The Pace Consultants Inc.The Pace Consultants Inc.

World Petroleum CokeWorld Petroleum CokeMarket TrendsMarket Trends

2000 Gasification Technologies2000 Gasification TechnologiesConferenceConference

Ben ZiesmerBen Ziesmer

October 9, 2000October 9, 2000

2PACEPACE

The Pace Consultants Inc.The Pace Consultants Inc.

!! Subsidiary of Jacobs Engineering Group -Subsidiary of Jacobs Engineering Group -Founded in 1957Founded in 1957

!! Flexible staff of energy expertsFlexible staff of energy experts!! Since 1983, the authoritative and unique sourceSince 1983, the authoritative and unique source

on petroleum cokeon petroleum coke–– Petroleum Coke Quarterly (PCQ)Petroleum Coke Quarterly (PCQ)

–– Coal Tar Pitch ReportCoal Tar Pitch Report

–– Calcined Petroleum Coke: The Next Ten YearsCalcined Petroleum Coke: The Next Ten Years

3PACEPACE

Why Produce Petroleum Coke?Why Produce Petroleum Coke?

!! TRADITIONALTRADITIONAL–– Increase conversion of crude to high value lightIncrease conversion of crude to high value light

productsproducts

!! NEW NEW–– Decrease crude acquisition costsDecrease crude acquisition costs

–– Facilitate extra heavy crude productionFacilitate extra heavy crude production

4PACEPACE

Types of CokeTypes of Coke

DELAYEDDELAYED FLUIDFLUID FLEXICOKEFLEXICOKE

Sponge/ Shot

Sponge/ Shot NeedleNeedle FlexicokeFlexicoke BedcokeBedcoke

5PACEPACE

Why a Unique MarketWhy a Unique Marketfor a U.S. Fuel Buyerfor a U.S. Fuel Buyer

!! A secondary productA secondary product

!! Process and fuel useProcess and fuel use

!! World marketWorld market

!! Importance of resellersImportance of resellers

!! Logistics difficultiesLogistics difficulties

6PACEPACE

1999 World* Green1999 World* GreenPetroleum Coke Market ProfilePetroleum Coke Market Profile

Calcining22%

Heating1%

Other Indust.16%

Power14%

Iron & Steel7%

Cement40%

*Excluding FSU and China

Production = 48 Million MT

7PACEPACE

Petroleum Coke in thePetroleum Coke in theCement IndustryCement Industry

!! Cost competitive because kilns often have waterCost competitive because kilns often have watertransportation option for fuel deliverytransportation option for fuel delivery

!! Inherent characteristics of cement kilns are wellInherent characteristics of cement kilns are wellsuited to burning petroleum cokesuited to burning petroleum coke

!! Developed technology to burn 100% petroleumDeveloped technology to burn 100% petroleumcokecoke

!! Industry consolidation facilitated technologyIndustry consolidation facilitated technologytransfer and centralized purchasingtransfer and centralized purchasing

8PACEPACE

Primary Markets for Fuel-Primary Markets for Fuel-Grade Petroleum CokeGrade Petroleum Coke

!! Cement manufacturingCement manufacturing–– MediterraneanMediterranean–– Latin AmericaLatin America–– AsiaAsia

!! Power generationPower generation–– Purpose built Purpose built IPP’s IPP’s & cogeneration& cogeneration–– U.S. Florida & East CoastU.S. Florida & East Coast–– U.S. Mississippi River SystemU.S. Mississippi River System–– EU - especially Germany & SpainEU - especially Germany & Spain

9PACEPACE

Green Petroleum CokeGreen Petroleum CokeExport PricesExport Prices

0

10

20

30

40

50

60

87 88 89 90 91 92 93 94 95 96 97 98 99 00

West Coast S < 2%

S > 2%

Gulf Coast

HGI > 50

HGI < 50

$/MT FOB

10PACEPACE

1999 Market Recovery1999 Market Recovery

!! New customers increased demandNew customers increased demand–– Cement in Brazil, Philippines, ThailandCement in Brazil, Philippines, Thailand–– U.S. Power continued to growU.S. Power continued to grow

!! Asian demand recoveredAsian demand recovered

!! Fuel grade production was < the market expectedFuel grade production was < the market expected

!! Inventories continued to declineInventories continued to decline

!! Some players did not cover their salesSome players did not cover their sales–– Delayed recognition of tighter marketDelayed recognition of tighter market

11PACEPACE

Green Petroleum CokeGreen Petroleum CokeExportsExports

1.41 MMT1.41 MMT

JapanJapan

EuropeEuropeAsiaAsia

2.70 MMT2.70 MMT

0.62 MMT0.62 MMT1.94 MMT1.94 MMT

JapanJapanLatin AmericaLatin America0.70 MMT0.70 MMT

7.48 MMT7.48 MMT

2.18 MMT2.18 MMT

0.16 MMT0.16 MMTMajor Export DestinationsMajor Export DestinationsMajor Export Destinations1999 vs. 19981999 vs. 1999 vs. 19981998

EuropeEurope

CanadaCanada0.36 MMT0.36 MMT0.30 MMT0.30 MMT

2.16 MMT2.16 MMT

7.44 MMT7.44 MMT

0.19 MMT0.19 MMT

3.27 MMT3.27 MMT

0.55 MMT0.55 MMT

0.56 MMT0.56 MMT

TotalTotal19.1 MMT18.1 MMT

EuropeEurope

12PACEPACE

Current MarketCurrent Market

!! Supply remains very tightSupply remains very tight–– Coker outages have continued to be an issueCoker outages have continued to be an issue

