals from coal)

• Controlled Chemical Reaction• Up to 1,000 psig or more• Nominal 2,600 Deg F

GasClean-Up

BeforeProduct

Use!

Oxygen

Coal or Petcoke

Water

What is Gasification?

Products (syngas):

CO (Carbon Monoxide)

H2 (Hydrogen)

[CO/H2 ratio can be adjusted]

By-products:

H2S (Hydrogen Sulfide)

CO2 (Carbon Dioxide)

Slag (Minerals from coal)

• Controlled Chemical Reaction• Up to 1,000 psig or more• Nominal 2,600 Deg F

GasClean-Up

BeforeProduct

Use!

Advantages of GE Gasification:

• Lowest capital cost and COE (Quench)

• Straight forward design (Quench)

• Gas ready for shifting (Chemicals/H2/CO2 Seq.)

• High pressure operation (up to 1200 psig)

• High temp. gasification/Vitrified slag

• More experience (60 installed sites)

For higher efficiency, HP Steam – Quench/Radiant or Radiant + Convective

Gasification Basics – Gas Cooling

BFW

SteamHot Syngas

Water/Gas Separator

Cool Syngas

Water, recycled

Steam Turbine or process heating

"Dirty Syngas"CO,H2,CO2,H2S

Clean Solvent

Dirty Solvent

"Clean Syngas"CO, H2

Three Main Technologies:

• MDEA (methyldiethanolamine) – Chemical absorption, 98% to 99+% S removal, large CO2 slip (unless use a second stage for CO2 recovery), moderate operating temperature, lowest AGR capital cost

• Selexol tm (primarily dimethyl ethers of polyethylene glycol, DEPE) – Physical absorption, 99+% S removal, variable CO2 slip (based on design), higher AGR cost than MDEA but overall AGR/SRU system costs are similar

• Rectisol tm (methanol) - Physical absorption, 99.5% to 99.9+% S removal, complete CO2 removal possible, highest AGR cost, coldest operating temperatures

AGR Technologies Can Provide Near 100% Sulfur Removal If Required

(AGR = Acid Gas Removal)

Gasification Basics

Coal Water Slurry Prep

Gasification

Vitrified Slag

CO

H2

H2S

CO2

Steam

Cooling/Stm Gen

Gas Clean-up

Clean, Dry Syngas

Solvent/ Absorbent

Compressor Ar

N2

Oxygen

Air

Air Separation

Petcokeor

So what can you do with CO and H2 ?

Syngas

Transportation Fuels

Building Blocks for Chemical

Industry

Clean Electricity

CO2

Electricity

Steam

Combustion Turbine

SteamTurbine

Natural Gas

NGCC: Natural Gas Combined-Cycle Plant

Air

Most new power plants in the United States in the last 10 to 15 years have been natural gas

based

Electricity

Steam

Combustion Turbine

SteamTurbine

Natural Gas

Air

Syngas from Coal/Petcoke Gasification(adjacent or via pipeline)

X

Integrated Gasification Combined-Cycle (IGCC): Replace NG Feed With Syngas

CO2

Integrated Gasification Combined-Cycle (IGCC)

Contaminants Removed

Pre-Combustion !!!

Air SeparationUnit (ASU)

GasificationBlock

Coal(or otherCarbonSource)

Water

Air

Oxygen

VolatileMercury

PureSulfur

CO2 Capture (ready for sequestration) Electricity

CrudeSyngas

CleanSyngas

90+%Removal

98+%Removal

SlagCombined-

CyclePower Block

Gas Clean-UpBlock

Eastman Coal Gas Facility

Sulfur

CO2

Low Temp Gas Cooling

Shift Rx(option)

HgRemoval

ParticulateScrubber

GE"Quench"Gasifier

Slag/Frit

Coal

H2O

+

Air Separation Unit (ASU)

O2

Slurry

Acid Gas Removal

CO/H2

Fines/Char

What is IGCC?Flexibility for CO2

Sequestration (Concentrated Stream)

