SOUTH AFRICAN COAL ROADMAP - Fossil Fuel

SOUTH AFRICAN COAL ROADMAP

Mapping the Future of South Africa’s Coal Industry

Presentation to the FFF Coal, Coke & Carbon in the Metallurgical Industry Colloquium - 14 June 2013

Ian Hall: Chairman, SA Coal Roadmap Steering Committee

June 2013 SA Coal Roadmap 2

CONTENTS

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3

4

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Coal: global perspective

Coal: the SA context

SA Coal Roadmap: status update

Scenario development

Some required actions

Conclusion 6


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Conclusion 6


ENERGY DEMAND GROWTH

Since the start of the 21st century, coal has dominated the global energy demand picture

Source: IEA World Energy Outlook 2012

Total non-coal Coal

Mto

e

0

250

500

750

1 000

1 250

1 500

1 750

Oil

Natural

gas

Renewables

Coal alone accounted for 45% of energy demand growth over 2001-2011


THE LONG-TERM ENERGY OUTLOOK

Primary energy demand will increase by over one-third between 2010 & 2035

(IEA New Policies Scenario)


0

5 000

10 000

15 000

20 000

1990 2000 2010 2020 2030 2035

Current Policies Scenario

New Policies Scenario

450 Scenario

Mto

e

Growth is underpinned by rising living standards in emerging economies


EMERGING ECONOMIES DRIVE ENERGY MARKETS

Share of global energy demand

20%

40%

60%

80%

100%

1975 2010 2035

Middle East

India

China

OECD

Non-OECD Rest of non-OECD 6 030 Mtoe 12 380 Mtoe 16 730 Mtoe

Rising living standards in China, India and the Middle East



World primary energy demand by fuel in the New Policies Scenario

COAL DEMAND WILL CONTINUE TO GROW


Coal will retain second place as source of primary energy – and first for electricity generation

0

1 000

2 000

3 000

4 000

5 000

Oil Coal Gas Renewables Nuclear

Mto

e 2010

2035

Fossil fuels account for 60% of increase in demand, remaining the principal sources of energy worldwide


Growth in coal generation in emerging economies outweighs a fall in the OECD

2 000

4 000

6 000

8 000

10 000

12 000

14 000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

TWh

Coal Renewables

Gas

Nuclear

Oil

ELECTRICITY GENERATION MIX WILL CHANGE

But coal will remain the largest source of electricity generation



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Conclusion 6


COAL: KEY TO SA’s ECONOMY

• Coal is one of the top 2 components of the SA mining industry

Source: South African Chamber of Mines, Department of Mineral Resources * Note: Not per SAMREC Code

In 2011, South Africa’s saleable coal production was 253Mt

• Coal employed some 78,580 people & paid ZAR16.1 billion in wages

• The Coal Resources and Reserves Study of SA (CRRSA) – not yet released – suggests that SA still has

>60Bt* of recoverable coal reserves

• South Africa is the 24th largest economy in the world – but is the 12th-largest contributor of GHG’s

– Further coal utilization must be balanced against SA’s carbon reduction pledges

Top 3 commodities by total sales value

ZAR billions Coal Platinum Gold

2009 65.4 58.0 51.2

2010 71.1 73.8 55.9

2011 87.8 83.9 65.8


India will become the world’s largest net importer – South Africa well positioned

0%

5%

10%

15%

20%

25%

30%

35%

40%

1990 2000 2010 2020 2030 2035

India

Japan European Union

China Korea

SEABORNE TRADE PATTERNS WILL CHANGE

Share of major hard coal importers in global inter-regional trade



Southern Africa can position itself to benefit from coal demand growth in the East

The Southern African region will remain an

important source of supply, with new supply

countries emerging.

