1 november 30, 2006 jacob williams vice president generation development peabody energy affordable...
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November 30, 2006
Jacob WilliamsVice PresidentGeneration DevelopmentPeabody Energy
Affordable ElectricityStable Energy PricingIncreasingly Clean
Coal Can Do That!
Illinois RegulatoryPolicy StudiesConference
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2005 Market Position Sales Reserves
Wyoming PRB #1 126 3,327
Midwest #1 38 4,174
Southwest #1 18 980
Colorado #1 11 252
Appalachia #6 14 584
Australia #5 30* 817*
Venezuela #1 7 175
Millions of short tons
World’s Largest Coal Company:Peabody’s Base Portfolio of Operations
St. Louis
DominionTerminal
Queensland
Dalrymple Bay Terminal
Port ofNewcastle
Port ofBrisbane
Venezuela
Port ofSanta Cruz
New South Wales
Port Kembla
• Pro forma including Excel (and operations in development).2005 sales volume in millions of short tons. Venezuela sales volume for Paso Diablo Mine, of which Peabody owns a 25.5% interest. Reserves based on 2005 proven and probable for areas shown. Source: Peabody analysis & industry reports.
Port ofGladstone
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Global Coal Use Soars 23%, or 1 Billion Tons, in 4 Years
Four-Year Percent Change in Global Energy ConsumptionFour-Year Percent Change in Global Energy Consumption
Source: BP Statistical Review of World Energy, 2006 edition.
0 5 10 15 20 25
23%
2001
- 2
005
Ch
ang
e
12%
8%
12%
4%
Coal
Natural Gas
Oil
Hydro
Nuclear
4
India
ChinaMexico
Russia
South Korea
Australia
USA
UKItaly
Malaysia
0
3,000
6,000
9,000
12,000
15,000
0 10,000 20,000 30,000 40,000
GDP per Capita (in US$)
Kilo
wat
t-ho
urs
per
Cap
ita
Mexico
Russia
South Korea USA
Italy
IndiaChina
AustraliaUK
Malaysia
0
150
300
450
600
0 10,000 20,000 30,000 40,000
GDP per Capita (in US$)
Pa
ss
en
ge
r V
eh
icle
s p
er
1,0
00
Pe
op
le
Electricity Usage per CapitaElectricity Usage per Capita Passenger Vehicles per CapitaPassenger Vehicles per Capita
Per-Capita Coal Use Just 1/3rd (China) and 1/9th (India) the U.S. Level
Source: United Nations’ Human Development Report 2005, World Energy Outlook & ConocoPhillips.
Developing Countries Will Greatly Expand Per-Capita Energy Use
5
0
100
200
300
400
500
600
700
2002 2010 2015 2020 2025
Western Europe Japan/Australia/New Zealand North America
Former USSR / Eastern Europe Latin America Rest of World
Emerging Asia
Quadrillion Btu
122.5% Growth from 2002
37.7% Growth from 2002
Total Primary Energy Consumption by RegionTotal Primary Energy Consumption by Region
Developing Regions Drive Energy Consumption Growth
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Most Gas Reserves Are in the Middle East and AsiaMost Gas Reserves Are in the Middle East and Asia
Like Oil, Natural Gas SuppliesRely on High-Risk Regions
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$0
$2
$4
$6
$8
$10
$12
$14
Ele
ctri
city
Gen
erat
or
Del
iver
ed C
ost
/ m
mB
tu
Delivered cost of fossil fuel at steam electric utility plants. Source: Platts Fossil-Fuel Receipts at Steam-Electric Utility Plants through November 2005. EIA February 2006 Short-Term Energy Outlook, December 2005 – December 2006. NYMEX HH Futures November 2007 – December 2011, ino.com on October 17, 2006.
Coal Deliveries
1998 1999 200220012000 200520042003 200820072006 2009 2010 2011
Prairie State AdvantagePrairie State AdvantageSignificant Reduction of Delivered Fuel Cost VolatilitySignificant Reduction of Delivered Fuel Cost Volatility
Natural Gas
ResidualFuel Oil
NYMEXResidual Fuel Oil (Conv.)
