America's Energy Future: Challenges and Opportunities


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America's Energy Future: Challenges and Opportunities

  1. 1. America’s Energy Future: Challenges and Opportunities Steve Leer Chairman and Chief Executive Officer Arch Coal, Inc. November 2, 2009
  2. 2. This presentation contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the Securities and Exchange Commission. Forward-Looking Information
  3. 3. Arch Coal is a leader in the coal industry <ul><li>One of the largest coal producers in the U.S. </li></ul><ul><li>Supply roughly 16 percent of the U.S. coal supply </li></ul><ul><ul><li>Provide cleaner-burning, low-sulfur coal to domestic power producers to fuel 8 percent of the nation’s electricity </li></ul></ul><ul><ul><li>Ship coal to domestic and international steel manufacturers as well as international power producers </li></ul></ul><ul><li>Talented workforce operates large, modern mines </li></ul><ul><li>Industry leader in mine safety, productivity and reclamation </li></ul>Source: ACI
  4. 4. Prosperity is linked to electricity use Source: United Nations Human Development Report 2007/2008 Human Development Index Electricity consumption per capita (in kWh) United States Iceland Norway Canada Kuwait Australia Japan, France, Netherlands, Israel, United Kingdom, Italy Poland China Argentina, Mexico, Brazil India Pakistan S. Africa Nigeria Ethiopia World average per capita electricity consumption = 3,427 kWh/person/year World average HDI = 0.729 Indonesia Russia
  5. 5. Coal has been the world’s fastest-growing fuel source in the past seven years Source: BP Statistical Review of World Energy 2009 Cumulative Percent Change in Global Energy Consumption 2000 – 2008 (in million tonnes of oil equivalent) 41% 19% 25% 11% 6% Coal Hydro Nat. Gas Oil Nuclear <ul><li>Since 2000, global coal use has grown by 41% , roughly double the consumption growth in natural gas </li></ul><ul><li>Growth in coal demand will continue to be driven by consumption in the developing world, with gains in the developed world as well </li></ul><ul><li>Fossil fuels are expected to remain dominant global energy sources through 2030 </li></ul>
  6. 6. World coal consumption is certain to expand further Coal Consumption (in millions of short tons) Source: EIA, International Energy Outlook 2009 2007 2030
  7. 7. Coal’s advantage: abundant, secure and widely dispersed 0 100 200 billions of tonnes of oil equivalent Source: ACI, Bank of America, BP Statistical Review 2009 and Blackwell Energy Research Based on current production levels and proven reserves, coal should outlast both gas supplies and oil reserves by more than 3 times North America Central and South America Europe Middle East Africa Russia India China Other Asia Pacific Oil Natural Gas Coal
  8. 8. Coal is the dominant fuel source for electricity generation in America and around the world Coal 49% Worldwide Net Electricity Generation by Source (2006, per billion KwH) U.S. Net Electricity Generation by Source (2006, per billion KwH) Sources: EIA, IEA World Energy Outlook 2008 Coal 41% Natural gas 20% Nuclear 19% Hydro 7% Other Renewables 3% Oil 2% Hydro 16% Natural gas 20% Nuclear 15% Other Renewables 2% Oil 6%
  9. 9. In the United States, electricity demand has steadily climbed since 1950 Source: EIA *Includes power sold directly to transportation sector and self-generating power
  10. 10. Where will the United States get its future power, if not from coal? Source: EIA, ACI and Baker Hughes <ul><li>U.S. natural gas supply is keeping pace with demand at current 20% market share levels. </li></ul><ul><ul><li>However, natural gas has a wide range of uses, so the ability to expand share significantly for power generation is questionable. </li></ul></ul><ul><li>Since 2000, nuclear utilization has been at or close to 90% and the fleet is aging. As many as 30 new units will needed by 2030 just to maintain current market share. </li></ul><ul><li>Hydro power is concentrated in the Northwest. No net additions to capacity are anticipated. </li></ul><ul><li>While renewables can play a growing role, they face significant hurdles before achieving baseload status. </li></ul><ul><ul><li>Even if the U.S. can meet an ambitious goal of 25% renewable energy by 2030, it still leaves 75% of our power requirements to other fuels. </li></ul></ul>
  11. 11. Natural gas prices have dipped – but the market anticipates a rebound Source: Henry Hub, Nymex <ul><li>Although unconventional U.S. gas supply is growing, the futures strip suggests that gas will soon return to its recent historical range </li></ul>
  12. 12. Source: Platts, ACI and NextGen Energy Council * Gross of plant retirements <ul><li>Build-out of 16 GW equates to 55 million tons of new coal demand annually over next four years </li></ul><ul><li>Arch estimates that the Powder River Basin will service one half of this demand </li></ul>Anticipated Supply Region for U.S Coal Plants Under Construction* (in millions of tons) The U.S. is experiencing largest coal plant build-out since 1980 despite news coverage of cancellations PRB Non-PRB
  13. 13. Coal will remain a vital part of America’s energy future Coal: 94% U.S. Petroleum Supply (million barrels per day, 2008) U.S. Energy Reserves (in trillion Btu) Source: EIA, BP Statistical Review of World Energy 2008, Argus Coal Daily OPEC 30% Domestic 34% Other Imports 36% FOB rail (2010) Wellhead (prompt month) $13.76 = $80 per bbl $0.50 $4.84 U.S. Fuel Prices ($/million Btu at 10/16/09)
  14. 14. Coal is increasingly clean…and will become more climate-friendly with time and funding U.S. population increased 49% Coal-based electricity increased 183% Emissions of NO x , SO 2 and PM 10 decreased 60% Sources: NMA, EPA Since 1970 NO x (Nitrogen Oxide), SO 2 (Sulfur Dioxide), PM 10 (Particulate Matter) 2008 GDP increased 209%
