2007 Gasification Technologies Conference

Gasification Industry Roundtable Oct. 15, 2007

Major Developments & Emerging Trends
Remarks from Phil Amick, Chairman, Gasification Technologies Council
and Gasification Commercialization Director, ConocoPhillips

Good morning. I want to thank Jim and the Council for pulling
together this industry roundtable this morning. As important as the
nuts and bolts of putting these plants together are, and those
technical topics are going to be discussed throughout these three
days of the conference, there are transcending drivers that are
changing the face of this industry. Coal, Coke, Congress, and China
are some of them, but it’s really all about Cost and Carbon.

It seems as if there are two gasification markets these days, an

international coal-to-chemicals market – what we often call industrial
gasification, and a coal-to-power IGCC market that is mostly made of
domestic applications.

Let’s talk about the power market for gasification first. The majority of
the announced new coal IGCC plants are in the United States. That’s
not saying there are not others around the world – demonstrations in
Japan and Korea, a couple of planned projects in Europe and some
recent announcements in China. There are non-coal IGCC’s as well,
mostly for polygeneration and using refinery residuals.

But the U.S. has always been the leader in coal-to-power gasification.
There were over two dozen announced coal IGCC plants in the U.S.
at the start of this year. Only one has been announced since then,
and in just the past three months, four of the more advanced projects
have been shelved or swapped to natural gas. Three others have
seen major delays stemming from slow regulatory closure. These
weren’t projects that were only newspaper ink, these projects have

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Major Developments & Emerging Trends
been in planning for years and had millions of dollars invested in
them.

It’s not strictly an IGCC issue…it’s a coal plant issue and a major
capital project issue. Proposed conventional coal plants are
disappearing even faster than the IGCC’s.

I think we all know what the root causes are. Skyrocketing material
costs, spot labor scarcity and competing projects of all kinds that are
causing delays and increasing costs. Then too there is so much work
domestically and around the world that the EPC companies that build
these plants have record backlogs, and their appetite for supporting
almost any project risk has dried up. And the bigger the projects are,
the harder they are being hit. Energy projects are the most capital
intensive of all construction, and they are taking the biggest blows.
The projects being driven by regulation, such as environmental
retrofits and ethanol, are still happening. Projects being driven by
renewable portfolio standards, some of which are also supported by
$18/MWH federal tax incentives, are still happening.

But coal plants are being delayed and cancelled, or swapped to

natural gas in order to meet electrical demand needs in the nearer
term. Some of these plants have struggled to meet the challenges of
environmental advocates. More probably have struggled with NIMBY
groups , who are becoming adept at the arguments of the
environmental advocates. But the primary reasons for the delays are
still Cost and Carbon.

Carbon capture has become the all important, all consuming issue
for coal power plants, and there are a lot of claims and confusion

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surrounding both the capture and compression sides of the equation.
ConocoPhillips and WorleyParsons have been working together on
evaluating the performance and cost impacts of various levels of
carbon capture and compression in an IGCC plant. Importantly, these
studies are all based on current commercial technologies. We are
presenting a summary of the results of one of these studies, on sub-
bituminous coal, in the Tuesday morning Carbon Capture session
here at the conference.

Unfortunately, we can calculate the impact of capturing and storing

carbon much much more closely than anyone can calculate the
benefits. And gasification technology applications are far ahead of
the R&D on carbon storage, and even farther ahead of the regulatory
structures that would support the greenhouse gas mitigation that
almost every project is being pressed to implement. Without a
cohesive energy and climate policy though, we’re up against a wall
that technology can’t climb because of cost, and its probably going to
result in dramatically higher electricity prices.

More than half of this country’s electrical generation comes from an

aging coal power plant fleet that is declining in capacity due to
retirements and environmental retrofits. Electrical demand is not
declining, its growing, and the U.S is going to need on the order of
250 GW of new power generation in the next twenty years. 250 GW
of clean, green, cheap power. And that’s a problem, because I don’t
think there’s any way to make an unsubsidized baseload four cent
busbar kilowatt-hour anymore. Not even five cent kilowatt-hours at
today’s fuel prices. Not from new plants at least.

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Major Developments & Emerging Trends
Its ironic that all of the drivers for new efficient climate friendly power
plants are probably going to keep the old not-so-environmentally
friendly plants running even harder and longer.

I’m not trying to say the IGCC outlook is bleak. There are good
projects that are going to be built. But IGCC has always come in
waves. A quarter GW in the 80’s, a GW in the 90’s, and a 3-5 GW’s
now. But the wave that is true commercialization and widespread
utilization is slipping farther out to the future.

