Arch Coal s Future Focus

Transcription

1 Arch Coal s Future Focus CEO Leer Calls for Action on Global Warming By Martin Rosenberg Illustration by Stan Shaw Coal is at the heart of the power economy, fueling the bulk of electricity generation. The centuries old coal business is facing unprecedented challenges as the world attempts to address growing concern for global warming. At the same time, some view coal as a resource that could be converted to liquid and help cut our dependence on imported oil. With the industry clearly at a crossroads, EnergyBiz recently interviewed Steven F. Leer, chairman and chief executive officer of Arch Coal, in St. Louis, one of the nation s largest coal producers. His edited comments follow.»»»»» 22 EnergyBiz September/October 2007

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3 King Coal EnergyBiz The link between coal burning and global warming is strong. As an industry, what do you think the best response is going to be? Leer The ultimate answer is technology. If you really are serious about stabilizing CO 2 concentrations in the atmosphere, the only way to achieve that in any meaningful fashion will be to invest more in coal, not less. Emissions from power plants account for one-third of the U.S. emissions of CO 2. When you look at the generation of power in the U.S., coal provides roughly about 52 percent. When you look around the world, coal use is growing faster than every other fossil fuel, particularly in developing Asia. China and India do not have any oil and gas to speak of, but they have a fair amount of coal. They re using it. EnergyBiz A lot of hope is tied to developing carbon sequestration and that s not a proven technology. Leer The only way you can be serious about stabilizing CO 2 concentrations is that the United States and Europe invest in carbon sequestration technology, carbon capture technology and get on with it. We need 10 to 12 years and a meaningful investment of a couple billion dollars a year in these technologies, but we can get there. In the energy world, a 10-year time frame is extraordinarily short to bring on major projects. Arch Coal Twelve months Ended 12/31/06 Revenues $2.5 billion Net Income $260.6 million Six months Ended 6/30/06 Revenues $1.3 billion Net Income $130.2 million Six months Ended 6/30/07 Revenues $1.2 billion Net Income $66.2 million Produces 11 percent of U.S. coal Provides coal to generate 6 percent of U.S. electricity Operates 11 mining complexes in Wyoming, Utah, Colorado, West Virginia, Kentucky and Virginia Employs 4,000 EnergyBiz So you think that technology will be available in a decade? Leer If the investments are made today, and we need to start today, they can do it by You need to get on with it because otherwise all the actions that we take in Europe or the United States will be overwhelmed by the actions that we see in developing Asia. EnergyBiz Who pays the $2 billion a year? Should it be the electric utilities and their customers, the coal industry or both? Leer It should be a combination of government research money and it should come from industry as well. EnergyBiz Does that include your industry? Leer We re willing to try to do our part as well. We re small compared to the electric utility industry, but this is a public policy issue and ultimately it will come from all of us. EnergyBiz Do you think the federal government is showing enough leadership on this right now? Leer That s up to someone else to determine. There certainly are some thoughtful people trying to think it through. Coal to Liquids EnergyBiz Arch Coal has acquired a 25 percent stake in DKRW Advanced Fuels. Leer 24 percent. EnergyBiz It is developing coal to liquid technology. If that technology succeeds, won t that drive up the cost of coal for utilities? Leer If you look at U.S. coal reserves, we can, over time, meet any reasonable demand. But it takes time and investment. Developing the technology of coal to liquids is one answer for trying to wean ourselves from oil providers that don t like us. This morning, at $73 a barrel, oil is awfully expensive. EnergyBiz What about the argument that from a globalwarming perspective, liquid from coal is less desirable than gasoline? 24 EnergyBiz September/October 2007

