SURFACE TRANSPORTATION BOARD - RETAC COAL PRODUCER UPDATE Jill - PowerPoint PPT Presentation

SURFACE TRANSPORTATION BOARD - RETAC COAL PRODUCER UPDATE Jill Harrison, SVP & General Counsel Alpha Coal Sales Co., LLC April 14, 2015

2 U.S. Coal Production by Basin (million tons) 450 400 350 Million Tons 300 250 200 150 100 50 0 % Change YoY 2012 2013 2014 (8.4%) SAPP 19 19 17 (8.6%) CAPP 148 128 117 NAPP 126 125 132 6.1% ILB 128 132 137 3.7% PRB 424 416 421 1.1% Other 171 164 172 4.9% TOTAL 1016 984 996 1.3% SOURCE: Energy Information Administration (EIA); National Mining Association (NMA), U.S.Census, Alpha Research

3 SOURCE: Jeff Wallace’s Southern Company Presentation to RETAC – March 6, 2008

4 SOURCE: Jeff Wallace’s Southern Company Presentation to RETAC – March 6, 2008

5 Projected Domestic Pricing for Thermal Coal 2015 Projections Calendar Year Projections OTC Index May June Q3 Q4 Q1 16 2016 2017 2018 Powder River Basin (PRB) 8800 0.8 $10.20 $10.30 $10.35 $10.55 $10.90 $11.40 $12.65 $13.70 8400 0.8 $9.10 $9.15 $9.25 $9.45 $9.75 $10.20 $11.30 $12.20 Central Appalachia (CAPP) Nymex $49.25 $49.25 $49.00 $48.75 $49.75 $50.50 $52.50 $55.00 12000 1.7 CSX $45.15 $45.25 $45.40 $45.70 $46.55 $47.80 $50.80 $53.30 12500 1.6 NS $46.75 $46.75 $47.00 $47.30 $47.60 $48.35 $50.80 $53.30 12500 1.6 Northern Appalachia (NAPP) MGA Rail $42.75 $42.75 $43.25 $43.50 $45.00 $45.75 $48.05 $50.45 13000 4.0/4.5 Mon Rvr $45.25 $45.25 $45.60 $46.00 $47.25 $47.85 $50.15 $52.55 13000 4.8 SOURCE: Per Coaldesk publication as of 4/07/2015

6 U.S. Coal Car Loadings Weekly Coal Car Loadings U.S. Class I Coal Car Loadings 53,000 NS CSX BNSF UP NS CSX BNSF UP 200,000 48,000 180,000 43,000 160,000 38,000 140,000 33,000 120,000 28,000 100,000 23,000 80,000 18,000 60,000 13,000 40,000 Oct '14 Nov '14 Dec '14 Jan '15 Feb '15 Mar '15 Week Ending SOURCE: Association of American Railroads

7 Effects of EPA Regulations  Of the approximately 315,000 MW that comprised the U.S. coal fleet in 2010, nearly one quarter of that capacity has been announced for closure or conversion.  Of the announced retirements and conversions, 61,000 MW (19% of the 2010 U.S. coal fleet total capacity), is attributed to EPA policies.  In their analysis of expected impact from MATS and CSAPR, EPA projected only 9,500 MW of coal-fired power to go offline. approximately 10,000 MW = electric-generating capacity SOURCE: American Coalition for Clean Coal Electricity (ACCCE), 2015

8 Technology Continues to Advance… Slowly  Conceptual design for Mississippi Power’s Kemper County Energy Facility began in 2008, with earthwork beginning in 2010.  A number of delays have postponed the plant’s scheduled operation and production dates (now expected in the first half of 2016) and added significant cost to the project.  Initial 2004 forecasts estimated the project would cost $2.2 billion, but ten years later, Mississippi Power’s October 2014 public filing estimates the total project cost at $6.1 billion, nearly triple original estimates. SOURCE: Mississippi Power

9 Projected Global Coal Demand 2012: 5.526 Billion Tons Coal Equivalent (tce) 2019: 6.462 Billion Tons Coal Equivalent (tce) SOURCE: International Energy Agency (IEA)

10 U.S. Coal Exports 8,000 7,000 6,000 Monthly Exports (000 Tons) 5,000 4,000 3,000 2,000 1,000 Met Thermal 0 SOURCE: Energy Information Administration (EIA); National Mining Association (NMA), U.S.Census, Alpha Research

11 Exports from Australia and the U.S. 40 14 Total Australia Coal Exports (Million Tonnes) Australia Total U.S. Coal Exports (Million Tonnes) 35 12 U.S. 30 10 25 8 20 6 15 4 10 2 5 0 Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- 08 08 09 09 10 10 11 11 12 12 13 13 14 14 SOURCE: U.S. Census, ABS

12 Strength of the Dollar The strength of the U.S. Dollar against other currencies like the Russian Ruble and the Australian Dollar continues to present competitive challenges for U.S. coal producers. USDAUD USDRUB 1.4 80 1.2 60 1 0.8 40 0.6 0.4 20 0.2 0 0 SOURCE: Bloomberg

13 In Summary The IEA and others predict that coal will continue to be a growth fuel over the next 25 years, but a number of factors are culminating to create challenges in the near term for U.S. coal producers. Impact of U.S. Basin Shifting Export Demand Regulation in the U.S. and Pricing Nearly one-fourth of Central Appalachia   Market oversupply,  coal-fired power fleet expected to take the especially from retiring or converting most significant hit Australian coal EPA’s proposed Increase in PRB,   Strength of the U.S.  Clean Power Plan to NAPP and Illinois Dollar compared be finalized this year Basin production with other currencies SOURCE: American Coalition for Clean Coal Electricity (ACCCE), International Energy Agency (IEA), National Mining Association (NMA), U.S.Census, Alpha Research

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