Fredrick D. PalmerSenior Vice President – Government Relations

Peabody Energy

Wisconsin PublicUtilities InstituteGas Symposium

Coal as Wisconsin’s Future Fuel(Including Substitute Natural Gas)

2

The World is Turning to Coal

● We believe the world is increasingly energy-short, led by unprecedented demand from population centers and economic hubs in Asia, the Middle East and South America

● This occurs as:– Traditional energy sources are clearly constrained, requiring coal-

based alternatives– Energy-rich nations leverage political gain from their assets, and

nations urgently look to improve energy security● In this environment:

– Oil, coal and gas face a greater long-term convergence, – Coal’s traditional regionalized nature becomes global, and – Coal’s compact energy form becomes an attractive source

for liquids and substitute natural gas● The world is blessed with an abundance of coal to help meet all

human energy needs

Peabody’s ViewPeabody’s View

3

Trill

ion

Dol

lars

of G

DP In 20 years, world

GDP will double

Economic Growth Requires Energy, and Future Growth Estimates Require Coal

World GDP in Trillion 2000 DollarsWorld GDP in Trillion 2000 Dollars

4

78 85 99 107 110 131

205

262301

404

489

570

0

100

200

300

400

500

600

1980 1990 2000 2010 2020 2030

U.S Rest of the World

Qua

drill

ion

Btu

Con

sum

ed

In 20 years, world energyconsumption will increase 80%

The Rising Tide of Energy Demand Swamps Existing Supply

1.6 Billion People Worldwide Lack Access to Electricity1.6 Billion People Worldwide Lack Access to Electricity

5

U.N.: Access to Abundant Energy is Key to Quality of Life and a Fundamental Right

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 5 000 10 000 15 000 20 000

Electricity Use

Hum

an D

evel

opm

ent I

ndex

Canada

Qatar

SwedenFinland

United States

UAE

MozambiqueZambia

ZimbabweBangladesh

Ethiopia

South Africa

Malaysia

Argentina

•Italy

IndiaMorocco

ChinaBrazil

Indonesia

Electricity Use Per Capita and the U.N. Human Development IndexElectricity Use Per Capita and the U.N. Human Development Index

Source: International Energy Agency, World Energy Outlook 2005.

Life expectancy, educational attainment and income all correlate

with per capita energy usage

6

Electricity Usage per CapitaElectricity Usage per Capita Passenger Vehicles per CapitaPassenger Vehicles per Capita

Source: United Nations’ Human Development Report; Dargay, Gately & Sumner, 2007.

Most Nations Still in Early Stages of Modernization and Energy Use

Projections Assume Chinese Consumption Remains Projections Assume Chinese Consumption Remains Below Current Levels of Mexico for Next 25 YearsBelow Current Levels of Mexico for Next 25 Years

GDP Per Capita (thousand US $)

Meg

awat

t Hou

rs P

er C

apita

India

ChinaBrazilMalaysia

Mexico

South Korea

ItalyUK

Australia

USA

India China

Brazil

Malaysia

Mexico

South Korea

Italy

UK

Australia

USA

Vehi

cles

Per

100

Peo

ple

GDP Per Capita (thousand US $)

7

Wor

ld P

opul

atio

n in

Bill

ions

Current U.S. population: ~ 300MU.S. population in 2040: ~ 400M

We Need to Meet All Human Energy Needs to Achieve World Bank’s “Poverty-Free” Dream

Population Growth Ensures Future Energy DemandPopulation Growth Ensures Future Energy Demand

8

Reserve Additions

Consumption

The World is Consuming More Oil Than it is Finding; New Finds Less Prolific Than First Finds

Source: ASPO – Ireland, Newsletter, August 2007; U.S. Energy Information Administration, World Petroleum Consumption, 2008; and Management Information Services, Inc., 2008.

0

10

20

30

40

50

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 20002007

Bill

ion

Bar

rels

Per

Yea

r

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Reserve Additions

Consumption

Annual Depletion in Existing Major Oilfields is Annual Depletion in Existing Major Oilfields is Relentless and is At Least 3 Million Barrels a DayRelentless and is At Least 3 Million Barrels a Day

9

4% Production Fluctuation

Band

87

8685

84

8382

8180

79

7877

76

7574

2002 2003 2004 2005 2006 2007

Wor

ld O

il Pr

oduc

tion

Mill

ions

of b

arre

ls p

er d

ay Plateau

““If they [Saudi Arabia] don't have a lot of additional oil to put on the market, If they [Saudi Arabia] don't have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.”it is hard to ask somebody to do something they may not be able to do.”

– – President George W. BushPresident George W. Bush

World Liquid Fuel Production Has Apparently Plateaued, Saudis Notwithstanding

Source: U.S. Energy Information Administration, 2008.