  15. 15. While coal mining is viewed as invasive, there are significant land use advantages Source: ACI <ul><li>The Powder River Basin contains more than 100 billion tons of coal </li></ul><ul><li>The PRB supplies 45% of America’s coal – and over 20% of its power </li></ul><ul><li>There are ~ 80 million tons of coal per square mile in the PRB </li></ul><ul><li>Consequently, the industry is mining only ~ 6 square miles per year </li></ul><ul><ul><li>Together Wyoming and Montana total over 200,000 square miles </li></ul></ul><ul><li>Another 30% of U.S. coal comes from underground mining </li></ul><ul><li>Only 10% is mined in steep terrain using surface techniques </li></ul>
  16. 16. The developed and developing world must work together to address the climate challenge Source: International Energy Outlook 2008 *OECD = Organization for Economic Cooperation and Development CO 2 Emission Trends (in giga-tonnes of CO 2 ) <ul><li>Rapid increases in CO 2 emissions in emerging Asia further underscore the need for clean-coal technologies </li></ul><ul><li>China is now the largest emitter of CO 2 and the developing world has surpassed the OECD nations in total emissions </li></ul><ul><li>Clearly, we will need global solutions to address the climate issue </li></ul>Non-OECD China OECD United States
  17. 17. All major stationary sources of CO 2 will need to approach zero emissions by 2050, according to IEA Coal CO 2 Emissions Normalized by Gross Output Source: DOE, NETL March 2008 Assumptions include thermal plant efficiencies of 40-45% for a super-critical coal plant; up to 48% for a ultra-super-critical coal plant; ~45% for IGCC; 36-40% for natural gas single cycle; and up to 60% for natural gas combined cycle. Super-critical coal Ultra-super- critical coal IGCC Nat. Gas SC Nat. Gas CC (in lb of CO 2 per megawatt-hour)
  18. 18. Clean-coal technologies can help unlock coal’s full potential <ul><li>Plug-in hybrids are perhaps the best and most realistic way to de-carbonize the automotive fleet </li></ul>Coal can be converted into transportation fuels, thus reducing America’s reliance on imported energy Coal can be converted into synthetic natural gas for use in residential as well as a wide range of industrial applications Source: ACI
  19. 19. Source: ACI, public sources Leaders around the world increasingly recognize the importance of clean coal technologies “ The vast majority of new power stations in China and India will be coal-fired; not ‘may be coal-fired’; will be. So developing carbon capture and storage technology is not optional, it is literally of the essence. ” Tony Blair (June 2008) “ To the extent … that we can sequester carbon, capture greenhouse gases before they're emitted into the atmosphere, that's going to be good for everybody. Because if we don't, then we're going to have a ceiling at some point in terms of our ability to expand our economies and maintain the standard of living …” U.S. President Obama (Feb. 2009)
  20. 20. U.S. House passed a climate bill in June 2009 - 42% - 17% - 83% GHG Emissions Reductions vs. 2005 Baseline Source: ACI and Public Documents <ul><li>Passed by a vote of 219-212, with limited bi-partisan support </li></ul><ul><li>Targets and timetables appear aggressive and economically disruptive </li></ul><ul><li>Permits use of up to 2 billion emissions offsets </li></ul><ul><li>Includes a renewable portfolio standard </li></ul><ul><li>Includes significant funding for CCS </li></ul>
  21. 21. What’s ahead in the Senate? <ul><li>Conventional wisdom suggests that the narrow margin in the House makes things tough in Senate </li></ul><ul><li>Roughly 36% of “aye” votes came from California, New York, New Jersey and Massachusetts </li></ul><ul><ul><li>Those states account for only 8% of votes in Senate </li></ul></ul><ul><li>Coal-consuming and coal-producing states have a more significant voice in Senate </li></ul><ul><li>Climate issue has moved to back-burner for now with primary focus on health care </li></ul><ul><li>Sen. Kerry (D-MA) and Sen. Boxer (D-CA) have introduced legislation targeting a 20% reduction in GHG emissions by 2020 </li></ul><ul><ul><li>The bill will almost certainly change dramatically before (and if) it makes it to the Senate floor </li></ul></ul>Source: ACI
  22. 22. Even under the very aggressive House bill, the EPA projects that coal use for electric generation will grow Source: EPA Business-as-Usual Reference Case H.R. 2454 Coal Advanced coal w/ CCS Oil/Natural Gas Nuclear Hydro Renewables/Other
  23. 23. If Congress fails to act, the EPA will likely step in <ul><li>In 2005, the Supreme Court ruled (in “EPA v. Mass”) that the EPA has the right and perhaps the obligation to regulate GHGs </li></ul><ul><li>The U.S. EPA is preparing to do just that </li></ul><ul><li>Due in part to that fact, we believe that prudent legislation that appropriately takes economic factors into consideration is desirable </li></ul><ul><li>However, we believe that the Senate faces a tough, uphill climb in moving legislation this Congress </li></ul>Source: ACI
  24. 24. Coal is indispensable to America’s energy mix <ul><li>Nearly half of electric generation and growing </li></ul><ul><li>Coal conversion technologies will help satisfy America’s oil addiction and provide greater U.S. energy security </li></ul><ul><li>Coal has an economic advantage versus competing fuels, and it has been proven more reliable </li></ul><ul><li>Technology is enabling increasingly clean and climate-friendly uses of coal </li></ul><ul><li>America has well-developed and reliable infrastructure in place to produce and transport coal </li></ul>Source: ACI