Has coal displaced petcoke as the cement industrys fuel of choice ?

Vibeke Leal Director Coal and Petcoke Trading HC Fuels Ltd

1. Introduction

HeidelbergCement Markets & prices Milling & combustion CO2 emission factors Logistics The smart fuel for cement Conclusions

Slide 2 - 11.06.08 McCloskey Houston Conf Vibeke Leal

2. HeidelbergCement Group

77,000 employees EUR 17 billion turnover Operations in 60+ countries Vertically integrated in most countries Annual coal burn about 8 million mt Petroleum coke burn 0.5 (1.5 million mt potential)

Slide 3 - 11.06.08 McCloskey Houston Conf Vibeke Leal

HeidelbergCement Africa

HeidelbergCement Far East

Slide 5 - 11.06.08 McCloskey Houston Conf Vibeke Leal

HeidelbergCement Europe and Central Asia

Slide 6 - 11.06.08 McCloskey Houston Conf Vibeke Leal

HeidelbergCement Middle East

Slide 7 - 11.06.08 McCloskey Houston Conf Vibeke Leal

HeidelbergCement North America

Slide 8 - 11.06.08 McCloskey Houston Conf Vibeke Leal

HC Fuels Ltd

Wholly owned subsidiary of Heidelberg Cement London based Team of 10 with expertise in fuel & emissions trading and logistics Key objective fuel cost optimisation for HC Group plants globally Responsible for; Procurement of fuels (coal, petroleum coke, oil and gas) for HC Group companies Procurement of fuel related products such as lubricants Trading emissions on behalf of HC Group companies, including CERs from Group CDM projects Supplying third party clients

Slide 9 - 11.06.08 McCloskey Houston Conf Vibeke Leal

3. Markets and Prices Trading ranges : Coal

(API2 Steam Coal, Basis 6000 Kcal pr Kg, CIF ARA)
200 180 160 140 USD per mt 120 100 80 60 40 20
2002 2003 2004 2005 2006 2007 2008 2009 2010

Argus/McCloskey Forw ard Market (based on Argus.D.C.I. 23/05/08)

Range USD 75 - 169

Range USD 50 - 145

Range USD 25 - 50

Slide 10 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Coal outlook short term

US expected 20 mi mt in 2008, forecast now 12 mi mt China net importer in March. Some claim China will need to import 250 mi mt over next 12 months. China faces power shortage this summer with 1% of power plants now out of coal 25 power plants in India listed as critical with less than 7 days stock

Slide 11 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Coal outlook long term

600 GW additional global

power demand (50% coal) = 500 million mt additional coal demand by 2012
Strong Asian demand

growth likely to outstrip supply

HIGHER COAL COSTS

Slide 12 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Trading ranges : Petroleum coke

Petroleum coke FOB US Gulf

.+35 HGI 6.5%S

120.00 100.00 USD per mt 80.00 60.00

.+50 HGI 6.5% S .+50 HGI 4.5% S .+35 HGI 6.5%S Forward .+50 HGI 6.5% S Forward .+50 HGI 6.5% S Forward

Range USD 45-125 Range USD 20 - 60

Range USD 8 - 35 Range USD 5 - 28 40.00 20.00 0.00 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2002 2003 2004 2005 2006 2007 2008

Slide 13 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Energy consumption by European Cement Plants - 2005

(Average:Austria, Denmark, Finland, Germany, Luxembourg, The Netherlands, Spain, United Kingdom, Czech rep., Estonia, Hungary, Latvia, Poland, Romania)

Alternative Fuels 21% Gas 2%

Coal 24%

HVFO 0.2% Fuel Oil 2%

Lignite/Shale/Schiste 9%

Petcoke 42%

CEMBUREAU EL 21 June 2007

Slide 14 - 11.06.08 McCloskey Houston Conf Vibeke Leal

World Petroleum Coke Market Profile - 2004

Other Industry 10% Residential 1%

Permanent Storage 4%

Calcining 23%

Cement 34% Iron & Steel 6%

Inventory 2% Power Generation 20%

Total = 77 Million MT
Slide 15 - 11.06.08 McCloskey Houston Conf Vibeke Leal

New Cokers

Mt

9 8 7 6 5 4 3 2 1 0

US & Canada Rest of World

2007

2008

2009

2010

2011

Year
Slide 16 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Source Cembureau

