fred palmer
TRANSCRIPT
Fredrick D. PalmerSenior Vice President – Government Relations
Peabody Energy
Wisconsin PublicUtilities InstituteGas Symposium
Coal as Wisconsin’s Future Fuel(Including Substitute Natural Gas)
2
The World is Turning to Coal
● We believe the world is increasingly energy-short, led by unprecedented demand from population centers and economic hubs in Asia, the Middle East and South America
● This occurs as:– Traditional energy sources are clearly constrained, requiring coal-
based alternatives– Energy-rich nations leverage political gain from their assets, and
nations urgently look to improve energy security● In this environment:
– Oil, coal and gas face a greater long-term convergence, – Coal’s traditional regionalized nature becomes global, and – Coal’s compact energy form becomes an attractive source
for liquids and substitute natural gas● The world is blessed with an abundance of coal to help meet all
human energy needs
Peabody’s ViewPeabody’s View
3
Trill
ion
Dol
lars
of G
DP In 20 years, world
GDP will double
Economic Growth Requires Energy, and Future Growth Estimates Require Coal
World GDP in Trillion 2000 DollarsWorld GDP in Trillion 2000 Dollars
4
78 85 99 107 110 131
205
262301
404
489
570
0
100
200
300
400
500
600
1980 1990 2000 2010 2020 2030
U.S Rest of the World
Qua
drill
ion
Btu
Con
sum
ed
In 20 years, world energyconsumption will increase 80%
The Rising Tide of Energy Demand Swamps Existing Supply
1.6 Billion People Worldwide Lack Access to Electricity1.6 Billion People Worldwide Lack Access to Electricity
5
U.N.: Access to Abundant Energy is Key to Quality of Life and a Fundamental Right
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0 5 000 10 000 15 000 20 000
Electricity Use
Hum
an D
evel
opm
ent I
ndex
Canada
Qatar
SwedenFinland
United States
UAE
MozambiqueZambia
ZimbabweBangladesh
Ethiopia
South Africa
Malaysia
Argentina
•Italy
IndiaMorocco
ChinaBrazil
Indonesia
Electricity Use Per Capita and the U.N. Human Development IndexElectricity Use Per Capita and the U.N. Human Development Index
Source: International Energy Agency, World Energy Outlook 2005.
Life expectancy, educational attainment and income all correlate
with per capita energy usage
6
Electricity Usage per CapitaElectricity Usage per Capita Passenger Vehicles per CapitaPassenger Vehicles per Capita
Source: United Nations’ Human Development Report; Dargay, Gately & Sumner, 2007.
Most Nations Still in Early Stages of Modernization and Energy Use
Projections Assume Chinese Consumption Remains Projections Assume Chinese Consumption Remains Below Current Levels of Mexico for Next 25 YearsBelow Current Levels of Mexico for Next 25 Years
GDP Per Capita (thousand US $)
Meg
awat
t Hou
rs P
er C
apita
India
ChinaBrazilMalaysia
Mexico
South Korea
ItalyUK
Australia
USA
India China
Brazil
Malaysia
Mexico
South Korea
Italy
UK
Australia
USA
Vehi
cles
Per
100
Peo
ple
GDP Per Capita (thousand US $)
7
Wor
ld P
opul
atio
n in
Bill
ions
Current U.S. population: ~ 300MU.S. population in 2040: ~ 400M
We Need to Meet All Human Energy Needs to Achieve World Bank’s “Poverty-Free” Dream
Population Growth Ensures Future Energy DemandPopulation Growth Ensures Future Energy Demand
8
Reserve Additions
Consumption
The World is Consuming More Oil Than it is Finding; New Finds Less Prolific Than First Finds
Source: ASPO – Ireland, Newsletter, August 2007; U.S. Energy Information Administration, World Petroleum Consumption, 2008; and Management Information Services, Inc., 2008.
0
10
20
30
40
50
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 20002007
Bill
ion
Bar
rels
Per
Yea
r
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Reserve Additions
Consumption
Annual Depletion in Existing Major Oilfields is Annual Depletion in Existing Major Oilfields is Relentless and is At Least 3 Million Barrels a DayRelentless and is At Least 3 Million Barrels a Day
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4% Production Fluctuation
Band
87
8685
84
8382
8180
79
7877
76
7574
2002 2003 2004 2005 2006 2007
Wor
ld O
il Pr
oduc
tion
Mill
ions
of b
arre
ls p
er d
ay Plateau
““If they [Saudi Arabia] don't have a lot of additional oil to put on the market, If they [Saudi Arabia] don't have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.”it is hard to ask somebody to do something they may not be able to do.”
– – President George W. BushPresident George W. Bush
World Liquid Fuel Production Has Apparently Plateaued, Saudis Notwithstanding
Source: U.S. Energy Information Administration, 2008.
