CoaltoLiquids Technology Commercialization and Potential Contribution to US

Coal-to-Liquids: Technology, Commercialization, and Potential Contribution to US and Global Energy Pool 27 th USAEE/IAEE North American Conference Houston, Texas September 2007 Iraj Isaac Rahmim, Ph. D. E-Meta. Venture, Inc. Houston, Texas Copyright 2007 by E-Meta. Venture, Inc. All Rights Reserved.

Introduction l Significant recent interest in non-petroleum-based sources of energy – GTL, CTL, BTL l CTL of particular interest in US, China, Russia, India, Australia, … – Governments, inter-governmental bodies, private sector, environmental organizations – Sense that things are picking up in speed l Much of the technology is old but specific applications are considered – Require working-out various synergies and technical elements – Require careful evaluation of economics, environmental implications, strategic impacts E-Meta. Venture, Inc. 2

Key Topics l CTL technology l Interested parties and drivers l CTL implementation status and projections l Likely impacts of CTL commercialization l CTL economics and the issue of CO 2 recovery and sequestration E-Meta. Venture, Inc. 3

CTL Blocks Gasification involves pyrolysis, combustion, and gasification chemistries: 2 C-H + 3/2 O 2 2 CO + H 2 O + Heat C-H + H 2 O CO + 1. 5 H 2 Also, some Water-Gas Shift: CO + H 2 O CO 2 + H 2 E-Meta. Venture, Inc. F-T converts Syn. Gas to hydrocarbons: CO + ? H 2 —CH 2— + CO 2 + H 2 O + Heat (long chain) 4

CTL Products l Product Upgrading can involve a number of activities: – Primarily hydrocracking of wax to lighter diesel and naphtha Sample product slate for 50 MBD facility No HC With HC Comments Similar to other plant (LNG, refinery) LPG 1 2 l Naphtha 9 13 l Diesel 25 35 l l l Lubes Wax E-Meta. Venture, Inc. 15 5 <1 <1 Straight chain paraffinic Near zero sulfur l High cetane Near zero sulfur l l High grade Low volatility Low pour point l High quality l l Can be co-processed and marketed with them l Preferred use: steam cracker feed l l l Low density Low aromatics Low viscosity Low sulfur 5

Interested Parties E-Meta. Venture, Inc. 6

CTL Drivers l l l Large coal reserves exist with over 140 years remaining at current production Demand for oil and natural gas is to continue rapid growth The majority of coal reserves in the world are located outside the Middle East (e. g. , US, Russia, China, India, Australia) resource security The demand for transportation fuels, particularly diesel and other distillates, is projected to grow rapidly into the foreseeable future If this demand is to be met using crude oil, a significant “refinery gap” must be filled Significant technological improvements in CTL components during the past two decades improved process economics E-Meta. Venture, Inc. 7

Driver: Energy and Product Demand Global Reserves Oil (incl. Canadian Oil Sands) Natural Gas Coal (4 Grades) Proved Reserves 1, 372 X 109 Bbl 191 X 109 Tons 6, 405 TCF 479 X 109 Tons Energy Basis (quadrillion Btu) 7, 600 6, 600 8, 500 191, 000 165, 000 213, 000 41 63 147 Resource MTOE Basis (million tons oil equivalent) Years Remaining (at current production) BP Statistical Survey or World Energy (2007) E-Meta. Venture, Inc. 8

Driver: Energy and Product Demand Global Resource Demand Projections © OECD/IEA, 2007, Key World Energy Statistics. E-Meta. Venture, Inc. 9

Driver: Resource Availability/Strategy Global Distribution of Coal Resources Million Tons of Proved Reserves (2006) BP Statistical Survey of World Energy. E-Meta. Venture, Inc. 10

Driver: Resource Availability/Strategy Distribution of Coal Resources—USA US Geological Survey Open-File Report OF 96 -92. Anthracite, Semi-Anthracite, Meta-Anthracite Sub-Bituminous Low-Volatile Bituminous Lignite Medium and High-Volatile Bituminous E-Meta. Venture, Inc. Coking Coal 11