Forward pricing

All new petcoke before 2015 will be low HGI, high sulphur Prices for high sulphur should drop from USD 85/mt FOB today as demand weakens Prices for 4.5% sulphur expected to remain firm for longer Low/high sulphur spread expected to increase

PETCOKE PRICES WILL FOLLOW COAL AS POWER PLANTS SWITCH BETWEEN FUELS

Slide 17 - 11.06.08 McCloskey Houston Conf Vibeke Leal

4. Petcoke - milling & operational constraints

MILLING Grinding material finer due to low volatile

CALCINER OPERATION Dont want un burnt carbon in cyclone stage - cause build ups, increase CO and sulphur cycle.

Slide 18 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Process constraints

SULPHATISATION High sulphur in fuel or raw material generally bad news - blockage NOX EMISSIONS Petcoke generate higher NOX than coal in calciner CLINKER GRINDABILITY Replacement of 100% coal by 100% petcoke on main burner increases power demand for milling cement by 5kWh/te

Slide 19 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Operating cost increase on petcoke

Additional cost of milling 100% petcoke v 100% coal =

EUR 1/mt
Additional cost of milling clinker produced by firing

petcoke instead of coal = EUR 0.2/mt of clinker = EUR 2/mt of fuel

Assume no additional blockage clearing costs Total additional cost = EUR 3/mt of fuel or 3% of

delivered plant cost

Slide 20 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Additional cost on 100% petcoke

Additional CO2 & milling cost 14% of CIF fuel cost Above assumption assumes single fuel use. Blending coal and petcoke increases storage costs, incurs blending costs and poor blending impacts on clinker quality. Petcoke further disadvantaged by lower fuel efficiency, higher cleaning costs and more downtime on kiln TAKING ACCOUNT OF ALL COSTS, PETCOKE MUST BE SOLD AT A MINIMUM DISCOUNT OF 20% TO COAL ON CIF BASIS, THERMALLY EQUATED

Slide 21 - 11.06.08 McCloskey Houston Conf Vibeke Leal

5. Co2 emission factors

The EU Emission Trading Scheme has made reducing emissions an important commercial objective for cement plants.
Current price for emitting 1 Mt of Co2 is 26.50 Euro Emissions from the production of Cement incl.
1) 2) Co2 from the process related to raw material Co2 from burning kiln fuel

Rule of thumb: 1 Mt of clinker emits ca 1 Mt Co2 Why is this important to consider when you are buying fossil fuels?

The emissions from the kiln fuel varies from fuel to fuel and can have a dramatic impact on the life cycle cost of the fuel.

Slide 22 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Emission factors

Enclosed are emission factors for Phase I of the EU ETS given by

the Deutsche Emissionshandelsstelle for Germany: Fuel quality A. API2 Coal Emission factor: Mt Co2 /GJ Russian coal South African Average Rheinland All 0.0950 0.0960 0.0955 0.0980 0.1090

B. Lignite C. Petcoke

Slide 23 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Emission costs for Lignite, Coal and Petcoke

Comparison of the emissions costs from the use of Int. coal

(API2), Petcoke and lignite in Germany.

Lignite Total Mt GJ/Mt Total GJ for fuel volume Emission factor mt Co2/GJ Mt of Co2 pr Mt of fuel Total Mt Co2 for fuel volume Price of Co2 pr Mt Price of Co2 pr Gj Total Co2 cost in Euro for fuel volume Co2 disadvantage in Euro compared to coal Co2 disadvantage in Euro pr GJ compared to coal Co2 disadvantage in Euro pr Mt compared to coal 113,227 22.19 2,513,000 0.098 2.18 246,274 26.50 2.60 6,526,261 166,486 0.07 1.47 Coal 100,000 25.13 2,513,000 0.0955 2.40 239,992 26.50 2.53 6,359,775 Petcoke 80,014 31.41 2,513,000 0.109 3.43 274,288 26.50 2.89 7,268,625 908,850 0.36 11.36