Infrastructure, local energy security &

investment climate will be key drivers

SA WELL POSITIONED


Eskom has significant demand to 2035 – and at least 5 stations still in operation after 2040

DOMESTIC DEMAND ALSO INCREASING

Source: Eskom

• Supply “cliff” from 2015 – new supplies of ~60Mtpa (or more) needed in next 5 – 7 years

• 40 Year Coal Supply Plan quotes requirement of 3.8Bt of coal, with 1.7Bt uncontracted

• 300 - 800Mt threatened by competition from low-quality exports


THE COAL BENEFICIATION DEBATE

• Almost 75% of production is used domestically

– Produces ~80% of South Africa’s total primary energy requirements

– South Africa’s electricity production is the most coal intensive in the world at around 92%

• South Africa has pioneered Coal to Liquids (CTL)

– Produces 25-30% of South Africa’s liquid fuels and chemical requirements – the only country with significant

commercial CTL capability

– Future developments will be impacted by significant capital requirements, carbon issues

• Other opportunities for “beneficiation” are limited by geology

– Low gas contents and limited deposits with CBM potential – commercialization challenging

– UCG commercialization still under development

• Coal exports comprised 27.2% of total coal production in 2011

– But contributed ZAR50.5 billion or 57.5% of value in foreign revenue

– Comprised 17.9% of all commodity exports by value: a key contributor to balance of payments

– Was almost exclusively washed to improve its value-in-use

Source: Chamber of Mines, EIA 2009 Inventory

South Africa has the most advanced “coal beneficiation” programme in the world


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Conclusion 6


OBJECTIVES OF THE SA COAL ROADMAP

To serve as a fact-based overview of the current SA Coal Industry – including a review of national & international

issues affecting SA Coal across all elements of the value chain (Phase 1)

A platform for the sharing & dissemination of knowledge - to align all stakeholders & their objectives & collectively

support societal & economic objectives: accelerated growth, employment, environmental responsibility, capital &

social investment

Using scenarios, to evaluate the impact of various trajectories and signals that a particular future is evolving

(Phase 2)

A fact-based analysis which aims to support policymakers and stakeholders going forward, together with some

common actions to be undertaken for coal to contribute to a flourishing South Africa

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2

3

4

The “South African Coal Road Map” process aims to provide a basis for coordinated planning


SA COAL ROADMAP PROCESS

• Project scope & work plan

• Establishment of governance

structures

• Obtaining SA Govt.

commitment

• Appointment of Project

Manager

• ~18 months

• Definition of the current state of

the industry

• Describing alternative future

scenarios

• Work completed November 2011

but not released – formal sign-off

from Government participants not

obtained

• Modelling & further definition of

alternative scenarios

• Using industry experts

• Identification of key trigger points,

developmental needs, infrastructure

requirements

• Defining common actions required

under all scenarios

Preparation Phase 1

“Complete” Phase 2


PARTICIPANTS IN SA COAL ROADMAP

Participants on Board and Steering Committee

• The SA Coal Roadmap process has drawn support from a wide range of stakeholders

- Departments of Energy & Mineral Resources

- Anglo American Thermal Coal

- Exxaro

- Council for Geosciences

- SANEA, CoalTech

- Shanduka

- Industry consultants

- Fossil Fuel Foundation, providing administrative and secretarial support

- SANEDI, supporting and controlling finances

- The Green House – consultants and project managers

- Eskom

- BHP-Billiton

- Sasol

- Optimum Coal

- Chamber of Mines

- TFR

- Grindrod


CURRENT STATUS

2012 Apr May Jun Jul Aug Sep Oct Nov

Expert workshops X XX X X X X

Modelling of scenarios

Meetings with individual experts

(ad hoc) X X X X

Roadmap development

Initial Roadmap document made available for stakeholder comment end-2012

Phase 2: Development of scenarios, modeling and Roadmap development work completed in 2012

• Comments received - completion of Roadmap initially targeted for end-February 2013

• Request for independent audit – validation of data and models re-run Feb-April

• Final edit of documents and release Jun / July 2013?


