Tenth Annual WV-IOF Symposium

1. Tenth Annual WV-IOF Symposium Gasification – Or is Our Industrial Sector’s Economic Future Fully Dependent on Natural Gas Availability and Price? Michael L. Eastman, NETL Strategic Center for Coal November 8, 2006 National Energy Technology Laboratory

2. NETL Mission • Implement a research, development, and demonstration program to resolve environmental, supply, and reliability constraints of producing and using fossil resources

3. NETL’s Investment in West Virginia Impacting Economy Through On-Site Operations • Contribute $51M annually through Federal and contractor payroll, small purchases, and conferences • Draw over 2,000 visitors to Morgantown area per year Impacting Economy Through R&D • $370M total value of agreements and contracts • Obligated $82M in FY05 generating 3,280 job-years in WV • Small businesses - total value of $70M with $21M obligated annually • Colleges/universities - total value of $170M with $12M obligated annually FY 2005

4. Decreasing Dependence On Energy Imports Forecasting Dependence on Energy Imports (Reference Case) “I urge Congress to pass legislation that makes America more secure and less dependent on foreign energy.” President G. W. Bush State of the Union Address, February 2, 2005 AEO’05 AEO’04 19.5%loweredimports AEO’03 Total Import Percent of Total Consumption AEO’02 AEO’06 Annual Energy Outlook Publication Year 2025 10.6 Quads (19.5%) Lower Imports in AEO’06 Forecast (2025) More Reliance on Domestic Resources; 4.6% Lower Consumption (2025) Reference: EIA Annual Energy Outlook 2002, 2003, 2004, 2005, 2006

5. Dallas Federal Reserve formula applied to oil forecast(reference case low sulfur light crude oil) $1.33 yearly average price underestimation to 2030 (26%) using AEO’06 reference oil price Actual Annual Energy Outlook Publication Year Increasing Trend in Natural Gas Price Forecasts $/Mcf (Wellhead) ’06 ’05 ’05 ’04 ’04 ’03 ’03 ’02 ’02 ’01 ’01 ’00 ’00 ’99 ’99 Natural Gas Price May Remain Substantially Underestimated in AEO’06 EIA, Annual Energy Outlook 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2006 (as reported, varied yearly dollars)

6. U.S. EconomyA Frog in Pot or Opportunity for Coal & Other Domestic Energy Resources? • Growing dependence on imported energy resources • LNG is Not natural gas • U.S. competitiveness driven by: • Innovation • Productivity • Affordable/Competitive energy-is our edge disappearing? U.S. economy’s reliance on natural gas makes us vulnerable to increasing prices beyond our control and issues of supply

7. Key Components of U.S. Economy Manufacturing remains leading component of U.S. GDP References: Bureau of Economic Analysis real State GDP (year 2000 $’s), 10/26/06includes Private Industry GDP, excludes Government based GDP

8. Key Components of WV Economy Manufacturing remains leading component of WV GDP References: Bureau of Economic Analysis real State GDP (year 2000 $’s), 10/26/06includes Private Industry GDP, excludes Government based GDP

9. Key Components of WV Manufacturing Chemical Manufacturing Primary Contributor to WV Manufacturing GDP Decline References: Bureau of Economic Analysis real State GDP (year 2000 $’s), 10/26/06includes Private Industry GDP, excludes Government based GDP

10. Key Components of Chemical Manufacturing Energy Consumption Chemical Manufacturing Industry Consumption of Energy 2002(Trillion Btus) Natural Gas and Natural Gas Liquids 82% of Total References: EIA - 2002 Energy Consumption by Manufacturers

11. Potential and Issues Significant Substitution for Natural Gas • Challenge — Make a material difference • Target — replace of 35% of NG used by Industrial sector thereby reducing price pressures on total US economy • Opportunity for gasification technology • Technology Identification and Evaluation • Build New, Current, and Past System Studies • Technology Roadmap • Deployment Pathways/Options • R&DD, Clean Coal Technologies, Tax Credits and Loan Programs

12. Extreme Conditions: • 1,000 psig or more • 2,600 Deg F • Corrosive slag and H2S gas Oxygen Products (Syngas) CO (Carbon Monoxide) H2(Hydrogen) [CO/H2 ratio can be adjusted] By-products H2S (Hydrogen Sulfide) CO2(Carbon Dioxide) Slag (Minerals from Coal) Gas Clean-Up Before Product Use Water Coal What is Gasification? & Carbon Feeds