10Source: BP Statistical Review of World Energy, June 2008

More Signs of Peak: Production Drops From 2006 Levels, Including Reclassified NGL Production

World Annual Oil Production, 2002 - 2007World Annual Oil Production, 2002 - 2007

74.5

77.0

80.3

81.581.781.3

68

72

76

80

84

2002 2003 2004 2005 2006 2007

Mill

ion

Bar

rels

Per

Day

11

Prices Say We’re at Peak; Speculation Doesn’t Drive Increase, the U.S. Congress Not Withstanding

Weekly Price of West Texas Crude, 1986 - 2008Weekly Price of West Texas Crude, 1986 - 2008

Source:  U.S. Energy Information Administration, Petroleum Navigator, Spot Prices, June 2008.

0

20

40

60

80

100

120

140

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

dolla

rs p

er b

arre

l

12Source: Matt Simmons, “Peak Oil’s Investment Implications,” March 7, 2008.

Matt Simmons: Supply May Fall Rapidly; World will be Totally Different if He is Correct

By 2012, World Oil Production By 2012, World Oil Production May Decrease Between 7% and 31%May Decrease Between 7% and 31%

0

10

20

30

40

50

60

70

80

90

Mill

ion

Bar

rels

Per

Day

2007 Actual Simmons 2012"Best Case"

Simmons 2012 "Worst Case"

13

9.2

7.86.7

5.7

10.8

12.7

0

2

4

6

8

10

12

14

Potential Natural Gas Demand for Electricity Exceeds Supply

At Current Growth Rate, Gas for U.S. Electricity Generation Would Raise U.S. Natural Gas Demand by 6 tcf / Year

Trill

ion

Cub

ic F

eet

2002 2007 2012 2017 2022 2027

Natural Gas for U.S. GenerationNatural Gas for U.S. Generation

Source: Energy Information Administration Natural Gas Consumption by End Use, 2008.

14

0

2

4

6

8

10

12

14

16

18

20

22

2007 2008 2009 2010 2011 2012 2013 2014 2015

TCF/

Y - D

ry P

rodu

ctio

n

EIA Projected Production Depletion at 32%

New NG

Needed

Source: Energy Information Administration; EOG; CIBC World Markets.

Unconventional Gas Plays Will Struggle to Fill Unconventional Gas Plays Will Struggle to Fill Gap of 6 TCF/Year – the Size of Texas ProductionGap of 6 TCF/Year – the Size of Texas Production

Natural Gas Depletion, Like Oil Depletion, is a Constant

15

U.S. Natural Gas Production: Where We StandFrom June 30From June 30thth Wall Street Journal Article Wall Street Journal Article

16

784

1,760

1,550

1,111

934

200

400

600

800

1000

1200

1400

1600

1800

2005 2006 2007 2008 (Jan) 2008 (Feb)

BC

F / Y

ear

EIA’s LNG Forecasts Falling Toward Reality

17

LNG Becomes Default Fuel for Generation if Coal Use is Limited for Any Reason

● U.S. will voluntarily cede control of it’s energy future to a foreign energy cartel

● Project Energy Independence led to a reduction of oil used for electricity generation

● LNG is global and priced off of oil benchmarks

● LNG risks:– Political

• Risky regions– Physical

• Security of terminals– Financial

• Balance of payments

U.S. Actions in the 1970s Reduced U.S. Actions in the 1970s Reduced Use of Oil for Generation Use of Oil for Generation

18

Most Gas Reserves Are in the Middle East and AsiaMost Gas Reserves Are in the Middle East and Asia

Iran, Russia, Qatar, Algeria & Indonesia Have Announced an LNG Cartel

LNG is a Global Commodity, Priced Off of Oil BenchmarksLNG is a Global Commodity, Priced Off of Oil BenchmarksIt is No Different than Importing Foreign OilIt is No Different than Importing Foreign Oil

19

Expensive Natural Gas Now Limits Usefulness of Most Gas Generating Plants

Generation Could Drain Natural Gas StorageGeneration Could Drain Natural Gas Storage

20

The Long Run Price of NG/LNG in a Peak Oil World

Source: Adapted from "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007.

Price of W TI Oil in Dollars per Barrel

“Oil prices are not going to come down to gas prices but gas prices will get closer to oil”

–Dr. R. Bertani, Former President of Petrobas America

21

Percentage of Wisconsin’s Electricity Which Comes from NG

Wisconsin’s Growing Dependence on Natural Gas for Electricity

22

Natural Gas Use for Power Generation is Raising Prices for Wisconsin Manufacturers

23

What the Continuing “Dash to Gas” Means for Wisconsin Electricity Rates

Since 2002, NG prices in Wisconsin have increased

70% for families and 100% for industry

Source: Energy Information Administration, through April 2008.

24

By 2015 Wisconsin Will Pay Substantially More for NG to Produce Electricity

Price of Oil/Barrel; (Price of NG)

(Actual Cost) *(13) *(16) *(20) *(23) *(27)

*Amount paid by Wisconsin to generate electricity as NG approaches oil parity

25

Wisconsin’s Coal Prices for Electricity are Lower, More Stable than NG Prices

Source: Energy Information Administration, U.S. Price 2008.

