Technical Session: Crude Oil Supply High Quality Competitive Distillate Fuels from Coal-to-Liquids Processing NPRA Annual Meeting March 20, 2007 Mark Landrum / Jon Warzel BAKER & O BRIEN Incorporated, All Rights Reserved
Coal-to-Liquids / Questions What? Why? When? How Much? Where? How Many? 1
Simplified CTL Block Flow Diagram Sulfur CO 2 H 2 Coal* Handling Preparation Feed Coal Gasification Raw Synthesis Gas Gas Cleaning Fischer-Tropsch Synthesis Oxygen Air Air Separation Power Generation Block Product Recovery Nitrogen *Feedstocks could also include heavy resid and/or petcoke Liquid Fuels 2
Coal-to-Liquids / Questions What? Why? When? How Much? Where? How Many? 3
The U.S. Has Been Called the Middle East of Coal USA Russian Federation China India Billion Tons - 50 100 150 200 250 300 Australia South Africa Total World Proven Reserves: 910 Billion Tons Ukraine Kazakhstan Other Anthracite and Bituminous Sub-Bituminous and Lignite NOTE: World Proved Reserves at end of 2005 SOURCE: EIA for U.S.; BP 2006 World Statistics for rest of world 4
U.S. Coal Production Converted to Liquids Annual Coal Production 1.1 Billion short tons/year Distillate Fuels 5.3 Million B/D Total U.S. Distillate Fuels Demand (5.9 Million B/D) NOTE: One short ton of sub-bituminous coal can be converted to approximately 1.75 barrels of CTL distillate fuels. 5
Coal-to-Liquids / Questions What? Why? When? How Much? Where? How Many? 6
Diesel Fuel At The Pump Lower sulfur requirements for on-road diesel fuel are here Allows a maximum of 15 ppm sulfur at the pump ULTRA-LOW SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum) Required for use in all model year 2007 and later highway diesel vehicles and engines. Recommended for use in all diesel vehicles and engines. NRLM diesel fuel produced by refiners and imported must meet 500 ppm standard by June 1, 2007 Schedule in place for achieving further sulfur reductions by 2010-2014 NON-HIGHWAY DIESEL FUEL (May Not Exceed 500 ppm Sulfur) WARNING Federal law prohibits use in highway vehicles or engines. Its use may damage these vehicles and engines. 7
Fischer-Tropsch (FT) Distillate Fuel Quality Meets ASTM Specifications Meets or Exceeds CARB Diesel Specifications Superior Product Virtually free of sulfur and aromatics 70+ cetane Compatible with Existing Infrastructure 8
Coal-to-Liquids / Questions What? Why? When? How Much? Where? How Many? 9
Capital Cost Breakdown Plants (>40MB/D) are expected to cost $70K $100K per B/D of liquids Total investment also depends on remoteness of site, availability of water resources, existing infrastructure, and proximity to end-user fuel markets Product Recovery and Other 5% Power Generation Block 18% Coal Handling/Prep 9% Gasification 27% Fischer-Tropsch Synthesis 12% Gas Cleaning & Conditioning 20% 10 Air Separation 9%
Distillate Prices Have Averaged 120% - 130% of WTI 140% Diesel Price as a % of WTI Crude 135% 130% 125% 120% 115% 110% 105% 100% 2000 2001 2002 2003 2004 2005 2006 USGC No. 2 LA CARB Diesel SOURCE: Platt's Oilgram Price Report NOTE: Pricing data from January 2000 thru November 2006. 11
What Will $55 Buy? Crude Oil Refined Product Barrel CTL Feedstock Advantage Coal-to to-liquids Product Barrel LPG & Fuel Gases Western LPG & Fuel Gases Crude Oil U.S. Coal FT Naphtha Conventional & Reformulated Gasoline Distillate Fuels Feedstock 1 : Liquid Product Yield: Product Revenue 1 : Gross Margin: ~1 bbl 0.90 0.95 bbl $72 $17 2 ~5.5 ton 10.5 bbl $637 $582 Distillate Fuels & Blending Stocks Petcoke SOURCE: Baker & O Brien analysis; EIA; Platt s 1 Based on 3 year average pricing (2004-2006) 2 Baker & O Brien analysis full conversion refinery 12
