Petcoke Prices – Do They Relate to Anything? Ben Ziesmer McCloskey Group Petcoke Conference — 2008 Houston, TX June 10 & 11

J ACOBSCONSULTANCY

Petcoke Prices – Do They Relate to Anything?

Ben Ziesmer

McCloskey Group Petcoke Conference — 2008 Houston, TX June 10 & 11

J ACOBSCONSULTANCYPetcoke Conference—2008 Houston, Texas June 10

& 11

Petroleum Coke Prices($/MT fob Vessel, load port)

0

20

40

60

80

100

120

140

160

Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08

WEST COAST

HGI > 50GULF COAST/CARIBBEAN

S>2%

S<2%

HGI < 50

$/MT


& 11

Fuel Prices – Mediterranean Market

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

$/MMBtu, cif Mediterranean Residual Fuel Oil

South African Steam Coal

>50 HGI Petcoke


& 11

Fuel Prices – Mediterranean Market

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

$/MMBtu, cif Mediterranean Residual Fuel Oil

South African Steam Coal

>50 HGI Petcoke


& 11

USGC/Caribbean Market Petcoke vs.South African Steam Coal

$/MMBtu CIF Mediterranean

0%

25%

50%

75%

100%

125%

Apr-00 Apr-02 Apr-04 Apr-06 Apr-08


& 11

Petcoke Pricing –A New Paradigm?

Cement industry – from secondary fuel to preferred fuel Many kilns use 100% petcoke

Ash in fuel becomes part of clinker

Supply certainty important

Coal supplier dependability concerns

Power industry – still secondary fuel Must be lower cost on $/MMBtu basis


& 11

Fuel Prices – Asia

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

$/MMBtu,cif Japan

High Sulfur Residual Fuel Oil

Australian Steam Coal

>2% Sulfur USWC Petcoke

Source: Pace Petroleum Coke Quarterly©


& 11

USWC Petroleum Coke vs.Australian Thermal (Steam) Coal

$/MMBtu CIF Japan (USWC)

0%

25%

50%

75%

100%

125%

150%


USWC <2% Sulfur

USWC >2% Sulfur


& 11

Australian & South African Steam Coal

0.00

1.00

2.00

3.00

4.00

5.00

6.00

May-02 May-03 May-04 May-05 May-06 May-07 May-08

$/MMBtu

Australian FOB Newcastle

South African FOB RBCT


& 11

USGC & USWC Petroleum Coke

$/MMBtu CIF Mediterranean (USGC/Caribbean) or CIF Japan (USWC)

0%

25%

50%

75%

100%

125%

150%


USGC/CaribbeanUSWC >2% SUSWC <2% S


& 11

Illinois Basin vs. South Africa Steam Coal

0.00

1.00

2.00

3.00

4.00

5.00

Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07

$/MMBtu


IL Basin 2.5% S FOB barge


& 11

Illinois Basin vs. South Africa Steam Coal

0.00

1.00

2.00

3.00

4.00

5.00


$/MMBtu


IL Basin 2.5% S FOB barge


& 11

Utah vs. Australian Steam Coal

0.00

1.00

2.00

3.00

4.00

5.00

6.00


$/MMBtu

Australian FOB Newcastle

Utah Coal FOB mine


& 11

Petroleum Coke EUA Penalty vs.Burning Natural Gas

0

10

20

30

40

50

60

Jan-07 Mar-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Mar-08

$/MT Phase 1 Phase 2


& 11

Indifference Price of Petcoke vs. Natural Gas including EUA Cost

200

250

300

350

400

11/2/07 12/28/07 2/22/08 4/18/08

$/MT Phase 1 Phase 2


& 11

U.S. Climate Change Legislation –Lieberman-Warner

Oil refineries – Have to acquire CO2 credits based on carbon in crude Assumes all carbon in crude becomes CO2

Refiners can allocate CO2 cost among products as they see fit

Coal – End user accounts for CO2 emissions Generating stations & industrial plants need CO2 credits for

emissions

No double counting → CO2 from burning petcoke should not count as CO2 emissions


& 11

Lieberman-Warner & Petcoke

CO2 emissions ~3 tons/ton petcoke burned

How CO2 affects petcoke value Internal U.S. – increases value

worth premium to coal as CO2 already counted

Exports

Developing countries – no effect

EU – should decrease value due to EUA cost

WTO – Potential problem if export price is lower than domestic price


& 11

Summary

USGC petcoke prices are not directly correlated with South African coal prices New pricing paradigm?

Neither <2% S nor >2% S petcoke prices are directly correlated with Aussie steam coal prices

Premium of <2% S over >2% S petcoke has varied Steel industry primarily uses coking coal

Coking coal premium over steam coal

Steel industry has been easing sulfur requirements


& 11

Summary

U.S. coal prices not correlated with international coal prices When international coal very high, U.S. coal can move into

Atlantic Basin export market

CAIR scrubbers changing U.S. coal market

U.S. petcoke fueled project potentially exposed to international vs. domestic coal price risk

CO2 emission regulations can produce unexpected changes EUA currently not high enough to push users from petcoke

to natural gas


& 11

Disclaimer StatementThe presentations prepared by Jacobs Consultancy Inc., (“Jacobs”) for the Petcoke Conference 2008, and the forecasts, estimates, opinions, analysis, evaluations, or recommendations contained therein are for the sole use and benefit of Conference attendees.

Jacobs and its affiliates shall have no liability whatsoever to third parties for any defect, deficiency, error, or omission in any statement contained in or in any way related to the presentation. Neither Jacobs nor any person acting on Jacobs’ behalf makes any warranty, express or implied, or assumes any liability with respect to use of or reliance on any information, technology, engineering or methods disclosed or discussed in the presentation. Any forecasts, estimates, projections, opinions, or conclusions reached in the presentation are dependent upon numerous technical and economic conditions over which Jacobs has no control, and which may or may not occur. Reliance upon such opinions or conclusions by any person or entity is at the sole risk of the person relying thereon. The data, information and assumptions used to develop the presentation were obtained or derived from documents or information furnished by others. Jacobs did not independently verify or confirm such information and does not assume responsibility for its accuracy or completeness. Any forecasts, or cost or pricing estimates in the presentation are considered forward looking statements and represent Jacobs' current opinion and expectations of a likely outcome. They do not anticipate possible changes in governmental policies, governmental regulations, military action, embargoes or production cutbacks, regional conflicts or other events or factors that could cause forecasts or estimates to differ materially from what is contained in our forward-looking statements. The presentation is dated as of the date Jacobs completed its work. Jacobs has no obligation to update or revise the presentation or to revise any opinions, forecasts or assumptions because of events, circumstances or transactions occurring after the date of the presentation.

Documents

Petcoke Prices – Do They Relate to Anything? Ben Ziesmer McCloskey Group Petcoke Conference — 2008 Houston, TX June 10 & 11