Coal-to-Liquids

and the

Path to Independence

Jim Roberts Chairman, President & CEO Foundation Coal Corporation

U.S. Import Dependency

Crude Oil Import Reliance (Share of Total Consumption)

80% 70% 60% 50% 40% 30% 20% 10%

26%

0% 1973 1978 1983 1988 1993 1998

65%

2003 2

U.S. Import Dependency

Crude Oil Import Reliance (Share of Total Consumption)

80% 70% 60% 50% 40% 30% 20% 10% 1973 1978 1983 1988 1993 1998

2006

2003 2015

2030 75%

3

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 4

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 5

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 6

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 7

$12 $10 $8 $6 $4 $2 $0

Behind Coal’s Resurgence

It’s Affordable … Natural Gas Coal Oil

8

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 9

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 • Saudi Arabia’s oil reserves • Middle East oil reserves 131 quads 1,566 quads 4,104 quads 10

Behind Coal’s Resurgence

Secure Within Our Borders

11

Secure Within Our Borders

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 12

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 13

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 14

Behind Coal’s Resurgence

Secure Within Our Borders

15

Growing Interest in CTL

• U.S. Department of Defense • commercial airline industry • trucking and railroad industries • China – $10 billion CTL commitment 16

Advantages of CTL Development

To states and the nation… • high-wage jobs • ultra-clean fuels • greater energy security 17

Challenges to CTL Development

biggest impediment – volatility of global energy prices price uncertainty makes lenders skittish on multi-billion-dollar CTL investments.

18

Oil Price Volatility

EIA Average World Crude Oil Prices

70 60 50 40 30 20 10 0 1970 1975 1980 1985 1990 1995 2000 2005 Energy independence will remain elusive if our commitment waxes and wanes with the rise and fall of global oil prices.

19

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 20

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 21

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 22

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?

23

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.

24

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 25

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 26

Technology – A Better Approach

skeptics overlook the power of technological solutions around us 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 27

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 28