The US Coal Peak: How We Got There and Where We Go

International Coal, Coke & Carbon Forum

November 2014

Russell J. Stewart, President & CEO

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Market data and other statistical information used throughout this presentation are based on independent industry publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates which are derived from our review of internal surveys, as well as the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information and cannot guarantee its accuracy and completeness.

Disclaimer

• Coal Benefits from competing fuel woes– High Oil Prices spurred oil to coal conversion at power plants– Moratorium on New Gas Plant; Conserve Gas for heating– Nuclear Accidents (Three Mile Island / Chernobyl) ended new

nuclear plant development

• Coal Plant Capacity Doubled from 1975 to 316GW by 1990

• 1988: Coal represented 57% of all US Power Generation – highest of all time

• Development of the Powder River Basin

1970s and 1980s

• Merchant Power Plant Development – Primarily Coal Fired Cogeneration Projects– Many Waste Coal Projects (“Renewable”)

• Clean Air Act of 1990 – Spurred CAPP coal at expense of Illinois Basin– Continued Growth of PRB

• Coal Industry Consolidation and IPOs– Larger Financially Healthy Coal Operators– Advent of Production Discipline (somewhat)– CAPP coal production peaked at 291M by 1997

1990 - 2006

…… and by 2007...... Nirvana!• Coal Fired Generation– 2,016 Twh (all time high)• 1.13B st of coal consumed (all time high)• 37M st of coal imports (all time high)• Coal Production – 1.146m st• Announced New Coal Power Projects On Line by

2025– 151 plants – 90GW

But Headwinds Were Already in Place• Sierra Club’s “Beyond Coal” campaign started in 2002• Shale Gas Production in Marcellus and Barnett Fields

had been increasing (1.5TcF by 2007)• Natural Gas Power Generation Capacity increased

45GW since 2003

• The Supreme Court Ruled in April 2007 that CO2 was a pollutant and could be regulated by EPA

• Wind Power Growth (34M Mwh in 2007)• State Renewable Requirements Legislation

…… and in 2008 its on…….• Lehman collapse (Sept ‘08) triggers Great Recession

– Manufacturing drops to 64% capacity utilization in Q4 08– Steel Production declines by 30M st (2008 vs 2009)– Electricity Generation declines by > 4%

• Voters elect a “Non-coal friendly” White House“If somebody wants to build a coal-fired power plant, they can. It’s just

that it will bankrupt them.” Senator Barack Obama (Jan 2008)

"No coal plants here in America. Build them, if they're going to build them, over there (China). Make them clean. We’re not supporting clean coal" Senator Joe Biden (Sept 2008)

…… Over the Last 5 Years………..• Coal Fired Generating Capacity Declined 18 GW• That list of 90 GW “new” coal plant construction (2007) -

– 15 GW entered service ; 1 GW scheduled on line in 2016– The remainder - cancelled

• Gas Fired Generating Capacity Increased 29 GW• Multiple EPA Regulations

– Cross States Air Pollution / Mercury and Air Toxic Standards– Carbon Pollution Power Plant Standards

• Industrial Coal Demand Declined by 12M tons• Export Boom of 2011 / 2012 Masked Some of the Decline• Shifting Production Profile

– Central Appalachia- Production slashed by 60M tons– Illinois Basin – Production increased of 30M tons

- 200M

+ 600M

What Lies Ahead?• EPA regulations Impact

– Additional 50 GW of coal plants likely to close or repower– Within 8 years, an additional 110M tons of consumption lost– Nat Gas and Renewables Push

• Domestic Long Term Estimates for coal by Sector– Power Generation 750-800 Mt– Industrial / Commercial 35 – 40 Mt– Coke Plants 21 – 24 Mt

• What About Imports?– Primarily limited to plants in SE USA (Close to Colombia)– Unlikely to exceed 5Mt (USA + Puerto Rico)

• US Thermal exports will be ‘Illinois-centric

– Lowest cost bituminous coal reserves in US– Continued decline in traditional CAPP coal output:

• Production costs 2x that of Illinois Basin– Powder River Basin-continue logistics constraints– Projected Export Thermal Coking Coal Exports

• Illinois Basin 15-20 Million Mt • CAPP/NAPP 10-12 Million Mt• Other 5- 8 Million Mt• Metallurgical 35- 45 Million

US Exports 65 – 85 Million MT tons ????

…. And the Impact on Exports?

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