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5 King Coal Leer There s a lot of debate on that and there s different studies. Some studies have indicated that the total carbon footprint of the coal to liquids would be 1.8 times as much as petroleum-derived diesel fuel but not the doubling that you see quoted by some of the popular press. We think it is closer to one to one, on the presumption that you capture roughly half of the CO 2 in the gasification stage and then sequester it in enhanced oil recovery. The diesel fuel that comes out of a coal-to-liquids plant has a higher energy content, is cleaner and has fewer other pollutants than a petroleum-derived diesel. There is the assumption that you re not capturing any of the CO 2 in the conversion process, which the DKRW plant plans on doing. The CO 2 then will get pumped into enhanced oil recovery. Basically, in a depleted oil field we ve usually recovered somewhere around 30 percent of the oil. So 70 percent remains underground and it just doesn t flow. The CO 2 remains dissolved in the oil and presumably stays there forever or certainly a long time. EnergyBiz According to your annual report, you provide fuel for 6 percent of the electricity generated in the United States? Who are some of your major utility customers?...we should be prudent and take steps to start developing the capture and sequestration technologies. Leer AEP, Southern Companies, TXU, Ameren. You name a major generator of electricity that uses coal and we typically are a supplier. EnergyBiz Your production dipped slightly between 2005 and 2006 from 140 million tons to 135 million tons. What was the reason for that downturn? Leer We sold three major mines in West Virginia to another company. EnergyBiz Long-term, do you expect to expand production and provide fuel for more than 6 percent of United States generation? Leer Yes, over time. With almost 3 billion tons of reserves, we continue to look at adding to the reserve base. As market demand grows, which it pretty steadily does, we would anticipate that we would match our production to the market demand. EnergyBiz Is the rail infrastructure adequate, particularly out West? Leer Today it is. A few years ago it was not and the railroads made significant investments in capacity additions, principally in the Powder River Basin. The coal mines made additional investments in their loading abilities. Preparing for Change EnergyBiz Given the unprecedented nature of the challenges both the coal and the utility industries face, is there a move to work together on solutions? Leer Yes. I am not going to go into specific conversations, but certainly both individually and collectively and through trade associations, the railroads, the utilities and the coal companies have gotten together to try to address some of these things. EnergyBiz What will be the result? Leer The reality of it is we re talking about significant capital investment and significant research and technology investments. The central theme is that for any of us to seriously address CO 2, we have to fully back the technology development. Can we capture CO 2 in pre-combustion where you gasify the coal? Yes. Can we inject it into the ground? The answer is yes. We ve proven that with the recovery techniques that are being used in various oil fields. Have we injected it into deep aquifers? Basically no, but there are a couple of pilot plants. Once you start injecting significant quantities of CO 2 into the aquifers, we need to make sure that they stay down. EnergyBiz Are you convinced that global warming is a real problem? Leer We can have different views of the science, and people do. But if some of the computer modeling proves to be accurate or even half accurate, we should be prudent and take steps to start developing the capture and sequestration technologies. A way to de-carbonize a big chunk of the automotive fleet is to have plug-in hybrids and then capture the CO 2 at the power plants. It s time to move on and let s make the investments. EnergyBiz How is Arch Coal different from the public perception of the typical coal company? Leer We are progressive. We focus really on three core values. Arch is always leading or very near the top year in, year out on overall safety performance. The same with our environmental responsibility. I won t go through the 2 5 or 50 environmental awards that we ve won over the last five or six years. It s part of what we call our social contract with the communities that we operate in. We also focus on our return to our shareholders and long-term shareholder value creation. We don t think that a coal company or a natural resource company can have long-term success without being successful in all three of those arenas. EnergyBiz What is the main misconception the utility 26 EnergyBiz September/October 2007

6 Steven F. Leer Source: REUTERS/Chip East CME/KS industry has about the coal industry? Leer Probably today it would be trying to grasp all of the cost pressures that the coal industry is under. Every industry has a lot of cost pressures today. The coal industry has more than its fair share. The cost of coal mining has gone up dramatically over the last several years. The opportunity for the coal industry to return to the 1990s, where productivity gains overwhelmed increased cost pressures, has gone away. EnergyBiz What is your opinion of increased generation of electricity at the mine and construction of new transmission to deliver it to market? Leer The electric utility industry would love to see additional transmission grid. But people do not want the line through their backyard. It s going to be an issue for the utility industry to get it done. Every utility executive I ve ever talked to is adamant that we need to do it and in doing so we will make the overall grid more reliable. EnergyBiz As a leader in the coal industry, do you think there s a need for a greater investment in the grid? Leer Yes. A reliable electric grid is one of the keys to a strong economy whether you re in China or you re in America. EnergyBiz Coal will be needed to fire up 90,000 megawatts of additional electricity in the next two decades. That s 300 million tons of coal demand. Is that doable? Leer We have the coal. The Powder River Basin supplies 400 million tons a year. The Powder River Basin will continue to expand to 500 to 600 million tons. It takes significant capital investment by the railroads. But it certainly can be done. EnergyBiz The federal government is predicting that the share of electricity produced by coal is going to increase in the next two decades. Leer By 2030, the federal government is forecasting coal s share of electric generation will go from approximately 50 percent to 57 percent. The total pie is much bigger as well. Coal is increasingly being recognized as the key critical component to America s energy future. If we look back at the last 30 years, we have more than tripled the use of coal. The air is cleaner. Several pollutants are less than 50 percent of what they were back in You ve seen huge technological gains in the mining, transportation and combustion of coal. Our next challenge will be CO 2. I fully believe that we can develop the technologies. We haven t yet. There s more work to be done. But as we move forward, I actually see that we will not only be using coal for electric generation. It will have an increased role to play as coal enters the transportation fuel segments through gasification and liquefaction. If we are successful in actually building the infrastructure and developing the engine for the true hydrogen car, coal will probably be the source of the hydrogen. EnergyBiz 27

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