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Fredrick D. Palmer Senior Vice President – Government Relations Peabody Energy Wisconsin Public Utilities Institute Gas Symposium Coal as Wisconsin’s Future.

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Presentation on theme: "Fredrick D. Palmer Senior Vice President – Government Relations Peabody Energy Wisconsin Public Utilities Institute Gas Symposium Coal as Wisconsin’s Future."— Presentation transcript:

1 Fredrick D. Palmer Senior Vice President – Government Relations Peabody Energy Wisconsin Public Utilities Institute Gas Symposium Coal as Wisconsin’s Future Fuel (Including Substitute Natural Gas)

2 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 View

3 3 Trillion Dollars of GDP In 20 years, world GDP will double Economic Growth Requires Energy, and Future Growth Estimates Require Coal World GDP in Trillion 2000 Dollars

4 4 Quadrillion Btu Consumed In 20 years, world energy consumption will increase 80% The Rising Tide of Energy Demand Swamps Existing Supply 1.6 Billion People Worldwide Lack Access to Electricity

5 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 05 00010 00015 00020 000 Electricity Use Human Development Index Canada Qatar Sweden Finland United States UAE Mozambique Zambia Zimbabwe Bangladesh Ethiopia South Africa Malaysia Argentina Italy India Morocco China Brazil Indonesia Electricity 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 6 Electricity Usage per Capita Passenger 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 Below Current Levels of Mexico for Next 25 Years GDP Per Capita (thousand US $) Megawatt Hours Per Capita India China Brazil Malaysia Mexico South Korea Italy UK Australia USA India China Brazil Malaysia Mexico South Korea Italy UK Australia USA Vehicles Per 100 People GDP Per Capita (thousand US $)

7 7 World Population in Billions Current U.S. population: ~ 300M U.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 Demand

8 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 190019101920193019401950196019701980199020002007 Billion Barrels Per Year 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 Relentless and is At Least 3 Million Barrels a Day

9 9 4% Production Fluctuation Band 87 86 85 84 83 82 81 80 79 78 77 76 75 74 2002 20032004 2005 2006 2007 World Oil Production Millions of barrels per day Plateau “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.” – President George W. Bush World Liquid Fuel Production Has Apparently Plateaued, Saudis Notwithstanding Source: U.S. Energy Information Administration, 2008.

10 10 Source: 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 - 2007 74.5 77.0 80.3 81.5 81.7 81.3 68 72 76 80 84 200220032004200520062007 Million Barrels Per Day

11 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 - 2008 Source: U.S. Energy Information Administration, Petroleum Navigator, Spot Prices, June 2008. 0 20 40 60 80 100 120 140 Jan-86Jan-88Jan-90Jan-92 Jan-94Jan-96Jan-98Jan-00Jan-02 Jan-04 Jan-06Jan-08 dollars per barrel

12 12 Source: 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 May Decrease Between 7% and 31% 0 10 20 30 40 50 60 70 80 90 Million Barrels Per Day 2007 Actual Simmons 2012 "Best Case" Simmons 2012 "Worst Case"

13 13 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 Trillion Cubic Feet 200220072012201720222027 Natural Gas for U.S. Generation Source: Energy Information Administration Natural Gas Consumption by End Use, 2008.

14 14 0 2 4 6 8 10 12 14 16 18 20 22 200720082009201020112012201320142015 TCF/Y - Dry Production EIA Projected ProductionDepletion at 32% New NG Needed Source: Energy Information Administration; EOG; CIBC World Markets. Source: Energy Information Administration, March 2007. Unconventional Gas Plays Will Struggle to Fill Gap of 6 TCF/Year – the Size of Texas Production Natural Gas Depletion, Like Oil Depletion, is a Constant

15 15 U.S. Natural Gas Production: Where We Stand From June 30 th Wall Street Journal Article

16 16 EIA’s LNG Forecasts Falling Toward Reality

17 17 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 Use of Oil for Generation

18 18 Most 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 Benchmarks It is No Different than Importing Foreign Oil

19 19 Expensive Natural Gas Now Limits Usefulness of Most Gas Generating Plants Generation Could Drain Natural Gas Storage

20 20 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

21 21 Percentage of Wisconsin’s Electricity Which Comes from NG Wisconsin’s Growing Dependence on Natural Gas for Electricity

22 22 Natural Gas Use for Power Generation is Raising Prices for Wisconsin Manufacturers

23 23 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.

24 24 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

25 25 Wisconsin’s Coal Prices for Electricity are Lower, More Stable than NG Prices Source: Energy Information Administration, U.S. Price 2008.

26 26 Coal Continues as World’s Fastest Growing Fuel Five-Year Change in Global Energy Consumption Source: BP Statistical Review of World Energy, June 2007. 30% 2001 - 2006 Change 16% 9% 15% 4% Coal Natural Gas Oil Hydro Nuclear Compound Annual Growth Rate 0.8% 1.7% 2.9% 3.1% 5.3% Seaborne Coal Demand Growing 7% Annually

27 27 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 of 4.5 Billion TPY in 2030 to 11 Billion TPY Platts: 660,000 MW of New Coal Plants in 75 Countries with Coal Use of 2.3 Billion TPY within 10 Years Power Demand Driving Global Coal Growth

28 28 The Resource: 27% of the World’s Coal is in the United States 250 Billion Tons of Recoverable Coal Coal: Homegrown Energy Abundance in a World of Energy Shortfalls

29 29 NCC Sees Coal Converted to Natural 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”

30 30 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 Company

31 31 Latest Example of Clean Energy Investments: GreatPoint Energy ●BTU has investment in GreatPoint Energy that markets proprietary bluegas TM 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

32 32 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 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 CO 2 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 CO 2 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 CO 2. FutureGen and GreenGen would have near-zero emissions.

34 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 Australia

35 Fredrick D. Palmer Senior Vice President – Government Relations Peabody Energy Wisconsin Public Utilities Institute Gas Symposium Coal as Wisconsin’s Future Fuel (Including Substitute Natural Gas)

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