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Fredrick D. Palmer Senior Vice President – Government Relations Peabody Energy

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

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Fredrick D. Palmer Senior Vice President – Government Relations Peabody Energy

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

  2. The World is Turning to Coal Peabody’s View • 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

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

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

  5. U.N.: Access to Abundant Energy is Key to Quality of Life and a Fundamental Right Electricity Use Per Capita and the U.N. Human Development Index 1.0 • Italy Sweden United States Finland Canada 0.9 Argentina Qatar UAE 0.8 Malaysia Brazil China 0.7 South Africa Indonesia Morocco Human Development Index 0.6 India Bangladesh 0.5 Life expectancy, educational attainment and income all correlate with per capita energy usage Zimbabwe 0.4 Zambia Mozambique Ethiopia 0.3 0.2 0 5 000 10 000 15 000 20 000 • Electricity Use Source: International Energy Agency, World Energy Outlook 2005.

  6. Most Nations Still in Early Stages of Modernization and Energy Use Electricity Usage per Capita Passenger Vehicles per Capita USA USA Australia Italy Australia UK Vehicles Per 100 People Megawatt Hours Per Capita South Korea UK Italy South Korea Malaysia Malaysia Mexico Brazil China Mexico Brazil India China India GDP Per Capita (thousand US $) GDP Per Capita (thousand US $) Projections Assume Chinese Consumption Remains Below Current Levels of Mexico for Next 25 Years Source: United Nations’ Human Development Report; Dargay, Gately & Sumner, 2007.

  7. We Need to Meet All Human Energy Needs to Achieve World Bank’s “Poverty-Free” Dream Population Growth Ensures Future Energy Demand Current U.S. population: ~ 300M U.S. population in 2040: ~ 400M World Population in Billions

  8. The World is Consuming More Oil Than it is Finding; New Finds Less Prolific Than First Finds Annual Depletion in Existing Major Oilfields is Relentless and is At Least 3 Million Barrels a Day 50 50.0 Reserve Additions 45.0 Reserve Additions 40 40.0 35.0 Consumption Consumption 30 30.0 25.0 Billion Barrels Per Year 20 20.0 15.0 10 10.0 5.0 0 0.0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2007 Source: ASPO – Ireland, Newsletter, August 2007; U.S. Energy Information Administration, World Petroleum Consumption, 2008; and Management Information Services, Inc., 2008.

  9. 87 4% Production Fluctuation Band 86 85 84 Plateau 83 82 World Oil Production Millions of barrels per day 81 80 79 78 77 76 75 74 2002 2003 2004 2005 2006 2007 World Liquid Fuel Production Has Apparently Plateaued, Saudis Notwithstanding “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 Source: U.S. Energy Information Administration, 2008.

  10. 84 81.7 81.5 81.3 80.3 80 77.0 76 Million Barrels Per Day 74.5 72 68 2002 2003 2004 2005 2006 2007 More Signs of Peak: Production Drops From 2006 Levels, Including Reclassified NGL Production World Annual Oil Production, 2002 - 2007 Source: BP Statistical Review of World Energy, June 2008

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

  12. Simmons 2012 "Best Case" Simmons 2012 "Worst Case" 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% 90 2007 Actual 80 70 60 50 Million Barrels Per Day 40 30 20 10 0 Source: Matt Simmons, “Peak Oil’s Investment Implications,” March 7, 2008.

  13. Potential Natural Gas Demand for Electricity Exceeds Supply Natural Gas for U.S. Generation At Current Growth Rate, Gas for U.S. Electricity Generation Would Raise U.S. Natural Gas Demand by 6 tcf / Year Trillion Cubic Feet 2002 2007 2012 2017 2022 2027 Source: Energy Information Administration Natural Gas Consumption by End Use, 2008.

  14. 22 20 18 16 14 12 New TCF/Y - Dry Production NG 10 Needed 8 6 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 EIA Projected Production Depletion at 32% Natural Gas Depletion, Like Oil Depletion, is a Constant Unconventional Gas Plays Will Struggle to Fill Gap of 6 TCF/Year – the Size of Texas Production Source: Energy Information Administration; EOG; CIBC World Markets. Source: Energy Information Administration, March 2007.

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

  16. EIA’s LNG Forecasts Falling Toward Reality

  17. LNG Becomes Default Fuel for Generation if Coal Use is Limited for Any Reason U.S. Actions in the 1970s Reduced Use of Oil for Generation • 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

  18. Iran, Russia, Qatar, Algeria & Indonesia Have Announced an LNG Cartel Most Gas Reserves Are in the Middle East and Asia LNG is a Global Commodity, Priced Off of Oil Benchmarks It is No Different than Importing Foreign Oil

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

  20. The Long Run Price of NG/LNG in a Peak Oil World “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 Price of W TI Oil in Dollars per Barrel Source: Adapted from "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007.

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

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

  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. By 2015 Wisconsin Will Pay Substantially More for NG to Produce Electricity (Actual Cost) *(13) *(16) *(20) *(23) *(27) Price of Oil/Barrel; (Price of NG) *Amount paid by Wisconsin to generate electricity as NG approaches oil parity

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

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

  27. Power Demand Driving Global Coal Growth 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 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.

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

  29. 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”

  30. Peabody Partnering with ConocoPhillips on New Coal-to-Natural Gas Facility Major Commitment from Leading Global Oil & Gas Company • 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”

  31. 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

  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. 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 Advancing Signature Climate Projects in U.S., China and Australia 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

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

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