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Conclusion 6


High local response

to climate change

Low local response

to climate change

Low global response

to climate change

High global response

to climate change

Lags Behind

World pushes ahead with emissions mitigation, but South Africa continues to pursue coal as its primary energy source

Low Carbon World

Strong action is taken globally and locally on emissions mitigation

At the forefront

South Africa joins the global leaders in emissions mitigation, while much of the remainder of the world takes limited action

More of the same

Limited action is taken on emissions mitigation globally and in South Africa

SCENARIOS: THE FRAMEWORK

Scenarios are not suggested to

describe what will actually

occur, but represent a range of

plausible and divergent futures,

which serve as framework only

for development of a Road Map


High local response

to climate change

Low local response

to climate change

Low global response

to climate change


to climate change

At the forefront

South Africa joins the global leaders in emissions mitigation, while much of the remainder of the world takes limited action

SCENARIO: AT THE FOREFRONT

Coal use continues globally, but South Africa aims to diversify its energy mix to include renewables and more nuclear generation.

New large-scale coal fired power plants after Medupi and Kusile use ultra-supercritical technologies, with smaller power stations (including FBC technology) being built.

No more coal-to-liquids plants are built.


High local response

to climate change

Low local response

to climate change

Low global response

to climate change


to climate change

Lags Behind

World pushes ahead with emissions mitigation, but South Africa continues to pursue coal as its primary energy source

SCENARIO: LAGS BEHIND

The world decarbonises, but coal remains a significant energy source in South Africa and other developing countries. Coal-based power generation still dominates local electricity supply, but with clean coal technologies such as ultra-supercritical power stations, carbon capture and storage and underground coal gasification as they become available.

A new coal-to-liquids plant is built in 2025 to meet local liquid fuels demand.


High local response

to climate change

Low local response

to climate change

Low global response

to climate change


to climate change

Low Carbon World

Strong action is taken globally and locally on emissions mitigation

SCENARIO: LOW CARBON WORLD

The world decarbonises and moves towards use of nuclear and renewables for electricity supply. Funding is available for South Africa to follow suit, with no significant new coal fired power stations built beyond Medupi or Kusile.

Carbon capture and storage is pursued and retrofitted and no more coal-to-liquids plants are built in South Africa.


High local response

to climate change

Low local response

to climate change

Low global response

to climate change


to climate change

More of the same

Limited action is taken on emissions mitigation globally and in South Africa

SCENARIO: MORE OF THE SAME

Coal use continues globally and locally. Coal-based power generation using existing technologies dominates the electricity mix, and the life of existing power stations is extended.

Two new coal-to-liquids plants are built to meet local liquid fuels demand.


Parameters modelled for the four scenarios included

• Mix of electricity generation build

• CTL build

• National coal demand for electricity generation

• Investment for electricity generation

• Coal exports

• Decline in resources and reserves

• Average electricity generation cost

• Employment

• Coal transport requirements

• Water demand

• Cost of CCS

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SCENARIO PARAMETERS AND TRADE-OFFS

Examples of trade-offs between scenarios

• Economic considerations

- Investment in generation infrastructure

- Cost of electricity

- Export revenues from coal

- Logistics costs

• Socio-economic implications

- Job creation

- Skills requirements

- Communities

• Water demand per region

• Carbon emissions per scenario

• Environmental impacts


AT THE FOREFRONT MORE OF THE SAME

LAGS BEHIND LOW CARBON WORLD

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Example of modelling outputs: clear trade-offs between scenarios

SCENARIO MODELLING

• Investment required in generation infrastructure will be a key driver in SA

• IEA estimates total power investment over 2012-2035: $16.9 trillion worldwide

Source: IEA World Energy Outlook 2012, SACRM team analysis


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Conclusion 6


Common actions that need to be undertaken regardless of how the future evolves

Immediate actions Eskom requires some 60Mtpa of new capacity before 2020

Secure contracts for coal supply to

existing and new power stations

Agreement on an appropriate coal pricing model to Eskom

Early infrastructure planning to facilitate supply of coal sourced from the

Waterberg

Create an environment conducive to

mining investment

Aligning policy and legislation processes for establishment of new mines

Impact of carbon tax

MPRDA amendments and practical implications if coal declared a strategic

resource

Create a supportive investment climate

Resolve Central Basin coal supply

and transport challenges

Acceleration of Eskom’s current road-to-rail migration and conveyor

infrastructure programme

Identifying alternative employment opportunities for coal truck drivers who are

thereby displaced

IMMEDIATE ACTIONS REQUIRED

South Africa cannot afford to prematurely decommission existing power stations



Short to medium term actions Plan for the next coal base load power stations, if nuclear and