Driver: Energy and Product Demand Global Distillate Demand Projections Middle Distillate Consumption (MBD) 45 , 000 40 , 000 35 , 000 30 , 000 Projected Total at 3 % growth 25 , 000 20 , 000 Rest of World ( Excl FSU ) 15 , 000 Asia Pacific 10 , 000 Europe 5 , 000 North America - 1977 1987 1995 2000 2005 2010 2015 2020 “Refinery Gap” E-Meta. Venture, Inc. 12

Driver: Technology l Individual CTL process elements have been around for many decades l Significant technical improvements during the past two decades: – Fischer-Tropsch – Hydroprocessing l Evolutionary advancements in gasification, gas treating, power generation, … l CO 2 capture, compression, transportation, sequestration Impact on Process Economics Environmental Concerns Later E-Meta. Venture, Inc. 13

CTL Facilities and Projects Existing Company Location Size (BPD) Comments Sasol I Sasolburg, South Africa 5, 600 1955; Sasol technology Sasol II/III Secunda, South Africa 124, 000 1955/1980; Light olefins and gasoline; Sasol technology Petro SA (formerly Mossgas) Mossel Bay, South Africa 22, 500 1991; Gasoline and diesel; Sasol technology Converted to GTL—using NG from Mozambique (circa 2004)? A number of operational pilot plants. Examples: Rentech (15 BPD), Headwaters (30 BPD). Also two commercial GTL units operational. E-Meta. Venture, Inc. 14

CTL Facilities and Projects In the Works (USA) Project Lead Project Partners Location Feedstock Status Capacity (BPD) Cost (US$ million) American Clean Coal Fuels None cited Oakland, IL Bituminous, Biomass Feasibility 25, 000 N/A Synfuels, Inc. GE, Haldor. Topsoe, NACC, Exxon. Mobil Ascension Parish, LA Lignite Feasibility N/A 5, 000 DKRW Advanced Fuels Rentech, GE Medicine Bow, WY Bituminous Design (2011) 13, 000 1, 400 DKRW Advanced Fuels Rentech, GE, Bull Mountain Land Co. Roundtop, MT Sub-bituminous, Lignite Feasibility 22, 000 1, 000 -5, 000 AIDEA ANTRL, CPC Cook Inlet, AK Sub-bituminous Feasibility 80, 000 5, 000 -8, 000 Mingo County Rentech WV Bituminous Feasibility 20, 000 2, 000 WMPI Sasol, Shell, DOE Gilberton, PA Anthracite Culm Design 5, 000 612 Rentech/Peabody N/A MT Sub-bituminous, Lignite Feasibility 10, 000 -30, 000 N/A Rentech/Peabody N/A Southern IL, SW IN, Western KY Bituminous Feasibility 10, 000 -30, 000 N/A Rentech Kiewit Energy Co. , Worley. Parsons East Dubuque, IL Bituminous Construction (2010) 1, 800 Baard Energy AMEC Paragon Wellsvile, OH Sub-bituminous, Lignite Feasibility 35, 000 4, 000 Headwaters Hopi Tribe AZ Bituminous Feasibility 10, 000 -50, 000 N/A Headwaters NACC, GRE, Falkirk ND Lignite Feasibility 40, 000 3, 600 DOE/Office of Fossil Energy—DOE/FE-0509, Green Car Congress E-Meta. Venture, Inc. 15

CTL Facilities and Projects In the Works (Non-US)—Partial Project Lead Location Status Capacity (BPD) Shenhua Ordos City, Inner Mongolia, PRC Construction 20, 000 Lu’an PRC Construction? 3, 000 -4, 000 Yankuang PRC Construction? 40, 000 -180, 000 Sasol JV PRC Planning 80, 000 Shell/Shenhua PRC Planning 70, 000 -80, 000 Headwaters/UK Race Investments PRC Planning 70, 000 -80, 000 Pertamina/Accelon Indonesia Construction? 76, 000 Headwaters Philippines Planning 50, 000 Alton Resources plc, Jacobs Consultancy, Mine. Consult Australia Feasibility 45, 000 Anglo American (Monash), Shell Victoria, Australia Feasibility 60, 000 L&M Group New Zealand Planning 50, 000 DOE/Office of Fossil Energy—DOE/FE-0509, Green Car Congress Also, a number of related projects world-wide: gasification, CCS, direct coal-to-liquids, coal -to-chemicals, … E-Meta. Venture, Inc. 16