10Source: BP Statistical Review of World Energy, June 2008
More Signs of Peak: Production Drops From 2006 Levels, Including Reclassified NGL Production
World Annual Oil Production, 2002 - 2007World Annual Oil Production, 2002 - 2007
74.5
77.0
80.3
81.581.781.3
68
72
76
80
84
2002 2003 2004 2005 2006 2007
Mill
ion
Bar
rels
Per
Day
11
Prices Say We’re at Peak; Speculation Doesn’t Drive Increase, the U.S. Congress Not Withstanding
Weekly Price of West Texas Crude, 1986 - 2008Weekly Price of West Texas Crude, 1986 - 2008
Source: U.S. Energy Information Administration, Petroleum Navigator, Spot Prices, June 2008.
0
20
40
60
80
100
120
140
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
dolla
rs p
er b
arre
l
12Source: Matt Simmons, “Peak Oil’s Investment Implications,” March 7, 2008.
Matt Simmons: Supply May Fall Rapidly; World will be Totally Different if He is Correct
By 2012, World Oil Production By 2012, World Oil Production May Decrease Between 7% and 31%May Decrease Between 7% and 31%
0
10
20
30
40
50
60
70
80
90
Mill
ion
Bar
rels
Per
Day
2007 Actual Simmons 2012"Best Case"
Simmons 2012 "Worst Case"
13
9.2
7.86.7
5.7
10.8
12.7
0
2
4
6
8
10
12
14
Potential Natural Gas Demand for Electricity Exceeds Supply
At Current Growth Rate, Gas for U.S. Electricity Generation Would Raise U.S. Natural Gas Demand by 6 tcf / Year
Trill
ion
Cub
ic F
eet
2002 2007 2012 2017 2022 2027
Natural Gas for U.S. GenerationNatural Gas for U.S. Generation
Source: Energy Information Administration Natural Gas Consumption by End Use, 2008.
14
0
2
4
6
8
10
12
14
16
18
20
22
2007 2008 2009 2010 2011 2012 2013 2014 2015
TCF/
Y - D
ry P
rodu
ctio
n
EIA Projected Production Depletion at 32%
New NG
Needed
Source: Energy Information Administration; EOG; CIBC World Markets.
Unconventional Gas Plays Will Struggle to Fill Unconventional Gas Plays Will Struggle to Fill Gap of 6 TCF/Year – the Size of Texas ProductionGap of 6 TCF/Year – the Size of Texas Production
Natural Gas Depletion, Like Oil Depletion, is a Constant
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U.S. Natural Gas Production: Where We StandFrom June 30From June 30thth Wall Street Journal Article Wall Street Journal Article
16
784
1,760
1,550
1,111
934
200
400
600
800
1000
1200
1400
1600
1800
2005 2006 2007 2008 (Jan) 2008 (Feb)
BC
F / Y
ear
EIA’s LNG Forecasts Falling Toward Reality
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LNG Becomes Default Fuel for Generation if Coal Use is Limited for Any Reason
● U.S. will voluntarily cede control of it’s energy future to a foreign energy cartel
● Project Energy Independence led to a reduction of oil used for electricity generation
● LNG is global and priced off of oil benchmarks
● LNG risks:– Political
• Risky regions– Physical
• Security of terminals– Financial
• Balance of payments
U.S. Actions in the 1970s Reduced U.S. Actions in the 1970s Reduced Use of Oil for Generation Use of Oil for Generation
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Most Gas Reserves Are in the Middle East and AsiaMost Gas Reserves Are in the Middle East and Asia
Iran, Russia, Qatar, Algeria & Indonesia Have Announced an LNG Cartel
LNG is a Global Commodity, Priced Off of Oil BenchmarksLNG is a Global Commodity, Priced Off of Oil BenchmarksIt is No Different than Importing Foreign OilIt is No Different than Importing Foreign Oil
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Expensive Natural Gas Now Limits Usefulness of Most Gas Generating Plants
Generation Could Drain Natural Gas StorageGeneration Could Drain Natural Gas Storage
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The Long Run Price of NG/LNG in a Peak Oil World
Source: Adapted from "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007.
Price of W TI Oil in Dollars per Barrel
“Oil prices are not going to come down to gas prices but gas prices will get closer to oil”
–Dr. R. Bertani, Former President of Petrobas America
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Percentage of Wisconsin’s Electricity Which Comes from NG
Wisconsin’s Growing Dependence on Natural Gas for Electricity
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What the Continuing “Dash to Gas” Means for Wisconsin Electricity Rates
Since 2002, NG prices in Wisconsin have increased
70% for families and 100% for industry
Source: Energy Information Administration, through April 2008.
