Global and U.S. Coal Outlook American Waterways Symposium

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1 Global and U.S. Coal Outlook 2013 American Waterways Symposium Jacob Williams Vice President Global Energy Analytics October 2, 2013

2 Global and U.S. Coal Outlook Key Discussion Points Coal is the fastest-growing fuel in the world and expected to surpass oil as the world s largest energy source in coming years Near-term coal demand is rebounding in the United States due to coal s competitive advantage over higher priced natural gas Greater deployment of advanced technologies drives our energy, economic and environmental 3E goals 2

3 Million Tonnes of Oil Equivalent Coal: The World s Fastest Growing Major Fuel 60% 50% 56% Growth Growth to ,000 4,000 40% 30% 35% 31% 3,000 20% 10% 13% 2,000 1,000 0% Coal Hydro Natural Gas Oil 0% Nuclear Largest Share of Global Energy Since Coal Oil Natural Gas Nuclear Hydro Bioenergy Coal Expected to Approach Oil by 2020 Wind/ Solar Source: BP Statistical Review of World Energy 2012; International Energy Agency, World Energy Outlook 2012 Current Policies scenario. 3

4 New Generation Drives Significant Global Thermal Coal Demand 1,200 1,000 Global Seaborne Thermal Coal Demand (Tonnes in Millions) % Growth +75 1,120 China India Other Pacific New coal fueled generation requires 210 million tonnes per year of additional seaborne demand Asia accounts for all seaborne thermal growth Largest thermal coal 440 import growth from India Atlantic Other Pacific India China 2017P Atlantic 190 Source: Peabody Global Analytics, McCloskey, other industry sources. 4

5 $/mmbtu Low-Cost Coal Will Continue to Drive Global Coal Demand Growth Coal is the Most Affordable and Stable Source of Energy $18 $16 $14 $12 $10 $8 $6 $4 $2 Forwards Asia Gas / LNG Europe Gas / LNG Henry Hub Nat Gas Newcastle Coal PRB Delivered Coal $ PRB - most affordable Btu source in the world at $2/mmbtu delivered; roughly half of current U.S. gas prices PRB exports look for growth substantially when West Coast port facilities develop U.S. natural gas $6 11/mmbtu cheaper than EU and Asia gas Great incentive to export gas likely leading to increased gas prices Coal $6/mmbtu lower cost than natural gas in EU & $11/mmbtu below natural gas in Asia 5

6 Electricity from Coal (TWh) Near Perfect Correlation Between Coal Use and GDP Growth 16,000 14,000 12,000 10,000 8,000 6,000 4,000 Global Electricity from Coal World GDP $100,000 $90,000 $80,000 World GDP (Trillions of 2005 $) $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 2, $10,000 Source: International Energy Agency World Energy Outlook ( ); USDA

7 States that Use the Most Coal Enjoy Lowest Electricity Costs Key Coastal States Forgo Coal; Pay Highest Power Costs in Nation % = average retail price per kilowatt hour for CY 2012 % = percent of total generation from coal for CY % 6.9 3% % 6.9 0% % % % % % % % % % % % % % % % % % % % % % % % % % % < 9.5 > 9.5 Hydro % 92% % % % % % % % % % MA % CT % NH % RI % NJ % VT % MD % DE % Source: Energy Information Administration, February

8 At Stake is Pain at the Plug: Middle Class Pays Price for Inaction U.S. Household Income Unchanged As Energy Costs Surge Energy Bills for Middle Class Nearly Doubled As Percentage of After-Tax Income in Decade 12% 21% Source: American Coalition for Clean Coal Electricity, Energy Cost Burdens on American Families, Trisko, et al,

9 U.S Coal Outlook: Supply and Demand Cumulative Generation Changes (Tons in Millions) (35) -45 Source: Peabody Global Analytics Retirements New Generation +160 SPRB and ILB +135 Other Basins Utilization/ Switching P GW of coal generation expected to be retired by 2017 ~80 million ton impact on demand Current coal fleet utilization ~60%, up from ~55% in 2012 Remaining fleet has potential to run up to 80% Every 1% utilization change = ~15 million tons of coal Coal market share increases from ~33% in April 2012 to ~40% 9

10 Million Tons U.S. Exports Decline in 13 from Soft Market Prices CAPP Exports Decline in 13 Long Term U.S. Net Exports Will Increase, Shifting Towards West and ILB F 2017F Total Met Exports Eastern Thermal Exports Western Thermal Exports Met shipments decline on softer prices and growth in AUS supplies Eastern thermal exports trend lower due to high cost of CAPP but rebound with competitiveness of ILB exports overtime Gulf Coast exports to stay in 10 15Mton range Sources: Energy Information Administration and Peabody estimates 10

11 Asian Growth Creates Opportunity to Grow U.S. Exports West and Gulf Expansion Opportunities with Improved Infrastructure PRB, CO and ILB able to serve rising exports Major port capacity being pursued in the Pacific Northwest and Canada Global encompassing permitting stance threat to all U.S. commodity exports Site of Planned Gateway Pacific Terminal 11

12 % Change Since 1970 Advanced Coal Delivers Major U.S. Emission Improvements Coal Use Nearly Triples, Criteria Emissions Dramatically Reduced 150% + 170% 100% + 103% 50% 0% -50% -100% % - 93% Source: USDA 2011, EIA 2012, NETL

13 Pounds Per Million Btu Prairie State: The Model for Advanced U.S. Coal Generation Owners Invested $1 Billion in Control Technologies Prairie State Far Below U.S. Average Sulfur Dioxide Nitrogen Oxide 0 U.S. Average U.S. Average Clean Air Interstate Rule 2015 Prairie State Permit Prairie State Operating Turk - PRB Ultra-SC (Permit) IGCC (Permitted) Source: EPA s Clean Air Markets database, October 2013; Project Permits. 13

14 Climate Concerns Overstated Projections Far Greater Change Than Reality Actual Temperatures Show Very Little Change Modeled Projections Far Greater Than Actual 14

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