CTL Facilities and Projects EIA Projection to 2030: Coal used in CTL (USA) As % Total Consumption: E-Meta. Venture, Inc. 2015: 1. 2 2020: 1. 9 2025: 5. 2 2030: 6. 3 17

CTL Facilities and Projects EIA Projection to 2030: Liquid Fuels from CTL (USA) As % Total Jet+Distillate Consumption: E-Meta. Venture, Inc. 2015: 1. 3 2020: 1. 9 2025: 5. 6 2030: 6. 2 18

A Word on GTL Diesel Supply Projections l A large number of potential projects; only a small fraction likely to be built l Qatar: self-described GTL capital – Oryx I: 2006 start up; March 2007 upgrader on line, May 2007 1 st product lift – Shell Pearl: 2009 (cost issues: $18 billion) – Exxon. Mobil: 2011 (canceled Feb. 2007) – Marathon, Conco. Phillips on hold per Qatar government temporary moratorium— likely to hold at least until 2009 l Nigeria: – Escravos (Sasol/Chevron): under construction (delays and cost increase) l California Energy Commission estimate (early 2000 s): – 2010: 75 MBD global GTL diesel capacity – 2015: 388 MBD – 2020: 800 MBD l Sasol Chevron estimate: 600 MBD by 2016 -2019 E-Meta. Venture, Inc. 19

More on CTL Diesel Projections Global l US (Baker and O’Brien study): – 2017 -2022: 4 -6 large-scale (>40 MBD) CTL in Western US – Some smaller plants under consideration in the Eastern US l Potential: 250 MBD of middle distillates l PRC : – A number of projects under study/planning/construction l Example: 20 MBD plant in Inner Mongolia – CTL considered a key component of the PRCs overall, long-term energy strategy – A new key issue: recent environmental concerns of the PRC government – Projected (Robinson and Tatterson, OGJ Feb 2007 study): as much as 160 MBD liquid fuels l Others: various projects under study/planning l l 2020 Hand-waving estimate (global): 300 -500 MBD 2030: 600 -1, 000 MBD—many unknown factors E-Meta. Venture, Inc. 20

What Impact will CTL have on… l Coal market? Proved reserves, production increase capability l Liquid fuels market? Supply/demand, change in other sources – Diesel – Jet Some factors affecting CTL growth: – Naphtha (for cracking or blending) - Petroleum prices l l US v. worldwide Regional markets l A word on specialty products: lubes and waxes - Technology l Environmental impact E-Meta. Venture, Inc. -Capital availability - E&C resources - Movement on CCS - Incentives and regulations 21

Policy Action (1) Regulations and Incentives—Key Factor l Multiple forms of incentives under consideration (or in effect) in various jurisdictions. Include: – Direct subsidies or price guarantees l Example: 2005 Federal Transportation Bill—$0. 50/gallon of FT naphtha and diesel. – Loan guarantees l Example: EPAct 2005—loan guarantees for gasification projects with < 65% output as electricity. – Investment tax credit l EPAct 2005— 20% credit applied to first $650 MM investment during first year of operation E-Meta. Venture, Inc. 22

Policy Action (2) Regulations and Incentives—Key Factor l Other incentives: – USAF Synthetic Fuel Initiative: successfully tested 50/50 Syntroleum FT fuel; targeting 50% synfuel use (domestic) by 2016; awarded 7, 500 Bbl FT jet fuel for 2007. – Government funding of R&D and demonstration units l Environmental regulations/incentives: – Multiple on emissions from plant and fuel – Multiple on fuel quality – EU: Emissions Trading Scheme – Voluntary emissions trading markets (e. g. , Chicago Climate Exchange) – US State initiatives (e. g. , California, several NE States) l In flux. Subject to lobbying by interest groups on all sides. E-Meta. Venture, Inc. 23