Sulfur RecoveryClaus/Scot

PRE-COMBUSTIONTreatment of Pollutants

•High pressure•Low Volume•Concentrated stream(easier to treat)

Air

Sulfur RecoveryClaus/Scot

Combustion Turbine

Compressed Air to ASU

HRSG

Steam Turbine

Electricity

Electricity

90+%Removal

98+%Removal

Electricity

Natural Gas

and/or Oil

Gasification-Based Polygeneration:Replace NG and/or Oil With Coal/Petcoke

Syngas from Coal/Petcoke Gasification(adjacent or via pipeline)

X

Chemicals,Synfuels,

Fertilizers,and/or Hydrogen

+

Combined-CyclePower Plant

ChemicalFacilities

Sulfur

CO2Low Temp Gas Cooling

Shift Reactor

MercuryRemoval

ParticulateScrubber

Texaco"Quench"Gasifier

Slag/Frit

Coal

H2O

+

Air Separation Unit

O2

Slurry

Acid Gas Removal

CO/H2

Fines/Char

Air

Combustion Turbine

HRSG

Steam Turbine

Electricity

ElectricityCO2

ChemicalPlant

Sales

Tail Gas Recycle to C.T.

CO/H2 to chemical plant

Peak or backup fuel to C.T.

Gasification-Based Polygeneration(Ultimate Flexibility)

Coal/Petcoke

Dimethyl EtherMethanol

Fischer-Tropsch Liquids

Fuel/Town GasPower & Steam

Acetic AcidEthylene

&Propylene

Methyl Acetate

VAM

Acetic Anhydride

Ketene

Diketene & Derivatives

PVAPolyolefins

FT Diesel

Polygeneration Potential of Gasification

Ammonia& UreaH2

Oxo Chemicals

Synthesis Gas

Car Fuel

Waxes

GasificationNaphtha

Acetate Esters

Iron Reduction

Benefits of Polygeneration• Higher overall value creation• Higher overall thermal efficiency and

feedstock utilization• Synergistic usage of low grade steam

and waste streams• Enhanced ability to load follow

(intermediate vs. baseload operation)• Higher employment for the community• Enhanced reliability, with potential to

store syngas as a liquid fuel

Trends Driving the Gasification Industry

• Steady Growing Demand for Electricity• U.S. Energy Security/Diversity (Coal vs. NG)• Growing Natural Gas (NG) Crisis• Environmental Drivers (Cleanest

Technology for Coal/Petcoke and Wastes)• Growing Environmental and Financial

Acceptance• Flexibility to Face an Uncertain Future and

to Open New Coal Markets

Growing Demand for Electricity

Steady demand growth of 1.5%

to 2.0% stillprojected thru2025 in U.S.;~ 4.3% China

demand growth.

Electric Power Demand - U.S. and China

0

1000

2000

3000

4000

5000

6000

2000 2005 2010 2015 2020 2025

Year

Dem

and

(bill

ion

kwh'

s) U.S.

China

Historical average reserve margin ~20%

Source: EIA International Energy Outlook 2003

Source: NERC 2004 Long-Term Reliability Assessment

Why Coal?• The U.S. has lots of it …

– U.S. recoverable reserves of 268 Billion tons = 250+ years of supply

• We can distribute it …– Existing infrastructure in rail, barge, mine mouth

• It costs less and is less volatile in price …– $0.75-1.75/MMBtu vs. > $4.00-6.00/MMBtu for NG

• We’re familiar with it …– 50% of current U.S. power is from coal

• It broadens our national fuel portfolio …– Insulates against price and availability shock of oil and

natural gas

IGCC Delivers Fuel Diversity and Energy SecurityIGCC Delivers Fuel Diversity and Energy SecuritySlide provided by ChevronTexaco

Power Generation in the U.S.

Source: DOE Energy Information Administration

Coal is still dominant!

U.S. Natural Gas SupplyHow Much is Left ?