Different Tonnage Same CV in GJ

Different amount of co2 emissions

Additional Co2 cost compared to steam coal

Slide 24 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Example, Fuel Life Cycle Cost pr GJ

6.00

5.00 0.35 0.25

0.32 0.32

4.00
Euro pr GJ

3.00
Fuel cost prior to burning

Grinding Logistics incl. Storage Fuel cost FOB ARA b/b 4.14 4.51

2.00

1.00

Med Petcoke 4.5% CFR Med Coal

Slide 25 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Example, Fuel Life Cycle Cost pr GJ

9.00

0.11
8.00 7.00 6.00
Euro pr GJ

2.89
Fuel cost after burning

2.53 Emissions 0.32 0.32 Grinding Logistics incl. Storage Fuel cost FOB ARA b/b

5.00 4.00 3.00 2.00 1.00 CFR Med 4.5% P.coke 4.14 0.38 0.25

Fuel cost prior to burning

4.38

CFR Med Coal

Slide 26 - 11.06.08 McCloskey Houston Conf Vibeke Leal

6. Logistics

Many European plants are supplied via their own ports Coastwise coal holds big advantage for delivery to shallow draught ports USG petcoke cargoes must be broken in deep water ports for transfer to coasters Typical additional cost for discharge, re-load and short sea freight EUR 12/mt Refineries must offer petcoke at a discount of over 30%, thermally equated, to attract coastal cement plants back from coal.

Slide 27 - 11.06.08 McCloskey Houston Conf Vibeke Leal

So why havent petcoke prices dropped ?

Sold out cement market but for how long? Incremental fuel demand from petcoke only plants Milling capacity limitations designed on 7500kcal fuel Failure to install explosion suppression systems White cement More sophisticated stock management by refineries Utility petcoke trial programmes underway Face value price differential modest High and firm international coal prices Petcoke market illiquid with most deals PACE related

Slide 28 - 11.06.08 McCloskey Houston Conf Vibeke Leal

7. Alternative Fuels the new petcoke?

Alternative Fuel Utilisation in Germany 2004

30 25 20 % U sage 15 10 5 0
s nt s s te ge re d l il te ea t ic Ty as lv e oo ar as Pl as Sl ud te th O
Source HTC

lW

ne

r&

So

ng

ip a

Bo

Pa pe

ge

ag i

t&

ck

un

ea

lp ,

Pa

Pu

Fuel Type

Slide 29 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Se

wa

Sc

ic

ra

as

er

% A lte rn a tiv e F u e ls U s a g e
Ne th

10

20

30

40

50

60

70

80

90

Slide 30 - 11.06.08 McCloskey Houston Conf Vibeke Leal

Alternative fuels use by the Cement Industry, 2004

Country
Source HTC

e S w r l an i tz d s er G e la n rm d a A u ny st N o ri a rw Fr ay an B e ce lg i S w um C z ed ec e n h Re p UK U A u SA st D e r a li a nm ar Sp k a F i in nl a H u nd ng P o a ry r tu g P o al la n Ir e d la n d
EU Average 17%

Can cement plants burn 100% alternative fuels ?

YES ! but:
Each change of energy mix leads to

changes of the kiln heat balance which reduces kiln production

Lower heat content of AF forces the kiln

operator to increase energy supplied to the kiln in comparison with primary fuels.
Using AF lowers the nominal clinker

output of the kiln

Slide 31 - 11.06.08 McCloskey Houston Conf Vibeke Leal

8. Conclusions

Cement has not abandoned petcoke but those who have gone will come back reluctantly

DISCOUNT OF AT LEAST 25% WILL BE NEEDED TO CHANGE FUELLING STRATEGY FOR INLAND PLANTS, perhaps 35% for coastal plants

CEMENT PLANTS WILL PLACE EVEN HIGHER PRIORITY ON INCREASING USE OF ALTERNATIVE FUELS

Slide 32 - 11.06.08 McCloskey Houston Conf Vibeke Leal