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By 2015 Wisconsin Will Pay Substantially More for NG to Produce Electricity
Price of Oil/Barrel; (Price of NG)
(Actual Cost) *(13) *(16) *(20) *(23) *(27)
*Amount paid by Wisconsin to generate electricity as NG approaches oil parity
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Wisconsin’s Coal Prices for Electricity are Lower, More Stable than NG Prices
Source: Energy Information Administration, U.S. Price 2008.
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Coal Continues as World’s Fastest Growing Fuel
Five-Year Change in Global Energy ConsumptionFive-Year Change in Global Energy Consumption
Source: BP Statistical Review of World Energy, June 2007.
0 5 10 15 20 25 30
30%
2001
- 20
06 C
hang
e
16%
9%
15%
4%
Coal
Natural Gas
Oil
Hydro
Nuclear
Compound Annual Compound Annual Growth RateGrowth Rate
0.8%
1.7%
2.9%
3.1%
5.3%
Seaborne Coal Demand Growing 7% AnnuallySeaborne Coal Demand Growing 7% Annually
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+456
+3,114
+137+22
+763
Growth through 2030. Amounts in million short tons.Source: U.S. Department of Energy, Energy Information Administration, International Energy Outlook 2006. International Energy Agency.Projected Australia export flow for 2004-2030.
EIA/IEA Expected Coal Demand Increase EIA/IEA Expected Coal Demand Increase of 4.5 Billion TPY in 2030 to 11 Billion TPYof 4.5 Billion TPY in 2030 to 11 Billion TPY
Platts: 660,000 MW of New Coal Plants in 75 Countries Platts: 660,000 MW of New Coal Plants in 75 Countries with Coal Use of 2.3 Billion TPY within 10 Yearswith Coal Use of 2.3 Billion TPY within 10 Years
Power Demand Driving Global Coal Growth
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The Resource: 27% of the World’s Coal is in the United StatesThe Resource: 27% of the World’s Coal is in the United States
250 Billion Tons of Recoverable Coal250 Billion Tons of Recoverable Coal
Coal: Homegrown Energy Abundance in a World of Energy Shortfalls
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NCC Sees Coal Converted toNatural Gas, Other Energy Sources
● Study determined that clean coal technologies are available to turn abundant U.S. coal into multiple energy forms including electricity, natural gas, transportation fuels and hydrogen
● By 2025, new capital investments of $515 billion (present value of $350 billion) in Btu Conversion technologies would create:
– 100 GW in new generation capacity– 4 TCF of coal-to-natural-gas facilities– 2.6 million barrels per day of coal-to-liquids
● U.S. coal production would more than double to 2.4 billion tons of coal per year
● Millions of high-paying jobs created nationwide in a new energy manufacturing industry
● March 2006 conclusions reaffirmed in latest study “The Urgency of Sustainable Coal”
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Peabody Partnering with ConocoPhillips on New Coal-to-Natural Gas Facility
● Feasibility study for mine-mouth facility under way ● $250 million in incentives available from Kentucky ● Annual production of 50 to 70 billion cubic feet of pipeline-quality
synthetic natural gas● ~1.5 tcf in the first 30 years of production ● 3.5 million tons annually of Peabody coal and petcoke● “Carbon capture ready”
Major Commitment from Leading Global Oil & Gas CompanyMajor Commitment from Leading Global Oil & Gas Company
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Latest Example of Clean Energy Investments: GreatPoint Energy
● BTU has investment in GreatPoint Energy that markets proprietary bluegasTM technology
● Process converts coal into clean natural gas with carbon storage
● Technology being advanced to commercial scale; Massachusetts pilot demo under way GreatPoint Bluegas Demonstration Facility
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The Enabling Technology:Carbon Storage
Source: U.S. Department of Energy, Office of Fossil Energy, National Energy Technology Laboratory, Carbon Sequestration Atlas of the United States and Canada.
33
Clean Coal Technologies Provide the Path for Affordable & Adequate Energy Supplies
● Coal-to-Liquids – CTL with CCS can produce better fuels at the same rate of CO2 emissions as imported oil. Adding biomass increases cost but improves CTL’s carbon footprint.
● Coal-to-Gas – Coal can be gasified to create NG for power plants and the CO2 can be captured and stored. SNG from coal with CCS has much better footprint than LNG.
● Coal-to-Electricity – New “supercritical” clean coal plants emit 15% less CO2. FutureGen and GreenGen would have near-zero emissions.
34
Peabody is the Global Leader in Clean Coal Solutions
BTU is the only non-Chinese equity partner in GreenGen, China’s centerpiece commercial climate initiative
BTU is a long-standing supporter of the Vision 21 and FutureGen clean coal projects
BTU is a member of Australia’s COAL21
Fund to advance near-zero emissions through technologies
such as oxyfuel
Advancing Signature Climate Projects in U.S., China and AustraliaAdvancing Signature Climate Projects in U.S., China and Australia