U.S. Nat gas reserves:Proven: 186.9 trillion cubic feetUnproven: 1150.5 trillion cubic feet

Nat gas consumption: 27 trillion cubic feet/year(avg. over next 25 years)

Years remaining at current usage:Proven reserves: 8.0 yearsUnproven reserves: 42.6 years

Source: DOE – Energy Information Administration 2005 Annual Energy Outlookhttp://www.eia.doe.gov/oiaf/aeo/pdf/trend_4.pdf

NG Prices for the Past Year

Approximate Gasification

Breakeven NG Price

7 Drivers of Natural Gas Crisis• Return to more normal winters after

unusually mild recent winters• Steep drop in U.S. natural gas production

since early 2001• Continuing rapid growth in use of NG to

produce electricity• Rapid growth in number of gas-heated

homes• Declining imports from Canada• Increasing exports to MexicoAndrew D. Weissman, Energy Ventures Group

Vast New NG Construction Program

• More than 184 GW of gas-fired capacity brought into service since 2000

•• Enough new generation to serve more Enough new generation to serve more than than ½½ of Europe !!!of Europe !!!

• Average capacity factor of NGCC plants in 2003 was 32%, leaving over 3.3 Tcf/yr of overhang capacity for NG demand

William Rosenberg, National Gasification Strategy

More drilling, but less production;More reliance on imported LNG

How Much Coal is Left ?

Coal Reserves:Demonstrated Reserve Base: 508 billion tonsEstimated % Recoverable: 54%Estimated recoverable: 268 billion tons

2003 Production: 1.072 billion tonsSource: DOE – Energy Information Administration

“US Coal Reserves 1997 and 2003 Updates”http://www.eia.doe.gov/cneaf/coal/reserves/chapter3p1.html

Years remaining at current levels: 250 yearsOther source: National Mining Association

http://www.nma.org/pdf/c_most_requested.pdf

U.S. Coal Supply

Gasification is the technology of choice for converting coal to clean and efficient

power, chemicals, fertilizers, and fuels.

Coal needs to return as a key feedstock and energy

source in the U.S. !!!

Why Gasification?• It is the cleanest coal/petcoke technology …

– Inherently lower SOX , NOX , and PM– Lowest collateral solid wastes and wastewater– Potential for lowest cost removal of mercury and CO2

• It is proven technology …– 21+ years of successful commercial operation at Eastman– Multiple commercial IGCC’s (e.g., TECO Polk, Wabash)

• It is becoming increasingly competitive …– Capital cost at parity with other clean coal and dropping– Lowest dispatch cost of all fossil fuel technologies

• It is gaining acceptance …– Gaining support of environmental groups (e.g., NRDC, CATF)– Numerous state and federal initiatives and incentives

• It provides great promise for the future …– Flexible feedstocks, process options, and products– Opens new markets for coal (synfuels, chemicals, fertilizers)– It provides the only feasible bridge from coal to hydrogen

(directly converts coal/petcoke to hydrogen)

Why Gasification?Lowest Air Emissions (approaching NGCC)

Basis: ChevronTexaco White Paper (3/03),DOE Report (5/99), and Recent EPA Permit Data

Power Plant Typical Emissions by Technology Type

0.41

0.15

0.0850.057

0.019 0.015

0.31

0.17 0.165

0.053

0.0130.002

0.027 0.02 0.0180.007 0.004 0.01

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Traditional PC Retrofit Older PC'sw/Scrubbers & SCR(using low-S Coal)

AdvancedPC/SCPC/CFB

IGCCw/MDEA Absorber

IGCCw/Rectisol & SCR

NGCC w/SCR

Type of Power Plant

lb/M

MB

tu

NOx

SO2

Particulates

• Mercury Removal• CO2 Sequestration(at fraction of cost for PC)

IGCC Upside Potential:

New NPRC/JGC IGCC is achieving < 2 ppm NOX and < 1 ppm SO2 !!!

