Coal-to-Liquids and the Path to Independence

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Coal-to-Liquids and thePath to Independence

• Jim Roberts
• Chairman, President CEO
• Foundation Coal Corporation

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U.S. Import Dependency
65
26
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U.S. Import Dependency
2030
2006
75
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Were Right to Be Concerned

• U.S. energy challenge its real
• requires an immediate response, but a long-term
  strategy
• need to address environmental concerns and energy
  needs simultaneously

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The Specter of Energy Dependency

• despite good intentions strong rhetoric
• . our dependency grows
• U.S. imports rising to 75 by 2030
• we use 25 of worlds oil hold only 3
• dangers of dependency are growing

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Dangers of Energy Dependency

• reliance on imports rises
• as reliability of supply falls
• geopolitical turmoil
• unfriendly or hostile regimes
• competition for energy from growing economies
• peaking world oil supply?
• rising global demand for a dwindling supply

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The Coal Boom

• Coal is a resurgent industry
• coal fuels over half of U.S. electric generation
  today
• U.S. electricity demand up 50 by 2030
• domestic coal production will continue to grow
• from a record 1.1 billion tons in 2005
• to a new record in 2006 and coming years

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Behind Coals Resurgence
Its Affordable
Natural Gas
Oil
Coal
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Behind Coals Resurgence

• Its abundant
• U.S. has the worlds largest reserves
• 240-year domestic supply
• highly diversified reserves in 26 states

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The Energy of Coal States

• Top 10 coal states have energy reserves totaling
  4,577 quads
• On an energy equivalent basis, this compares to
  
• U.S. oil reserves 131 quads
• Saudi Arabias oil reserves 1,566 quads
• Middle East oil reserves 4,104 quads

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Behind Coals Resurgence Secure Within Our
Borders
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Secure Within Our Borders

• U.S. coal reserves
• are known no need to explore or search
• arent subject to foreign disruption
• cant be nationalized by foreign governments
• dont have oceans to cross

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Southern States Energy BoardAmerican Energy
Security

• Coal to the Rescue
• study by 16 governors and state legislatures
• bold plan for U.S. energy independence
• coal-to-liquids (CTL) is biggest single
• component of overall plan

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Coal-to-Liquids (CTL)

• producing premium transportation fuels from coal
  using existing technology
• the path to independence key to reducing U.S.
  energy imports 5 per year over 20 years
• a proven track record meeting 30 of South
  Africa total fuel needs today
• diversify fuel production away from the Gulf
  Coast

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Behind Coals Resurgence Secure Within Our
Borders
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Growing Interest in CTL

• U.S. Department of Defense
• commercial airline industry
• trucking and railroad industries
• China 10 billion CTL commitment

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Advantages of CTL Development

• To states and the nation
• high-wage jobs
• ultra-clean fuels
• greater energy security

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Challenges to CTL Development

• biggest impediment
• volatility of global energy prices
• price uncertainty makes lenders skittish
• on multi-billion-dollar CTL investments.

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Oil Price Volatility

• Energy independence will remain elusive if our
  commitment waxes and wanes with the rise and fall
  of global oil prices.

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What States Can Do

• States can advantage themselves
• and attract CTL investment by offering
• long-term purchase agreements
• tax incentives
• non-recourse loans on matching basis
• streamlined regulatory process

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Coal A Necessary Ingredient

• without more coal production
• CTL incentives are meaningless
• 10,000 bbl/day plant 2 million tons of coal
• increased coal production will require
• faster, more certain permit process
• better inter-modal transportation system
• new generation of young miners

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An Effective Energy Policy

• what we have
• piecemeal, short-term policies
• energy supply issues environmental concerns
  considered in isolation
• policy driven by news cycle
• What we need
• long-term, comprehensive policies
• Integrated energy environmental policies
• policy driven by strategic needs and to match

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The Integration of Energy Environmental Policy

• Climate Change an example of whats broken
• Enhance domestic supply or ration coal use?
• Use more coal but not mine it?
• Limit U.S. coal use but ignore China?

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The China Syndrome

• Unilateral action in the U.S. will not
  appreciably improve global environment not
  while China
• builds a new coal-fired power plant every 5
  days
• in 20 years, will add twice the amount of GHG
• emissions as would be reduced by Kyoto
  Protocol
• in 20 years, will emit more GHGs than the U.S.

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Technology The Path Forward

• Carbon Sequestration
• the technological path to
• using our most abundant domestic fuel
• capturing and storing CO2
• addressing climate change in rapidly growing
• economies through export of technology
• while minimizing the impact on U.S. economy

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Asia-Pacific Partnership

• AP6 a model technology program
• multi-lateral agreement to develop and share GHG
  reduction technologies
• participating nations are Australia, China,
  India, Japan, Korea, and the U.S. among the
  worlds leading coal producers and consumers
• Caterpillar-China agreement on methane-capture
  technology producing GHG emission reductions
  equal to 1 of total Kyoto reductions

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Technology A Better Approach
skeptics overlook the power of technological
solutions around us

• 10 years ago, no one would have thought
• Yahoo would have 380 million users daily
• China would be on track to produce 10 of its
  energy needs from CTL

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Benefits of Better Energy Policy

• coals potential is unrivalled
• can help free us from our dangerous dependence on
  foreign energy
• states can benefit from coals new growth and the
  development of CTL