NYMEXHenry Hub Futures
High Oil & Gas PricesHigh Oil & Gas PricesMagnify Coal’s Competitive AdvantageMagnify Coal’s Competitive Advantage
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Calendar 2007 Henry Hub Gas PriceCalendar 2007 Henry Hub Gas Price
6.000
7.000
8.000
9.000
10.000
11.000
12.000
13.000
Jan-
06
Feb
-06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Daily Average 2007 Henry Hub Price
Daily Maximum 2007 Henry Hub Price
Daily Minimum 2007 Henry Hub Price
Illinois Power Procurement Date
2007 Gas Prices Drop Over $1.00/mmbtu ($7–8/MWh) after Auction2007 Gas Prices Drop Over $1.00/mmbtu ($7–8/MWh) after Auction
Gas/Power Procurement: Gas/Power Procurement: Timing is EverythingTiming is Everything
9Wood MacKenzie North American Power Outlook: 2006-2026, August 2006.
% Hours Gas/Oil Generation Marginal Fuel% Hours Gas/Oil Generation Marginal Fuel
Gas/Oil Set Electric Market Price Gas/Oil Set Electric Market Price Almost 50% of the TimeAlmost 50% of the Time
10Source: Energy Information Administration, November, 2006.
10.4¢ 28%
6.7¢ 65%
6.0¢95%
6.0¢10%
6.1¢67%
5.2¢96%
7.8¢72%
6.5¢7%
7.0¢75%
7.4¢89%
9.5¢46%
12.9¢1%
6.1¢96%
6.7¢46%
10.4¢38%
7.1¢78%
7.0¢63%
7.5¢53%
6.5¢85%
7.2¢48%
8.2¢39%
8.1¢70%
6.9¢49%
8.3¢ 25%
8.4¢58%
6.5¢94%
7.7¢87%
12.11¢
2%
8.4¢37%
7.1¢57%
7.8¢65%
6.9¢ 39%
5.5¢ 91%
6.9¢45%
8.7¢56%
5.0¢98%
7.5¢61%
7.0¢ 61%
5.0¢1%
12.8¢10%
20.9¢14%
NH 14.0¢ 17%VT 11.4¢ 0% MA 15.6¢ 25% RI 14.1¢ 0%CT 14.5¢ 12%NY 13.8 ¢ 14%NJ 12.0¢ 19%DE 9.2¢ 60%MD 9.8¢ 56%
¢ = average retail price per kilowatt hour through 8/06
% = percent of total generation from coal for CY 2005 < 6.5¢
> 6.5¢ - < 8.0¢> 8.0¢ - < 9.5¢> 9.5¢ - < 11.0¢> 11.0¢ Hydro
Retail Cost Per kWh & Percent of Coal GenerationRetail Cost Per kWh & Percent of Coal Generation
Over 51% of U.S. Electricity is from CoalSource of Low Cost Electricity in U.S.
11Source: U.S. Environmental Protection Agency, IEA Annual Energy Outlook 2005.
actual forecast
Reductions Continue with Existing PlantsReductions Continue with Existing Plants
Coal-Based Electricity Increased 80% Since 1980 While Emissions Improved
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0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Po
un
ds
Pe
r M
illio
n B
tu
Sulfur DioxideNitrogen Oxide
Prairie StateLow-Cost, Low Emissions Energy
U.S. Average
2005
Clean AirInterstate
Rule2010
Prairie StatePermit Limit
Clean AirInterstate
Rule2015
0.32
0.26
0.13
0.182
0.07
0.93
Cleanest Coal plant in Illinois if On-line Today
0.39
0.16
Source: EPA National Air Markets Program; EIA Annual Review 2005
IllinoisAverage
2005
0.63
0.26
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− 40 miles Southeast of St. Louis in Illinois
− 1,600 MW supercritical generating plant fueled by 6+ million ton/year adjacent mine
− Received all permits needed to operate plant
− Cleanest coal plant in Illinois and 15% more CO2 efficient than existing coal fleet
− 53% of project owned by a group of Midwestern municipals and cooperatives
− Additional 30% of ownership is committed CMS and Peabody
− Average 2,000 construction jobs over 4 years and 450 long-term jobs
− Targeting generation in the 2011 timeframe
Prairie State Energy CampusWashington County, Illinois
New Low-Cost, Clean Coal GenerationNew Low-Cost, Clean Coal Generation
Prairie State Energy Campus
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Prairie State Partners Serve Nearly 2 Million People In 5 States