0

100

200

300

400

500

600

700

Lb/M

W-h

r (D

ry B

asis

)

Pulverized Coal Circulating Fluid Bed IGCC

Slag/ Ash Sludge Sulfur CO2

IGCC: Lowest Collateral WastesCaCO3 + SO2 + ½O2 => CaSO4+CO2 [~ 2-4% add'l CO2]

No Add’l CO2 Associated with Sulfur Removal for IGCCNo Add’l CO2 Associated with Sulfur Removal for IGCC

Leachable Leachable Vitrified

Useful Sulfur

SludgeSludge

Slide provided by G.E. Power Systems

Pulverized Coal Circulating Fluid Bed IGCC

~ 5X Sulfur Byproducts

DOE Report "Major Environmental Aspects of Gasification-Based Power Generation Technologies", December 2002

~ 30% - 40% Less Water Usage with IGCC

Vapor-PhaseMercury Removal

Demonstrated for 21 years at Eastman !

IGCC: Low-Cost Option for Mercury ControlAn order of magnitude less expensive for IGCC

(COE = Cost of Electricity)

PCIGCCTechnology

$37,800/pound$3,412/poundCost of removal, $/pound Hg

~ 9%< 1%Fraction of COE

$3.10/MWh$0.254/MWhCost of Hg removal, $/MWh

1601.0Relative volumetric gas flow

Stack gasSyngas (ahead of AGR)Mercury (Hg) removal location

PCIGCCTechnology

$37,800/pound$3,412/poundCost of removal, $/pound Hg

~ 9%< 1%Fraction of COE

$3.10/MWh$0.254/MWhCost of Hg removal, $/MWh

1601.0Relative volumetric gas flow

Stack gasSyngas (ahead of AGR)Mercury (Hg) removal location

DOE Report, "The Cost of Mercury Removal in an IGCC Plant", September, 2002

DOE Report "Major Environmental Aspects of Gasification-Based Power Generation Technologies", December 2002

IGCC: Low-Risk Option for Carbon Capture

IGCC Minimizes Capital Cost Penalty of CO2 Capture

Proven Technology

• First U.S. commercial coal gasification facility in 1983 at Eastman Chemical Company

• First IGCC plant demonstrated in 1984 at Cool Water site in California.

• 14 current IGCC plants globally, including TECO’s Polk Plant and Global Energy’s Wabash Plant. (~ 130 total global gasifiers)

• Eastman has achieved world-class success in coal gasification for over 21 years.

Economic Drivers for IGCCIGCC Economic Project Drivers

560 MW Plant

-250 -200 -150 -100 -50 0 50 100 150 200

O & M (+/- 20%)

Heat Rate (+/- 20%)

Coal Price (+/- 20%)

Reliability (+/- 10%)

Capex (+/- 20%)

Elec. Price (+/- 20%)

NPV Change from Baseline, $M

CriticalDrivers

IGCC Economics are Increasingly Competitive

• EPC Capital Costs Near Parity with PC Plants:– Capital costs of pulverized coal plants have

been increasing to ~ $1100-1400/KW as emissions requirements have tightened.

– Capital costs of IGCC have been falling (currently projected as ~ $1200-1400/KW) as multiple plants are built and improved, with considerable additional downward potential.

• Lowest Dispatch Costs:– IGCC Dispatch Costs (fuel + variable O&M

+ environmental costs + consumables) are the lowest of all fossil fuel technologies.