renewables are not achieved at required scale or on schedule

Track progress on delivery of the

IRP2010* build programme and

develop contingency plans

Obtain clarity on nuclear and renewables build plans, and the role of gas

should these fail to eventuate

Encourage finalisation of a revised Integrated Resources Plan with clarity on

new capacity build

Finalise the location of any further

coal-fired power stations to enable

timeous infrastructure decisions

Additional infrastructure will be required to transport coal (including exports)

from the Waterberg

Early planning ensures that infrastructure is appropriately sized

Decisions and securing of funding for infrastructure are required immediately

in the case of water supply and in the near future in the case of rail

Adequate human settlements planning must be made

SOME SHORT- TO MEDIUM-TERM ACTIONS

Plan for future base load generation capacity

* Integrated Resources Plan 2010



Short to medium term actions Ensure that the value of South Africa’s significant coal

endowment is maximised for the benefit of its citizens

Capitalise on coal exports

Maximize coal exports and foreign revenues – exploit position as key

supplier to meet demand from East and West

Expand rail and port infrastructure

Provide a supportive investment climate

Accelerate transformation of the

sector

Explore new business models that involve co-operative partnerships

between Eskom or the existing large mining houses and smaller players

With Eskom funding and existing mining know-how, new mines for supply to

the utility sector may provide a platform for start-up of more black owned

mines

The state mining company may also play a role in such development

Manage environmental impacts,

including legacy issues, and

increase efficiency of mining

Co-ordinated whole systems planning, including impacts on water

Improved management of coal dust, discard, spoils and mine rehabilitation

Advancement in cost- and water-efficient mining and beneficiation, including

dry beneficiation technologies and use of discards / fines

Development and introduction of safer mining techniques

Maintain and develop skills to operate mines and power stations of the future

SHORT- TO MEDIUM-TERM ACTIONS

Maximize value of SA’s coal endowment



Longer term actions Where will South Africa’s coal industry be in 20+ years?

Advanced coal power station

technologies

Work towards introducing new coal combustion technologies with higher

combustion efficiencies

Explore opportunities for decreasing water demand or increasing water use

efficiency

Assess whether CCS challenges can

be overcome

Conduct more detailed reservoir characterisation studies and a possible

test injection to confirm suitable geological sequestration sites

Progress towards building an industrial-scale CCS demonstration plant in

South Africa

Enable a suitable regulatory and legislative framework

Evaluate whether building coal-fired power stations at the coast closer to CCS

sites offers additional benefits

Plan for closure of mines and power

stations in the Central Basin

Coordinated planning to minimise the impacts of mine and power station

closure, through effective environmental planning, development of alternative

industries and re-skilling

SOME LONGER-TERM ACTIONS

Looking longer-term: Clean Coal Technologies and the South Africa of the future


CONTENTS

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Conclusion 6


SCENARIOS CONVERGE

Regardless of how the future evolves, many common actions are required in South Africa

- which form the starting blocks of the SA Coal Roadmap

• Creating an environment conducive to mining investment

• Alignment of Environmental, Water, Minerals and other legislation

• Reaching commercial agreement for continued supply of coal to Eskom

• What are implications for coal as a “Strategic Resource”?

• Decision on the next base load station – nuclear or coal?

• Infrastructure to Waterberg


THANK YOU

SOUTH AFRICAN COAL ROADMAP - Fossil Fuel

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