26

Coal Continues as World’s Fastest Growing Fuel

Five-Year Change in Global Energy ConsumptionFive-Year Change in Global Energy Consumption

Source: BP Statistical Review of World Energy, June 2007.

0 5 10 15 20 25 30

30%

2001

- 20

06 C

hang

e

16%

9%

15%

4%

Coal

Natural Gas

Oil

Hydro

Nuclear

Compound Annual Compound Annual Growth RateGrowth Rate

0.8%

1.7%

2.9%

3.1%

5.3%

Seaborne Coal Demand Growing 7% AnnuallySeaborne Coal Demand Growing 7% Annually

27

+456

+3,114

+137+22

+763

Growth through 2030. Amounts in million short tons.Source: U.S. Department of Energy, Energy Information Administration, International Energy Outlook 2006. International Energy Agency.Projected Australia export flow for 2004-2030.

EIA/IEA Expected Coal Demand Increase EIA/IEA Expected Coal Demand Increase of 4.5 Billion TPY in 2030 to 11 Billion TPYof 4.5 Billion TPY in 2030 to 11 Billion TPY

Platts: 660,000 MW of New Coal Plants in 75 Countries Platts: 660,000 MW of New Coal Plants in 75 Countries with Coal Use of 2.3 Billion TPY within 10 Yearswith Coal Use of 2.3 Billion TPY within 10 Years

Power Demand Driving Global Coal Growth

28

The Resource: 27% of the World’s Coal is in the United StatesThe Resource: 27% of the World’s Coal is in the United States

250 Billion Tons of Recoverable Coal250 Billion Tons of Recoverable Coal

Coal: Homegrown Energy Abundance in a World of Energy Shortfalls

29

NCC Sees Coal Converted toNatural Gas, Other Energy Sources

● Study determined that clean coal technologies are available to turn abundant U.S. coal into multiple energy forms including electricity, natural gas, transportation fuels and hydrogen

● By 2025, new capital investments of $515 billion (present value of $350 billion) in Btu Conversion technologies would create:

– 100 GW in new generation capacity– 4 TCF of coal-to-natural-gas facilities– 2.6 million barrels per day of coal-to-liquids

● U.S. coal production would more than double to 2.4 billion tons of coal per year

● Millions of high-paying jobs created nationwide in a new energy manufacturing industry

● March 2006 conclusions reaffirmed in latest study “The Urgency of Sustainable Coal”

30

Peabody Partnering with ConocoPhillips on New Coal-to-Natural Gas Facility

● Feasibility study for mine-mouth facility under way ● $250 million in incentives available from Kentucky ● Annual production of 50 to 70 billion cubic feet of pipeline-quality

synthetic natural gas● ~1.5 tcf in the first 30 years of production ● 3.5 million tons annually of Peabody coal and petcoke● “Carbon capture ready”

Major Commitment from Leading Global Oil & Gas CompanyMajor Commitment from Leading Global Oil & Gas Company

31

Latest Example of Clean Energy Investments: GreatPoint Energy

● BTU has investment in GreatPoint Energy that markets proprietary bluegasTM technology

● Process converts coal into clean natural gas with carbon storage

● Technology being advanced to commercial scale; Massachusetts pilot demo under way GreatPoint Bluegas Demonstration Facility

32

The Enabling Technology:Carbon Storage

Source: U.S. Department of Energy, Office of Fossil Energy, National Energy Technology Laboratory, Carbon Sequestration Atlas of the United States and Canada.

33

Clean Coal Technologies Provide the Path for Affordable & Adequate Energy Supplies

● Coal-to-Liquids – CTL with CCS can produce better fuels at the same rate of CO2 emissions as imported oil. Adding biomass increases cost but improves CTL’s carbon footprint.

● Coal-to-Gas – Coal can be gasified to create NG for power plants and the CO2 can be captured and stored. SNG from coal with CCS has much better footprint than LNG.

● Coal-to-Electricity – New “supercritical” clean coal plants emit 15% less CO2. FutureGen and GreenGen would have near-zero emissions.

34

Peabody is the Global Leader in Clean Coal Solutions

BTU is the only non-Chinese equity partner in GreenGen, China’s centerpiece commercial climate initiative

BTU is a long-standing supporter of the Vision 21 and FutureGen clean coal projects

BTU is a member of Australia’s COAL21

Fund to advance near-zero emissions through technologies

such as oxyfuel

Advancing Signature Climate Projects in U.S., China and AustraliaAdvancing Signature Climate Projects in U.S., China and Australia

Fredrick D. PalmerSenior Vice President – Government Relations

Peabody Energy

Wisconsin PublicUtilities InstituteGas Symposium

Coal as Wisconsin’s Future Fuel(Including Substitute Natural Gas)