Coal-to-Liquids and the

Path to Independence

Jim Roberts

Chairman, President & CEO

Foundation Coal Corporation

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U.S. Import DependencyCrude Oil Import Reliance

(Share of Total Consumption)

0%

10%

20%

30%

40%

50%

60%

70%

80%

1973 1978 1983 1988 1993 1998 2003

65%

26%

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U.S. Import Dependency

Crude Oil Import Reliance(Share of Total Consumption)

10%

20%

30%

40%

50%

60%

70%

80%

1973 1978 1983 1988 1993 1998 2003 2015

75%

20062030

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We’re Right to Be Concerned

U.S. energy challenge – it’s 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 world’s 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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It’s Affordable …

Oil

Coal

Behind Coal’s Resurgence

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Behind Coal’s Resurgence

It’s abundant …

• U.S. has the world’s 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 Arabia’s oil reserves 1,566 quads• Middle East oil reserves 4,104 quads

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Behind Coal’s Resurgence

Secure Within Our Borders

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U.S. coal reserves…

• are known – no need to explore or search

• aren’t subject to foreign disruption

• can’t be nationalized by foreign governments

• don’t have oceans to cross

Secure Within Our Borders

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Southern States Energy Board“American 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 Coal’s 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.

EIA Average World CrudeOil Prices

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1970 1975 1980 1985 1990 1995 2000 2005

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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 what’s 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 world’s 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

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

skeptics overlook the power of

technological solutions around us

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Benefits of Better Energy Policy

• coal’s potential is unrivalled

• can help free us from our dangerous dependence on foreign energy

• states can benefit from coal’s new growth and the development of CTL