Vibeke Leal - HC Fuels

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

Vibeke LealDirector Coal and Petcoke TradingHC Fuels Ltd

11.06.08McCloskey Houston Conf Vibeke Leal

1. Introduction

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


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)

HeidelbergCement Africa


HeidelbergCement Far East


HeidelbergCement Europe and Central Asia


HeidelbergCement Middle East


HeidelbergCement North America


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


3. Markets and Prices

Trading ranges : Coal(API2 Steam Coal, Basis 6000 Kcal pr Kg, CIF ARA)

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Forw ard Market (based onArgus.D.C.I. 23/05/08)

Range USD 25 - 50

Range USD 50 - 145

Range USD 75 - 169


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


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


Trading ranges : Petroleum cokePetroleum coke FOB US Gulf

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.+35 HGI 6.5% S

.+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 5 - 28

Range USD 8 - 35

Range USD 20 - 60

Range USD 45-125


Fuel Oil2%

HVFO0.2%

Gas2%

Alternative Fuels21%

Coal24%

Petcoke42%

Lignite/Shale/Schiste9%

CEMBUREAU EL 21 June 2007

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

Energy consumption by European Cement Plants - 2005


World Petroleum Coke Market Profile - 2004

Power Generation

20%

Iron & Steel6%

Cement34%

Calcining23%Residential

1%Inventory

2%

Other Industry10%

Permanent Storage

4%

Total = 77 Million MT


New Cokers

Source Cembureau

0123456789

Mt

2007 2008 2009 2010 2011

Year

US &CanadaRest ofWorld


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


4. Petcoke - milling & operational constraints

MILLINGGrinding material finer due to low volatile

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


Process constraints

SULPHATISATIONHigh sulphur in fuel or raw material generally bad news - blockage

NOX EMISSIONSPetcoke generate higher NOX than coal in calciner

CLINKER GRINDABILITYReplacement of 100% coal by 100% petcoke on main burner increases power demand for milling cement by 5kWh/te


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


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 blendingimpacts 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


5. Co2 emission factors

Current price for emitting 1 Mt of Co2 is 26.50 Euro

Emissions from the production of Cement incl.1) Co2 from the process related to raw material2) Co2 from burning kiln fuel

Rule of thumb: 1 Mt of clinker emits ca 1 Mt Co2

Why is this important to consider when youare 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.

The EU Emission Trading Scheme has made reducing emissions an important commercial objective for cement plants.


Emission factors

Enclosed are emission factors for Phase I of the EU ETS given bythe Deutsche Emissionshandelsstelle for Germany:

Fuel quality Emission factor: Mt Co2 /GJ

A. API2 Coal Russian coal 0.0950 South African 0.0960 Average 0.0955

B. Lignite Rheinland 0.0980

C. Petcoke All 0.1090


Emission costs for Lignite, Coal and Petcoke

Lignite Coal Petcoke

Total Mt 113,227 100,000 80,014

GJ/Mt 22.19 25.13 31.41

Total GJ for fuel volume 2,513,000 2,513,000 2,513,000

Emission factor mt Co2/GJ 0.098 0.0955 0.109

Mt of Co2 pr Mt of fuel 2.18 2.40 3.43

Total Mt Co2 for fuel volume 246,274 239,992 274,288

Price of Co2 pr Mt 26.50 26.50 26.50

Price of Co2 pr Gj 2.60 2.53 2.89

Total Co2 cost in Euro for fuel volume 6,526,261 6,359,775 7,268,625

Co2 disadvantage in Euro compared to coal 166,486 - 908,850Co2 disadvantage in Euro pr GJ compared to coal 0.07 - 0.36Co2 disadvantage in Euro pr Mt compared to coal 1.47 - 11.36

Comparison of the emissions costs from the use of Int. coal (API2), Petcoke and lignite in Germany.

Same CVin GJ

Different amount of co2 emissions

Additional Co2 cost compared to steam coal

Different Tonnage


Example, Fuel Life Cycle Cost pr GJ

4.14 4.51

0.35 0.32 0.32

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Med Petcoke 4.5% CFR Med Coal

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GrindingLogistics incl. StorageFuel cost FOB ARA b/b

Fuel cost prior toburning


Example, Fuel Life Cycle Cost pr GJ

4.14 4.38

0.38 0.32

2.89 2.53

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Fuel cost after burning

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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.


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


7. Alternative Fuels the new petcoke?

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Alternative Fuel Utilisation in Germany 2004

Source HTC


Alternative fuels use by the Cement Industry, 2004

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EU Average 17%

Source HTC


Can cement plants burn 100% alternative fuels ?

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

but:YES !


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

Has coal displaced petcoke as the cement industrys fuel of choice ?1. Introduction2. HeidelbergCement GroupHC Fuels Ltd3. Markets and PricesTrading ranges : Coal(API2 Steam Coal, Basis 6000 Kcal pr Kg, CIF ARA)Coal outlook short term Coal outlook long term Trading ranges : Petroleum cokePetroleum coke FOB US GulfWorld Petroleum Coke Market Profile - 2004New CokersForward pricing4. Petcoke - milling & operational constraintsProcess constraintsOperating cost increase on petcokeAdditional cost on 100% petcoke5. Co2 emission factorsEmission factorsEmission costs for Lignite, Coal and PetcokeExample, Fuel Life Cycle Cost pr GJExample, Fuel Life Cycle Cost pr GJ6. LogisticsSo why havent petcoke prices dropped ?7. Alternative Fuels the new petcoke?Alternative fuels use by the Cement Industry, 2004 Can cement plants burn 100% alternative fuels ?8. Conclusions

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Vibeke Leal - HC Fuels