1. Wolverine Power Supply Cooperative, Inc.
– Abbreviation: WPSC– 400,000 people served
2. Northern Illinois Municipal Power Agency
– Abbreviation: NIMPA– 52,000 people served
3. Missouri Joint Municipal Electric Utility Commission
– Abbreviation: MJMEUC– 800,000 people served
4. Soyland Power Cooperative, Inc.– Abbreviation: Soyland– 156,000 people served
5. Indiana Municipal Power Agency– Abbreviation: IMPA– 340,000 people served
6. Kentucky Municipal Power Agency– Abbreviation: KMPA– 54,000 people served
1
2
3
45
6
15
Coal
Natural Gas
Nuclear
Legend:
Existing HV Transmission Lines
Potential HV Transmission Lines
Prairie State
1
2
3
4
5
10
7
8
69
1Existing HV Transmission Path
6Potential HV Transmission Path
Only 1 HV Transmission Path Connecting Northern to Central/Southern Illinois
Transmission Enhancements Needed to Access Broader Electricity Market
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Potential Improvements in Illinois Electric Procurement Process
● Enhance transmission into the State and within the State to allow:– More out-of-state generation to bid in to Illinois auction– More generation within Illinois to bid Intrastate (North to South and
South to North)– Few bids from out-of-state low cost generators (AES IPL, Associated
Electric, Cinergy, EKPC, KCP&L, LGE, MidAmerican, NIPSCO & Vectren)
● Portion of power could be purchased on much longer term (10 – 20 years) basis to foster new, very clean coal and renewable resource competition– Old coal and nuclear units could never had been built with 3 year
contracts
● Procure power at different times throughout the year to avoid potentially buying all at an absolute or relative peak price period.
● Procure power in “natural” generation abilities, not just full requirements. More generators able to compete.
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Peabody Participating in MultipleBtu Conversion Opportunities
● 30% ownership inEcono-Power International
● PRB and Illinois Basin coal transformed into low-Btu gas
● Cost effective at $5 to $6/mmBtu
● Agreement with Arclight to evaluate Illinois location for pipeline-quality gas
● ConocoPhillips and Fluor participating in technology and plant design
● Pipeline-quality natural gas competitive as low as
$6 per mmBtu
● Peabody part of FutureGen Industrial Alliance
● Goal: Generation and hydrogen; near-zero emissions; CO2 sequestration
● Alliance includes Southern Company, AEP, Huaneng
● $700 million from DOE; $250 million from industry
● High gas prices point to need for coal-to-liquids
● Coal-to-liquids at $35 – $40/barrel oil
● Peabody partnership with Rentech for coal to liquids plant
Planned “Coal to Diesel” Plant in Inner Mongolia, China
LiquefactionLiquefaction HydrogenHydrogenGasificationGasification(Industrial or Pipeline)
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Steps to AchieveAffordable Energy and Increasing Clean
● Coal-based generation and Btu conversion projects must play a major role to provide affordable energy in the US
● Lead times on these projects from conception to completion are 6 – 10 years and significant resources ($10 – 20 M during permitting)– Require predictable permit and appeal timelines
● Capital intensive investment (multiple billions) with asset life of 30 – 40 years– Require implicit (ratebase) or explicit long term contracts to finance
● Coal-based generation and Btu conversion projects are part of the solution to an increasingly clean environment.