In the face of all of these delays and uncertainties on coal, the

country is also turning once again to natural gas combined cycle for
new power generation. New plants are being built, and the plants
that were part of the overbuild of NGCC capacity just 6 years ago are
seeing increasing utilization. All the country has to do is to find
enough natural gas to feed the increasing demand – but the available
domestic supplies are declining, LNG is facing challenges all along
the supply chain and the Alaskan pipeline projects are faced with all
of the same cost and schedule issues that we discussed for major
capital projects, even more so because of their greater magnitude.
Opening up domestic gas fields that are currently restricted could
cure some of this gap, but not all of it. Supply and demand tells us
that gas prices are probably going to rise substantially because of
demand in the power sector if all of the other factors we’ve talked
about play out as coal plant delays.

EIA tells us something different, but more and more private studies
are questioning their analysis, especially the capital cost basis and
carbon capture assumptions that their analysis says will lead to
increased coal consumption. There’s a serious bust there.

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So what’s the answer? It may be Substitute Natural Gas. It’s fungible,

storable, hedgable, one of the most traded commodities in the United
States. Potential users have already been built and are sitting on the
ground waiting. The manufacturing technology using gasification is
proven.

As we jointly announced this summer, ConocoPhillips and Peabody

are planning a midwestern coal-to- SNG project, the equivalent of a
1.5 TCF gas field over the plant lifetime. The project development
risks are significant, but the ‘country’ risks are much easier to handle
than those of most of the international sources of gas. We’ll be talking
more about this project more on Wednesday morning.

Industrial gasification The industrial gasification marketplace, and by

that I mean coal-to-chemicals, coal-to-liquids, fertilizers and even
SNG projects, is a lot different than power. It’s a commodity market,
with storage and shipment, and with overseas competition. It’s an
international market. China has figured it out, they’ve started up 29
gasifiers since 2004.

The drivers for industrial gasification are the same as power,

utilization of low cost and secure energy supplies, and the cost
barriers are the same, but there are differences. One important
reason is that generally these projects are making higher value
products than electrons. Another is that there isn’t an overhang of
unused capacity in the chemical or fertilizer markets. New demand
means new plants.

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Major Developments & Emerging Trends
The E-Gas Technology gasifier is pretty well known for being fuel
flexible, but its syngas flexible too. Historically we’ve been focused on
the utility market and sort of plain vanilla syngas applications, but we
are receiving more and more inquiries from the industrial gasification
and polygeneration projects because we can custom manufacture
syngas over a wider range than the single stage gasifiers.

Most of the recent studies published by others that have included E-

Gas Technology have overlooked what can be done with a two stage
gasifier. But modifying the operation lets us tune the syngas
composition – maximizing methane for SNG projects, minimizing it for
hydrogen production and carbon capture. Designing plants for
specific hydrogen and CO ratios. For some of the applications we’re
working on, we can eliminate or minimize the need for and the
penalties of the shift stage. We’ll be talking quite a bit more about that
in Tuesday afternoon’s second session on gasification performance,
in the ‘Customizing Syngas Specifications’ paper.

So where will the gasification industry be in 5 years and 10 years?

That was the question, right?

Five years from now, I think we’ll have a handful of IGCC plants
running or in construction in the U.S. Not just mostly government
funded technology initiatives like FutureGen and Orlando, but a set of
commercial projects like Mesaba, Pacific Mountain…and even
Edwardsport. It will be another wave of projects to solidify IGCC’s
position in the power industry. The DOE and Treasury are delivering
on the loan guarantees and tax credits that we’ve been talking about
for years. Many of the states are stepping up to give gasification a
boost as well. Everybody in this room needs to be behind all of those

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Major Developments & Emerging Trends
projects because at the end of the day, coal is the largest domestic
energy resource, gasification is the biggest opportunity for coal, and
coal-to-power is the largest opportunity for gasification.

But there’s more than one kind of coal-to-power, and five years from
now there may be more SNG fed Combined Cycle plants than IGCC.
It’s not as efficient or technically elegant, but that’s where the cards
are stacked.

In ten years, we will probably have seen a 20-25% growth in the

number of gasifiers in the world. That’s another hundred gasifiers
around the world, and more than half of them will be primarily
industrial gasification projects. In ten years I’d expect we will see
gasification projects up and running in this country and elsewhere
that are tied to enhanced oil recovery to solve the CO2 puzzle. But I
don’t know if, even ten years from now, we will have a cohesive
energy and climate policy in this country.

Wrapping up, ConocoPhillips, and me personally, are very excited

about the near term gasification prospects despite the barriers. It’s
been a long time coming, and it may be even a little longer for power
applications. But gasification is finally becoming a household word
somewhere besides all of our houses. And the awareness of
gasification-based solutions is growing every day.

Its taken decades of all of our efforts (and high energy prices) to
make this happen.

Before I step down here, I also want to mention that one of

ConocoPhillips own, Dr. Dave Breton, who has put three decades of

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Major Developments & Emerging Trends
his own effort toward making this gasification industry what it is today
the guy that was always the brains behind the technology end of E-
Gas, will receive the Gasification Technology Council’s Lifetime
Achievement Award at lunch today.

Thank you.

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