Typical Overall CTL Balance Two Recent Studies Total Liquid Product Capacity Coal (Illinois #6, bituminous)—TPD Other feeds: air, water, … Diesel—BPD Naphtha—BPD CO 2—TPD Net Power—MW Other products: S, slag, fuel gas, … Bbl Liquid/Ton Coal Ton CO 2/Ton Coal (carbon/carbon) Ton CO 2/Ton Coal Overall Thermal Efficiency—% HHV * ** *** 11, 000 BPD* 4, 891 50, 000 BPD** 24, 533 7, 500 3, 509 6, 035 9. 7 27, 819 22, 173 32, 481 124. 3 2. 25 0. 53 1. 23 51*** 2. 04 0. 57 1. 32 47*** NETL study for DOD/Air Force (August 2007) NETL/DOE study (April 2007) Not verified. Does not include all energy recovered in process. E-Meta. Venture, Inc. 24

Typical CTL Economics 50, 000 BPD* OPERATING COST* (annual, 1 st year basis) CAPITAL COST** Coal and Slurry Prep Gasification $ 425 MM $ 1, 150 MM 67% Fixed $ 230 MM Variable (net) $ -20 MM Purchased Feed $ 300 MM TOC $ 510 MM Air Separation Unit $ 425 MM Syn. Gas Clean-Up $ 850 MM WGS + FT $ 510 MM 12% ROI 16. 8 % Product Upgrading $ 210 MM 5% Simple Payout 6 years Power Generation $ 255 MM Other $ 425 MM TIC E-Meta. Venture, Inc. $ 4, 250 MM • 16% * One scenario. For discussion purposes only. Results depend on a number of variables and parameters including: product prices, plant availability, EPC cost, % debt financing, … ** Excludes CO 2 compression, transportation, sequestration costs. 25

Driver: Environmental Concerns (1) l As we go from lighter hydrocarbon resources (Natural Gas) to heavier (Crude Oils) to heaviest (Coal) – C/H increases – More CO 2 made during conversion to useable fuels l KEY POINT: every single coal carbon molecule, when converted to fuel, will eventually end up in CO 2 – Question is NOT whether we make CO 2 – Rather, it IS where we make CO 2 and what we do with it – (Same applies to natural gas and crude oil) l Key: Capture, Compress, Transport (pipeline), Sequester (“CCS”) – Multiple sequestration options under consideration E-Meta. Venture, Inc. 26

Driver: Environmental Concerns (2) l Concern: All agree that CCS is necessary for CTL but major parties do not incorporate the cost of CCS in their economics l Concern: Though CTL+CCS compare well with oil refining in terms of CO 2 emissions, there are other options (e. g. , BTL, nuclear, wind) with significantly lower CO 2 emissions l (Concern: Some sequestration options are technically unproven or risky) E-Meta. Venture, Inc. 27

CO 2 from CTL l Given production of a typical 0. 65 ton CO 2 per Bbl of liquid products – 50, 000 BPD plant: 11. 3 million tons CO 2/year l Question: – Is this significant? – How important is it to capture, compress, transport, and sequester (CCS)? E-Meta. Venture, Inc. 28

Worldwide Large Stationary CO 2 Sources Number of Sources Emissions (million tons CO 2/year) Power 4, 942 10, 539 Cement Production 1, 175 932 Refineries 638 798 Iron and Steel Industry 269 646 Petrochemicals Industry 470 379 Oil and Gas Processing Not Available 50 Other Fossil Fuels 90 33 Bioethanol and Bioenergy 303 91 TOTAL 7, 887 13, 466 Process Intergovernmental Panel on Climate Change (2005) E-Meta. Venture, Inc. 29

