america's energy future: challenges and opportunities

America’s Energy Future: Challenges and Opportunities

Steve Leer

Chairman and Chief Executive Officer

Arch Coal, Inc.

November 2, 2009

This presentation contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the Securities and Exchange Commission.

Forward-Looking Information

P R O G R E S S I V E R E S P O N S I B L E V I T A L G R O W I N G

Slide 3

Arch Coal is a leader in the coal industry

• One of the largest coal producers in the U.S.

• Supply roughly 16 percent of the U.S. coal supply

– Provide cleaner-burning, low-sulfur coal to domestic power producers to fuel 8 percent of the nation’s electricity

– Ship coal to domestic and international steel manufacturers as well as international power producers

• Talented workforce operates large, modern mines

• Industry leader in mine safety, productivity and reclamation

Source: ACI


Slide 4

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Prosperity is linked to electricity use

Source: United Nations Human Development Report 2007/2008

Hu

ma

n D

eve

lop

me

nt

Ind

ex

Electricity consumption per capita (in kWh)

United States

IcelandNorwayCanadaKuwait

Australia

Japan, France, Netherlands,Israel, United Kingdom, Italy

Poland

China

Argentina, Mexico, Brazil

IndiaPakistan

S. Africa

Nigeria

Ethiopia

World average per capita electricity consumption = 3,427 kWh/person/year

World average HDI = 0.729

Indonesia

Russia


Slide 5

Coal has been the world’s fastest-growing fuel source in the past seven years

Source: BP Statistical Review of World Energy 2009

Cumulative Percent Change in Global Energy Consumption2000 – 2008

(in million tonnes of oil equivalent)

41%

19%

25%

11%

6%

Coal

Hydro

Nat. Gas

Oil

Nuclear

• Since 2000, global coal use has grown by 41%, roughly double the consumption growth in natural gas

• Growth in coal demand will continue to be driven by consumption in the developing world, with gains in the developed world as well

• Fossil fuels are expected to remain dominant global energy sources through 2030


Slide 6

1,129

2,893

7,193

Total World China U.S.

Coal Consumption(in millions of short tons)

Source: EIA, International Energy Outlook 2009

2007

1,363

4,882

9,917

Total World China U.S.

2030

World coal consumption is certain to expand further


Slide 7

Oil

Natural Gas

Coal

0

100

200

billions of tonnes of oil equivalent

Coal’s advantage: abundant, secure and widely dispersed

Source: ACI, Bank of America, BP Statistical Review 2009 and Blackwell Energy Research

Based on current production levels and proven reserves, coal should outlast both gas supplies and oil reserves by more than 3 times

North America

Central and South America

Europe

Middle East

Africa

Russia

India

China

Other Asia Pacific


Slide 8

Coal is the dominant fuel source for electricity generation in America and around the world

Coal49%

Worldwide Net Electricity Generation by Source

(2006, per billion KwH)

U.S. Net Electricity Generation by Source

(2006, per billion KwH)

Sources: EIA, IEA World Energy Outlook 2008

Coal 41%

Natural gas 20%

Nuclear 19%

Hydro 7%

Other Renewables 3%Oil 2%

Hydro 16%

Natural gas 20%

Nuclear15%

Other Renewables 2%Oil 6%


Slide 9

0

500

1000

1500

2000

2500

3000

3500

4000

Bill

ion

s/K

Wh

Residential Commercial Industrial Other*

In the United States, electricity demand has steadily climbed since 1950

Source: EIA *Includes power sold directly to transportation sector and self-generating power


Slide 10

Where will the United States get its future power, if not from coal?

Source: EIA, ACI and Baker Hughes

• U.S. natural gas supply is keeping pace with demand at current 20% market share levels.

– However, natural gas has a wide range of uses, so the ability to expand share significantly for power generation is questionable.

• Since 2000, nuclear utilization has been at or close to 90% and the fleet is aging. As many as 30 new units will needed by 2030 just to maintain current market share.

• Hydro power is concentrated in the Northwest. No net additions to capacity are anticipated.

• While renewables can play a growing role, they face significant hurdles before achieving baseload status.

– Even if the U.S. can meet an ambitious goal of 25% renewable energy by 2030, it still leaves 75% of our power requirements to other fuels.


Slide 11

Natural gas prices have dipped – but the market anticipates a rebound

Source: Henry Hub, Nymex

$0

$3

$6

$9

$12

$15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

• Although unconventional U.S. gas supply is growing, the futures strip suggests that gas will soon return to its recent historical range


Slide 12

0

5

10

15

20

2009 2010 2011 2012

Source: Platts, ACI and NextGen Energy Council * Gross of plant retirements

• Build-out of 16 GW equates to 55 million tons of new coal demand annually over next four years

• Arch estimates that the Powder River Basin will service one half of this demand

Anticipated Supply Region for U.S Coal Plants Under Construction*

(in millions of tons)

PRB Non-PRB

The U.S. is experiencing largest coal plant build-out since 1980 despite news coverage of cancellations


Slide 13

Coal will remain a vital part of America’s energy future

Coal Natural Gas Oil

Coal: 94%

U.S. Petroleum Supply(million barrels per day, 2008)

U.S. Energy Reserves(in trillion Btu)

Source: EIA, BP Statistical Review of World Energy 2008, Argus Coal Daily

Domestic Imports

OPEC 30%

Domestic 34%

OtherImports 36%

PRB8800

NaturalGas

CrudeOil

FOB rail (2010)

Wellhead (prompt month)