13. NETL’s Systems Studies as Building Blocks • Situational Analysis-Industrial Sector Applications of Gasification Technologies (Phase 1 screening complete/Phase 2 detailed assessments underway)—Jointly Sponsored by DOE’s EERE-ITP and FE Programs • Several industrial large and small-scale Case Studies (completed/underway) • Coal-SNG Large-Scale Industrial Park (on-going) • Marshall County, WV Industry-Cluster Study (scoping efforts underway)-740MWe (equivalent)

14. Situational Analysis for Industrial Gasification Situational analysis based upon 2/28/06 workshop with 94+ attendees, 10+ turned away • Industrial Sector uses 1/3 of US Natural Gas • High NG prices are tied to job losses and demand destruction • Industrial Outlook • Gasification as affordable substitute for natural gas • Needs active partnership with Federal Government • Identify technological opportunities • Developing a research pipeline • Assist with opportunities for demonstrating technology • Accelerate technology deployment and broadening application of gasification in Industrial sector

15. Natural Gas Price Increases Have A Dramatic Impact On IndustryGasification Can Be A Large Part of Solution

16. Addressing Technical ObstaclesFor Large Systems Requires A Focused Effort • Efficiency improvements in a variety of system components* • Means to distribute syngas from central facility to remote users • Improved process automation and control systems • Understanding of syngas composition variability and associate impact on existing processes/equipment* • Gas composition enhancements and contaminant removal* • Availability improvements and operational optimization* • Carbon sequestration methods • Fuel flexibility through increased co-firing or fuel switching* • Improvements on reliability, especially with respect to number of gasifiers and nature of application • Air system and membrane separation improvements • Solid material handling issues * Common to large and small scale systems

17. Addressing Technical ObstaclesFor Small Systems Requires A Focused Effort • Efficiency improvements* • Understanding of syngas composition variability and associate impact on existing processes/equipment* • Gas composition enhancements and contaminant removal* • Availability improvements and operational optimization* • Fuel flexibility through increased co-firing or fuel switching* • Identification of components and subsystems that inhibit cost-effective scaling • Development of modular designs to reduce design challenges and costs • Multi-fuel compatible gasifier • Novel designs and process flow improvements to enable use of lower heating value fuels • Cooperation with other DOE offices and federal agencies to apply basic science efforts to industrial gasification * Common to large and small scale systems

18. Beluga Coal Gasification Feasibility Study Phase 1 – Agrium Fertilizer Plant • Problem: • currently based on NG feed • facing shut-downs from decreasing NG supply • Solution: coal to replace NG • Gasification Products – H2, N2, & CO2 for fertilizer, electric power • Near largest remaining undeveloped coal field on tide water in US • Estimate 4 million tons/yr of coal to meet plant needs Agrium Use

19. Beluga -- Feasibility Study Results/ Risks • $1.6B investment yields 11.1% ROI • Capital cost strongest determiner of ROI • Cyclical product price is critical to ROI • 85% availability • By-products given no value • EOR has potential needs • Agrium plant employs 200+ and supports 600+ regional jobs

20. Cedar Lane Coal-Fired Flue Gas Recirculating Fluidized Bed Boiler • Unit achieved ~7 months of continuous computer control operation • 96.9% availability over 193 day heating season • $200,000+ Saved over Natural Gas this season (2 of 5 Acres) • 20% reduction in coal usage compared to old under-grate stokers • 2 types of computer controlled operation demonstrated; demand and slumping • Only 2 man-hours of labor required daily • Unit up to 40,000,000 Btu Input Available Cedar Lane Farms Wooster, Ohio 9,000,000 Btu FGC- FBB Demonstration

21. NETL/USDA Study-Beltsville National FarmCoal/Biomass Hybrid Gasification • 6-9 month joint study (began 10/06) • Coal/Biomass system to provide syngas for routine operations (24/7) • Pathway to reduce USDA Research Center annual operating costs (back-out natural gas) • Affordable system (~$5million capital) • High Reliability/Low Manpower • Use readily available biomass energy resources (Maryland) • 60/40 bio/coal thermal input

22. Beltsville Hybrid Gasification Concept

23. Closing Comments • Energy security will become an increasing important objective as required to sustain healthy U.S. economy • Energy security will come in two forms (fuels and power) • Coal provides leverage for making use of lower energy-density domestic energy resources (e.g. biomass) • Bio/Coal systems may offer lower environmental and CO2 footprints • R&D will be needed to address environmental and economic performance requirements — doable! Rev. 061404

24. Visit Our Websites Fossil Energy website:www.fe.doe.gov NETL website:www.netl.doe.gov