Base Case Economic Analysis Capex $85k per B/D Operating Costs $15/B Coal Feedstock Cost $10/Short Ton Distillate Price 122% of WTI Total Liquid Yield 1.9B/Short Ton Coal 13
CTL Economic Sensitivities Crude Oil Breakeven Sensitivity Analysis Dollars per BPD of Liquids: 70K Capital Investment 100K Dollars per Barrel: $10 Operating Costs $20 Dollars per Ton: $5 Feedstock Cost $15 Percent of Crude: 125% Diesel Price 115% Barrel Liquid per Ton Coal: Yield 2.1 1.5 42 44 46 48 50 52 54 56 Increase in Variable NOTE: Economics based on 100% equity and do not assume any favorable tax incentives or other subsidies Breakeven Crude Oil Price (WTI) to Generate 12% After-tax IRR 14 Decrease in Variable
Coal-to-Liquids / Questions What? Why? When? How Much? Where? How Many? 15
U.S. Coal Reserves 54% of U.S. Reserves 144 Billion Tons SOURCE: American Coal Foundation; www.teachcoal.org 16
Coal Classification 7,000Btu/Lb. 13,500Btu/Lb. Carbon / Energy Content of Coal High Percent of U.S. Coal Production 2005 High Low Rank Coals 49.4% Lignite 7.4% 1.5 3.5 Sub-Bituminous 42% 0.4 2.5 Moisture Content of Coal Thermal Steam Coal Bituminous 50.4% 0.4 8.5 Hard Coal 50.6% Metallurgical Coking Coal Anthracite 0.2% 0.7 7.0 Largely Power Generation Power Generation Cement Manufacture Industrial Uses SOURCE: World Coal Institute; EIA; National Coal Council NOTE: Average Sulfur Content Reported as Lb.SO 2 / MMBtu Power Generation Cement Manufacture Industrial Uses Iron & Steel Manufacture Domestic/Industrial including Smokeless Fuel 17
Coal-to-Liquids / Questions What? Why? When? How Much? Where? How Many? 18
Potential CTL Plants Based on Coal Reserves PADD 4 Idaho Montana = 217 Plants Wyoming = 118 Plants Basis 1.75 barrels of CTL distillate fuels per short ton of available proved reserves in each state. 60MB/D plants 30 year plant life Utah = 8 Plants Colorado = 28 Plants If only 10 CTL plants are built, 667,000 B/D would result. = Twenty-Five CTL Plants 19
CTL Plants Located Near Coal Mines Larger Larger scale scale CTL CTL plants plants are are likely likely to to be be built built mainly mainly in in PADD PADD IV IV where where most most of of the the coal coal resources resources are. are. IV V II I III 20
Summary Proven Technologies U.S. is M.E. of Coal High Quality Product Slate Introduced at Time of Strong Demand Economical at 45 55 $/B WTI Plants Most Likely in U.S. West (PADD IV) Distillate Movements to PADDs II & V 21
Summary Proven Technologies U.S. is M.E. of Coal High Quality Product Slate Introduced at Time of Strong Demand Economical at 45 55 $/B WTI Plants Most Likely in U.S. West (PADD IV) Distillate Movements to PADDs II & V 22
Key Take-A-Ways Proven Technologies U.S. is M.E. of Coal High Quality Product Slate Introduced at Time of Strong Demand Economical at 45 55 $/B WTI Plants Most Likely in U.S. West (PADD IV) Distillate Movements to PADDs II & V 23
Key Take-A-Ways Proven Technologies U.S. is M.E. of Coal High Quality Product Slate Introduced at Time of Strong Demand Economical at 45 55 $/B WTI Plants Most Likely in U.S. West (PADD IV) Distillate Movements to PADDs II & V 24
Key Take-A-Ways Proven Technologies U.S. is M.E. of Coal High Quality Product Slate Introduced at Time of Strong Demand Economical at 45 55 $/B WTI Plants Most Likely in U.S. West (PADD IV) Distillate Movements to PADDs II & V 25