IGCC Capital Cost BreakdownCombined Cycle Plant

CT/HRSG/ST43%

Gasifier Block25%

ASU15%

Coal Prep10%

AGR7%

Potential to reduce total capital cost by re-fueling existing idle NGCC turbines

IGCC Capital Cost Improvement

Source: GE Power Systems, Power-Gen 2002 Presentation

TargetRange

For IGCC

x

Recent Clean Coal PCPlants

x

Key Advantages of IGCC vs. PC BoilersEnvironmental:• Inherently lower air, water, and solids emissions• Pre-combustion treatment vs. post-combustion treatment

enables easier and lower removal of pollutants• Low-cost effective volatile mercury removal• Much lower costs for CO2 capture than with PC

Efficiency:• Combined cycle turbines or fuel cells vs. only steam turbines• IGCC capital costs falling while efficiency increases;

PC/SCPC capital costs increasing while efficiency falls

Flexibility:• Upgrade later at minimum cost for CO2 sequestration, mercury

removal, or to increase sulfur and NOx removal • Ability to co-produce chemicals, fertilizers, fuels, or hydrogen• Can handle variety of feedstocks including petcoke and biomass

Gasification – Ready for Prime Time !!• Competitive cost of electricity (superior dispatch cost -

lowest for all fossil fuels)

• Exceptional environmental performance, including cost effective volatile mercury removal and potential for lowest-cost CO2 capture and sequestration

• Refueling of NGCC plants (replacing NG with coal)

• Production of hydrogen to fuel the coming economy(FutureGen Initiative)

• Promise of new markets for coal - potential for transformation of the chemical, fuels, and fertilizer industries

•• Gasification is Gasification is thethe future for coal !!!future for coal !!!

Eastman’s Experience with Gasification• We were a pioneer in coal gasification …

– First commercial U.S. coal gasification facility in 1983– Designated as ACS National Historic Chemical Landmark

• Industry leading operating performance …– > 98% on-stream time since 1984– < 1-2% forced outage rate– Highest production rate per unit of capacity– Single-train reliability of ~88-90% (~94% excl. refractory change)

• Excellent safety record …– Plantwide OSHA recordable rate of ~1.0– No lost time in gasification area in over 12 yrs

• Exceptional environmental performance …– Remove >99.9% of sulfur– Patented sulfur-free start-up process– Volatile mercury removal for over 21 years

• Continual process improvement …– Reduced maintenance costs 20-30% in past 6 years– Patented feed injector designs for longer run life

Air

Oxy

gen

N2/ArA

SU

Compressor

Water

Coal

SlurryPump

Grinding Rod Mill

Lock Hopper

Particulate Scrubber

Solids Filtration

Water recycle

Flash drum

GEGasifier

(1 + Spare)

Shift Reactor

Hg Removal

Sulfur Recovery

Sulfur

CO2

Gas Clean-up (Rectisol) A

cid

Gas

es

COH2

CO/H2Separation (Cryogenic)

Syngas Conversion

Chemicals

Gasification at Eastman Basic Flow Diagram

Acetic AnhydrideAcetic AcidMethyl AcetateMethanol

Clean SyngasSteamAir Products

Syn Gas (CO + H2)

Carbon Monoxide (CO)

Chemicals from Coal – The Chemistry

Methyl Acetate Plant

Methyl Acetate

CH3OH+ CH3COOH CH3CO2CH3 (methyl acetate)Acetic

Anhydride

CO + CH3CO2CH3 (CH3CO)2O (acetic anhydride)Acetic Acid

Carbonylation Plant

CH3OH + CO CH3COOH (acetic acid)

MethanolPlant

Methanol

CO + H2 CH3OH (methanol)

Primary Reactions:

Acetic AnhydrideAcetic AcidMethanol

Methyl AcetateCoal

Eastman Chemicals from Coal – The Big Picture

Several major products are single-sourced from Eastman's coal gasification process!!

Thus, reliability is critical!!!

It’s likely you have used a product based on coal gasification from Eastman’s facility!

Reliable Gasification Operation

Yes, it can be done!

“The Devil is in the details.”

Eastman Operating StatisticsThree-Year Cycle (09/01 – 09/04)

including planned shutdown

On-Stream98.0 %

Unplanned1.2%

Planned0.8%

Not Needed0.0%

Industry-Leading Performance !!!