$13.76=

$80perbbl

$0.50

$4.84

U.S. Fuel Prices($/million Btu at 10/16/09)


Slide 14

Coal is increasingly clean…and will become more climate-friendly with time and funding

U.S. population increased

49%

Coal-based electricity

increased 183%

Emissions of NOx, SO2 and PM10

decreased 60%

Sources: NMA, EPA

Since1970

NOx (Nitrogen Oxide), SO2 (Sulfur Dioxide), PM10 (Particulate Matter)

2008 GDP

increased 209%


Slide 15

While coal mining is viewed as invasive, there are significant land use advantages

Source: ACI

• The Powder River Basin contains more than 100 billion tons of coal

• The PRB supplies 45% of America’s coal – and over 20% of its power

• There are ~ 80 million tons of coal per square mile in the PRB

• Consequently, the industry is mining only ~ 6 square miles per year

– Together Wyoming and Montana total over 200,000 square miles

• Another 30% of U.S. coal comes from underground mining

• Only 10% is mined in steep terrain using surface techniques


Slide 16

-

5

10

15

20

25

30

1990 2000 2006 2020 2030

The developed and developing world must work together to address the climate challenge

Source: International Energy Outlook 2008 *OECD = Organization for Economic Cooperation and Development

CO2 Emission Trends(in giga-tonnes of CO2)

Non-OECD

China

OECD

United States

• Rapid increases in CO2 emissions in emerging Asia further underscore the need for clean-coal technologies

• China is now the largest emitter of CO2 and the developing world has surpassed the OECD nations in total emissions

• Clearly, we will need global solutions to address the climate issue


Slide 17

All major stationary sources of CO2 will need to approach zero emissions by 2050, according to IEA

745

1,7071,618 1,582

1,360

Coal

CO2 Emissions Normalized by Gross Output

Source: DOE, NETL March 2008

Assumptions include thermal plant efficiencies of 40-45% for a super-critical coal plant; up to 48% for a ultra-super-critical coal plant; ~45% for IGCC; 36-40% for natural gas single cycle; and up to 60% for natural gas combined cycle.

Super-criticalcoal

Ultra-super-critical coal

IGCC Nat. Gas SC Nat. Gas CC

(in lb of CO2 per megawatt-hour)


Slide 18

Coal can be converted into transportation fuels, thus reducing America’s reliance on imported energy

Clean-coal technologies can help unlock coal’s full potential

Plug-in hybrids are perhaps the best and most realistic way to de-carbonize the automotive fleet

Coal can be converted into synthetic natural gas for use in residential as well as a wide range of industrial applications

Source: ACI


Slide 19 Source: ACI, public sources

Leaders around the world increasingly recognize the importance of clean coal technologies

“The vast majority of new power stations in China and India will be coal-fired; not ‘may be coal-fired’; will be. So developing carbon capture and storage technology is not optional, it is literally of the essence.”

Tony Blair (June 2008)

“To the extent … that we can sequester carbon, capture greenhouse gases before they're emitted into the atmosphere, that's going to be good for everybody. Because if we don't, then we're going to have a ceiling at some point in terms of our ability to expand our economies and maintain the standard of living …”

U.S. President Obama (Feb. 2009)


Slide 20

U.S. House passed a climate bill in June 2009

2015 2020 2030 2050

- 42%

- 17%

- 83%

GHG Emissions Reductions vs. 2005 Baseline

Source: ACI and Public Documents

• Passed by a vote of 219-212, with limited bi-partisan support

• Targets and timetables appear aggressive and economically disruptive

• Permits use of up to 2 billion emissions offsets

• Includes a renewable portfolio standard

• Includes significant funding for CCS


Slide 21

What’s ahead in the Senate?

• Conventional wisdom suggests that the narrow margin in the House makes things tough in Senate

• Roughly 36% of “aye” votes came from California, New York, New Jersey and Massachusetts

– Those states account for only 8% of votes in Senate

• Coal-consuming and coal-producing states have a more significant voice in Senate

• Climate issue has moved to back-burner for now with primary focus on health care

• Sen. Kerry (D-MA) and Sen. Boxer (D-CA) have introduced legislation targeting a 20% reduction in GHG emissions by 2020

– The bill will almost certainly change dramatically before (and if) it makes it to the Senate floor

Source: ACI


Slide 22

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2005 2015 2020 2025 2005 2015 2020 2025

TWh

Source: EPA

Even under the very aggressive House bill, the EPA projects that coal use for electric generation will grow

Business-as-Usual Reference Case

H.R. 2454

Coal

Advanced coal w/ CCS

Oil/Natural Gas

Nuclear

Hydro

Renewables/Other


Slide 23

If Congress fails to act, the EPA will likely step in

• In 2005, the Supreme Court ruled (in “EPA v. Mass”) that the EPA has the right and perhaps the obligation to regulate GHGs

• The U.S. EPA is preparing to do just that

• Due in part to that fact, we believe that prudent legislation that appropriately takes economic factors into consideration is desirable

• However, we believe that the Senate faces a tough, uphill climb in moving legislation this Congress

Source: ACI


Slide 24

Coal is indispensable to America’s energy mix

• Nearly half of electric generation and growing

• Coal conversion technologies will help satisfy America’s oil addiction and provide greater U.S. energy security

• Coal has an economic advantage versus competing fuels, and it has been proven more reliable

• Technology is enabling increasingly clean and climate-friendly uses of coal

• America has well-developed and reliable infrastructure in place to produce and transport coal

Source: ACI