CO 2 Emission Projections from CTL l Typical CCS in the context of CTL: 80 -90% CO 2 emission reduction – Recovers as much as 95% of the CO 2 – However, CCS uses energy lower net reduction l l CTL with no CCS: emissions worse than refineries, better than coal-fired power plants CTL with CCS: emissions on par with refineries l Consider earlier EIA US CTL projections: Projected Emissions from CTL (million tons CO 2/years) without CCS with CCS 2015 10 -41 1 -8 2020 28 -61 3 -12 2030 175 -230 17 -46 2030 CTL Emissions as % 2005 Global Stationary Sources 1. 3 -1. 7 0. 1 -0. 3 E-Meta. Venture, Inc. 30

CO 2 Capture, Compression, Transport, Sequestration (CCS) (1) l Capture includes separation/concentration, treating (e. g. , dehydration), etc. – Mature technology used extensively in gas plants and refineries worldwide l Compression: to pressure acceptable to pipeline l Transport—a number of factors – Distance – Tons per year – <1000 km + >millions of tons per year: pipeline most economical – >1000 km + <millions of tons per year: tankers – Mature technology (e. g. , >2, 500 km pipelines transporting > 40 million tons of CO 2 per year in the US E-Meta. Venture, Inc. 31

CO 2 Capture, Compression, Transport, Sequestration (CCS) (2) l l Sequestration can involve – Use in enhanced oil recovery (EOR) l Example: currently, in US, 30 millions tons per year CO 2 is injected for EOR applications – Injection in depleted oil/gas fields or other suitable geologic formations l Most likely option (largest capacity, location, stability/leak) l Current example: 1 million tons per year CO 2 from Sleipner gas field is injected into saline aquifer under North Sea – Ocean storage l In R&D; Technical issues – Conversion to inorganic carbonates or direct industrial use l Small In essence: every one of the elements in the CCS chain is tested/run-commercially. However, not all together in one chain. – Very active area: R&D as well as commercial testing – Very high likelihood of technical success – QUESTION: impact on economics? E-Meta. Venture, Inc. 32

Economics of CTL + CCS l CCS economics vary wildly, depending on factors such as capture process specifics, pipeline length, injection reservoir type and depth, etc. l One study (IPCC 2005) (incl. amortized add’l capital): – Capture from power plant: $15 -75/ton CO 2 – Transport (250 km): $1 -8 – Geological storage (excl. remediation/liability): $0. 5 -8 l Another study (MIT 2007): – Capture/compression: $25/ton CO 2 – Transportation/storage: $5 l A third study (Australia 2006) (capital cost for 0. 5 million TPY CO 2, equiv. to approx. 2, 200 BPD with 50 km pipeline): – Capture: $25 MM – Compression: $8 MM – Pipeline: $15 MM – Sequestration: $3 MM – Net operating cost: $24/ton CO 2 captured (incl. amortized capital) E-Meta. Venture, Inc. 33

Rough CTL+CCS Economics 50, 000 BPD* l Consider 50, 000 BPD CTL l Addition of CCS (incl. 50 km pipeline): – $300 MM extra to TIC – Or $230 MM/year to operating costs (including amortized TIC addition) Case CTL+CCS ROI 16. 8 % 11. 3 % Simple Payout 6 years 9 years * E-Meta. Venture, Inc. One scenario. For discussion purposes only. Results depend on a number of variables and parameters. 34

Summary l Significant new interest in CTL l Many parties—pro and con—in a number of countries – Energy security and strategy, environmental impact, product quality l Mature technology; many variable affecting economics l Large number of projects—mostly in study; a few in design or construction l Projection for CTL diesel suggests 1 -2% of demand by 2020, 6 -7% by 2030 l Capital intensive but multiple studies show potential for reasonable economics l Environmental impact key—CO 2 capture, compression, transmission, sequestration E-Meta. Venture, Inc. 35

Contact Information Iraj Isaac Rahmim, Ph. D E-Meta. Venture, Inc. P. O. Box 271522 Houston, Texas 77277 -1522 USA Telephone: USA (713) 446 -8867 Email: iir@e-metaventure. com www. e-metaventure. com E-Meta. Venture, Inc. 36