Eastman Operating StatisticsOne-Year Cycle (Sept 2002 - Sept 2003)

On-Stream98.9 %

Unplanned1.1%

Planned0.0%

Not Needed0.0%

Sustained Low Forced Outage RateEastman Gasification Plant

Historical Forced Outage Rate

0

1

2

3

4

5

6

7

8

9

10

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

% F

orce

d O

utag

e R

ate

Forced Outage Rate has Averaged < 2% since 1984 !!!

Industry Leading Gasifier Productivity!!!

Continual Process ImprovementHistorical Syngas Production Rate

15

17

19

21

23

25

27

2919

89

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Syng

as P

rodu

ctio

n B

SCF

Capacity Factor = annual production/(design at full rates x 365 days/yr)

Annual loading factor = 127%

Annual Loading Factor

Safety

• Plantwide OSHA recordable injury rate ~ 1.0[Equates to one injury in over 15 years for a family of four!]

[OSHA injuries = injuries that require more than minor 1st aid]

• Last gasification area work day out case was over 12 years ago (sprained ankle stepping off a curb)

• Plant site received Tennessee OSHA “Volunteer Star”safety certification in 2001

Eastman Environmental Performance

• Cleanest U.S. coal gasification facility. • Sulfur removal is > 99.9% (with Rectisol);

<0.1 ppm sulfur in our syngas.• Eastman has a patented sulfur-free

start-up process (no SO2 from flare).• Eastman has practiced essentially

complete vapor-phase mercury removal from syngas since our initial plant start-up.

• Excellent environmental record and reputation.

Market Needs/Concerns for Gasification• High Capital Costs: need capital costs similar to

other coal-based technologies

• Unfamiliarity to Utilities: gasifiers are more like chemical processes than boilers

• Time to Capacity: previous IGCC plants have taken too long (several years) to get to full design capacity

• Reliability Concerns: need acceptable reliabilities and availabilities for facilities (90+%)

• Financing of Projects: bankers need guarantees or assurances that gasifiers will perform well

• Economic and Environmental Uncertainties: uncertainties regarding economic recovery, Enron fall-out, natural gas price forecasts, energy bill tax incentives, and multi-pollutant legislation

Eastman’s Value Proposition

Eastman's 21-yrs experience can enable faster start-ups

Time to Capacity

Eastman works with industry and government to understand & plan for uncertainties

Economic & Environmental Uncertainties

Eastman can help offer adequate warranties

Financing of Projects

Eastman has the best operating performance in the industry; offering O&M services

Reliability Concerns

Eastman knows gasification (21 yrs experience); O&M services

Unfamiliarity to Utilities

Eastman helps owners make intelligent design choices

High Capital Costs

Eastman Value CreationMarket Need

How Important is ReliabilityIGCC Economic Project Drivers

560 MW Plant

-250 -200 -150 -100 -50 0 50 100 150 200

O & M (+/- 20%)

Heat Rate (+/- 20%)

Coal Price (+/- 20%)

Reliability (+/- 10%)

Capex (+/- 20%)

Elec. Price (+/- 20%)

NPV Change from Baseline, $M

Eastman will help gasifier owners get more out of their plants, including faster

start-ups and improved long-term availability and reliability

• World-class operational performance

• Intelligent design choices to limit capital costs

• Patented technology improvements

• Exceptional safety and environmental records

• Best partner for polygeneration options

Eastman’s Value to Gasifier OwnersGasification Plant Start-up Schedule

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50Time from Mechanical Completion

Cap

acity

Fac

tor (

% o

f Des

ign)

--- Eastman Potential--- Min. Required for Project--- Industry Past History

=$$$

$$$

Service Offerings:h Operations, maintenance, and management

contractsh Technical servicesh Critical spare parts fabricationh Specific technology licensingh Cooperative services agreement with

ChevronTexaco/GEh Project development

Eastman Gasification Services CompanyA subsidiary of Eastman Chemical Company

Building on Past Success

Use Eastman Gasification Services!

Don't leave your success to chance!

Together we can realize thefull potential of gasification!

QUESTIONS?www.gasificationservices.eastman.com