Global, National and Illinois Basin
Coal Trends
REAMP Discussion
September 25, 2014
Tom Sanzillo
Director of Finance
Global Coal Production 2008-2013
Coal Production (billion tons)
9
8.5
8
7.5
7
6.5
2008
2009
2010
2011
Coal Production
2012
2013
World’s Largest Producers
2013 Production
4000
3500
3000
2500
2000
1500
1000
500
0
China
United
States
India
Indonesia Russia Australia Germany Poland
2013 Production
Worlds Largest Consumers
2012 Consumption
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2012 Consumption
Global Imports/Exports: Global Trade
2012 1.4 billion
2013 Importers (million tons)
2012 Exports (million tons)
350
300
250
200
150
100
50
0
450
400
350
300
250
200
150
100
50
0
2013 Imports
2012 Exports
Million tonnes of coal equivalent (Mtce)
9000
8000
7000
6000
5000
4000
3000
New Policies
Current policies
2000
450
1000
ETA/IEEFA
0
2000
2005
2010
2015
2020
2025
2030
2035
Major Drivers of Demand Curve
• China: Thermal coal demand peaks early in the 2015-2020 period
and declines to below 2010 levels by 2035. China becomes an
opportunistic exporter on any thermal coal price strength. This equates
to rates of decline up to -0.9% CAGR in 2020-2035. This reflects:
• Continued energy efficiency gains reducing the ratio of electricity to GDP
growth;
• Slower GDP growth and a transition towards less energy intensive sectors;
• Increased thermal power plant efficiency;
• Technology gains, particularly battery storage, solar, on and offshore wind;
• Continued electricity supply diversification i.e. more gas, nuclear, wind, solar
and hydro; and
• Beyond 2020 offshore wind will then step up as another area of diversification.
– India, Japan, U.S., Korea and Taiwan
UNITED STATES COAL MARKETS
Coal’s Share of U.S. Electricity LT Decline
Coal vs. Natural Gas Percentage of All U.S. Electricity Generation
(2002-2013)
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2002
2003
2004
2005
2006
Coal
2007
2008
2009
2010
2011
2012
2013
Natural Gas
11
Electric Sector Coal Consumption
Chart Title
1200
1000
800
600
400
200
0
2008
2009
2010
2011
Coal Consumption
2012
Estimate
2013
2014
An ILB Leader Sums Up
• “We have the absolute destruction of the American coal industry. If
you think it's coming back, you don't understand the business,”
Murray Energy CEO Bob Murray remarked to hundreds of coal
industry executives at the Platts 37th Coal Marketing Days. “Or
you're smoking dope.”
• Murray further claimed that publicly traded companies like Peabody
are being dishonest with their investors for public relations purposes
about the future of coal.
• “You got to be the low-cost producer every day, in every region.
Everything else is public relations garbage by public companies that
are worried about stock prices,” Murray said.
ILLINOIS BASIN
ILB: Growth Story
• Only major growth story in US Coal markets
– Since 2009 – 25% growth, CAPP down 14%
– 2012 – 127.5 mtpa; 2013 – 132 mtpa
• Why growth story?
– High BTU, high sulfur coal
– Scrubbers – more intense emissions goals seen
helping ILB producers, most retirements CAPP
– Lower cost of production
– Solid Margins
ILB: Fundamentals
• Basic Economics
– Prices Received: 2012: $49.20
– Costs of Production: $34.93
– Margins in: $14.00 to $30.00 range
• Despite erosion in prices in 2013-2014: $44.00
per ton, Basin still growing.
• ILB cost of production rose by 6% per year
since 2007, CAPP up over 8% per year.
Investment Taking Place
• Major Companies all expanding operations
with new mines in construction and under
permit
• Largest Producers
– Peabody, Alliance, Foresight, Murray and
Armstrong
– Strong cast of smaller players: Knight Hawk (Arch),
Vectren, Hallador
Exports and Potential
• Companies geared up for more exports
– Foresight led in 2012 with 7.7 mtpa off based of
16 mtpa.
– 2013 and current year price collapse globally,
lower exports – approximately 7 mtpa.
• Port of New Orleans – 92% of ILB exports multiple terminals and Port of Mobile
Exports and Potential
• Where is market
– Americas (Canada, Chile, Mexico)
– Europe (France, Great Britain, Germany, Spain)
– Asia (China, India and South Korea)
Risks
• Although margins are solid for Foresight and
Alliance – Arch, Peabody hurt by price erosion.
– How long can they handle low prices
• Soft global markets undermine larger efforts
of combining domestic and export mix.
• Old Customers buying more – Duke, TVA,
Southern, but in context of overall coal
demand decrease.