–– Market has absorbed new supplies from Coastal Aruba andMarket has absorbed new supplies from Coastal Aruba andReliance Reliance JamnagarJamnagar

–– Midwest market continues to be short on petroleum cokeMidwest market continues to be short on petroleum coke

!! Some customers have been squeezed out as pricesSome customers have been squeezed out as pricesincreaseincrease–– U.S. utility consumption will decrease in 2000U.S. utility consumption will decrease in 2000

13PACEPACE

Current MarketCurrent Market

!! Phase II of the 1990 CAAA has had minimalPhase II of the 1990 CAAA has had minimalimpact on the marketimpact on the market

!! International steam coal market is strong andInternational steam coal market is strong andappears to be getting strongerappears to be getting stronger

!! New cokers still creating concerns for lowerNew cokers still creating concerns for lowerprices in the futureprices in the future

14PACEPACE

Average Petroleum CokeAverage Petroleum CokeSulfur LevelsSulfur Levels

0.0

2.0

4.0

6.0

1990 1992 1994 1996 1998

% S (d.b.)

Gulf Coast

West Coast

15PACEPACE

Additional World Coker CapacityAdditional World Coker Capacity2000-20042000-2004excluding China & FSUexcluding China & FSU

0

2

4

6

8

10

12

14

16

18

2000 2001 2002 2003 2004

Mexico

Venezuela

U.S.

Other

Annual Total

Millions DMT/year

16PACEPACE

Fuel Grade TrendsFuel Grade Trends

!! Increasing interest by refineries in gasificationIncreasing interest by refineries in gasificationfor coproductionfor coproduction–– Electric power, steam, and gases (HElectric power, steam, and gases (H22))

–– More experience/acceptance of technologyMore experience/acceptance of technology

–– Deregulation creates markets for powerDeregulation creates markets for power

–– New gasoline/diesel rules in U.S. increase HNew gasoline/diesel rules in U.S. increase H22 demand demand

–– High U.S. natural gas prices improve project economicsHigh U.S. natural gas prices improve project economics

–– NONOx offsets for closing existing power house offsets for closing existing power house

17PACEPACE

Fuel Grade TrendsFuel Grade Trends

!! Circulating fluidized boilers represent an increasingCirculating fluidized boilers represent an increasingpotential market for petroleum cokepotential market for petroleum coke–– Repowering projects at Repowering projects at FirstEnergy BayshoreFirstEnergy Bayshore and JEA and JEA

Northside Northside Generating StationsGenerating Stations–– TEG Project will take 60% of output from new cokers atTEG Project will take 60% of output from new cokers at

PEMEX’s Cadereyta PEMEX’s Cadereyta and Ciudadand Ciudad Madero Madero refineriesrefineries–– New coal-based power projects are considering petroleum cokeNew coal-based power projects are considering petroleum coke

!! Cement industry growth will be in new geographicalCement industry growth will be in new geographicalareasareas

18PACEPACE

Fuel Grade TrendsFuel Grade Trends

!! There is “stealth demand” - low profile projects thatThere is “stealth demand” - low profile projects thatcould substantially increase demandcould substantially increase demand–– Projects in construction/start-up - 3.4 million MT/yrProjects in construction/start-up - 3.4 million MT/yr–– Projects in permitting or financing - 1.2 million MT/yrProjects in permitting or financing - 1.2 million MT/yr–– Projects in serious development - 10.8 million MT/yrProjects in serious development - 10.8 million MT/yr–– More interest in 1-3 year deals than spot salesMore interest in 1-3 year deals than spot sales

–– Interest in indexing to international coalInterest in indexing to international coal

19PACEPACE

Environmental IssuesEnvironmental IssuesIncreasing in ImportanceIncreasing in Importance

!! NONOxx - affected by nitrogen content of crude slate but - affected by nitrogen content of crude slate butgenerally increasesgenerally increases

!! Fugitive dust - can be more of a problem than forFugitive dust - can be more of a problem than forcoalcoal

!! Other issuesOther issues–– Toxic Release Inventory (TRI), New Source Review (NSR),Toxic Release Inventory (TRI), New Source Review (NSR),

Mercury, Title V, Ash Disposal/Sale, revised National AmbientMercury, Title V, Ash Disposal/Sale, revised National AmbientAir Quality Standards (NAAQS)Air Quality Standards (NAAQS)

20PACEPACE

Key UncertaintiesKey Uncertainties

!! Will there be meaningful implementation of theWill there be meaningful implementation of theKyoto Protocol or similar initiatives? How fast?Kyoto Protocol or similar initiatives? How fast?–– If implemented, reduces demand for carbon-based fuels inIf implemented, reduces demand for carbon-based fuels in

signatory countriessignatory countries–– Tends to push petroleum coke to new marketsTends to push petroleum coke to new markets

!! Will Alcoa’s Inert Anode Technology beWill Alcoa’s Inert Anode Technology becommercialized? How fast?commercialized? How fast?–– Commercialization would result in much more high qualityCommercialization would result in much more high quality

fuel-grade petroleum cokefuel-grade petroleum coke

21PACEPACE

SummarySummary

!! World production to increase by 45% by 2004World production to increase by 45% by 2004–– New cokers still creating concerns for lower pricesNew cokers still creating concerns for lower prices

!! Demand base becoming broaderDemand base becoming broader–– “Stealth Demand” will influence path of future prices“Stealth Demand” will influence path of future prices–– Gasification competes with a variety of other viable optionsGasification competes with a variety of other viable options

!! External events could change the petroleum cokeExternal events could change the petroleum cokemarket significantlymarket significantly–– Kyoto Protocol implementationKyoto Protocol implementation–– Inert anode commercializationInert anode commercialization